Earlier this month, the CFPB and FTC filed lawsuits against different groups of interrelated companies and their individual principals for engaging in allegedly unlawful online payday lending schemes.

The CFPB’s lawsuit, which the CFPB made public yesterday, was filed under seal on
September 8, 2014 in a Missouri federal court contemporaneously with an ex parte application for a temporary restraining order to halt the defendants’ operation and freeze its assets (which was granted).  (We found it flattering that, in support of its request to file the action under seal, the CFPB referenced our blog’s extensive coverage of CFPB enforcement actions and the possibility that our blog would cover the CFPB’s filing if it were not sealed.) 

The CFPB’s complaint alleges that the defendants purchased consumers’ sensitive personal and financial information directly from lead generators or data brokers to whom lead generators had sold such information to make payday loans, many of which were unauthorized by the consumers to whom they were made, and to make unlawful withdrawals from those consumers’ accounts.  The complaint alleges the defendants engaged in deceptive and unfair acts or practices in violation of the Consumer Financial Protection Act as well as violations of the Truth in Lending Act and the Electronic Fund Transfer Act.  According to the complaint, the defendants’ unlawful actions included:  

  • After depositing loan proceeds into consumers’ accounts without authorization, withdrawing a finance charge from such accounts every two weeks indefinitely and, after consumers reported such unauthorized deposits and withdrawals to their banks, misrepresenting to such banks that the transactions were authorized and providing such banks with bogus documentation
  • Not providing TILA disclosures before consummation or providing TILA disclosures that did not reflect the terms of the loans as actually structured
  • Not obtaining authorization for preauthorized electronic funds transfers and requiring repayment by such transfers 

The FTC’s complaint was also filed on September 8, 2014, also initially under seal in the same Missouri federal court in which the CFPB’s complaint was filed.  (As in the CFPB’s lawsuit, the court immediately entered a restraining order stopping the defendants’ operation and freezing its assets.)  The FTC defendants’ alleged unlawful conduct is substantially similar to the conduct in which the CFPB defendants are alleged to have engaged.  Like the CFPB, the FTC alleges that the defendants’ conduct violated TILA and the EFTA.  However, instead of alleging that such conduct also violated the CFPA, the FTC alleges that it constituted deceptive or unfair acts or practices in violation of Section 5 of the FTC Act.