On Friday (Jan. 16) in the United States District Court in Nevada, the Federal Trade Commission reached a $21 million settlement with two payday lending companies in the largest payday loan settlement in history for deceptive lending practices and providing deceptive information to customers.
The court ruled that payday lenders AMG Services and MNE Services deceived customers through inaccurate reporting of the annual percentage rate (APR) for short-term loans, and charged inflated fees. One example brought before the court was of one loan for $300 that the customer was told would cost only $390 when all said and done, but would end up costing $975 to fully pay off the loan. In percentage terms, the loan went from having an interest rate of 30 percent to 325 percent, in violation of the Truth in Lending Act (TILA). Furthermore, MNE Sevices was found to be in violation of the Electronic Funds Transfers Act, barring pre-authorized debits from customers’ bank accounts to pay off existing payday loans.
“The settlement requires these companies to turn over millions of dollars that they took from financially-distressed consumers, and waive hundreds of millions in other charges,” said Jessica Rich, Director of the Bureau of Consumer Protection in a FTC press release. “It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”
The terms of the settlement would require the two payday lenders to return $21 million in restitution to consumers and to pay fines, in exchange for waiving $285 million of other fines as a result of the breaches in federal law and renewed vigor in federal investigations of this controversial sector of the loan business. In the aftermath of the last recession, federal and state governments have tried to rein in the typically high interest rates associated with lending to financially strapped individuals.
