CFPB and FTC Launch Actions Against Different Payday Lenders; Debt Sales Implicated

The Federal Trade Commission and the Consumer Financial Protection Bureau both announced enforcement actions Wednesday against separate payday lenders for very similar behavior, namely funding unapproved loans for consumers who did not request them and then taking payments directly from checking accounts, also without approval. And for questionable debt sales and collection practices, of course.

The FTC said that it had sued and won a temporary restraining order against Timothy Coppinger, Frampton (Ted) Rowland III, and a web of online companies they owned or operated.  The court order gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.

The FTC’s complaint stated that the companies, operating under the umbrella of CWB Services, LLC, used personal financial information bought from third-party lead generators or data brokers to make unauthorized deposits of between $200 and $300 into consumers’ bank accounts. Often, the scheme targeted consumers who had previously submitted their personal financial information – including their bank account numbers –to a website that offered payday loans.

After depositing money into consumers’ accounts without their permission, the defendants withdrew bi-weekly reoccurring “finance charges” of up to $90, without any of the payments going toward reducing the loan’s principal, the FTC alleged. The defendants then contacted the consumers by phone and email, telling them that they had agreed to, and were obligated to pay for, the “loan” they never requested and misrepresented the true costs of the purported loans. In doing so, the agency alleged, they often provided consumers with fake applications, electronic transfer authorizations, or other loan documents purporting to show the consumers had authorized the loan.

Over one eleven-month period between 2012 and 2013, the defendants issued $28 million in payday “loans” to consumers, and, in return, extracted more than $46.5 million from their bank accounts, the FTC alleged.

In many instances, if consumers closed their bank accounts to make the unauthorized debits stop, the defendants sold the supposed “loan” to debt buyers who then harassed consumers for payment, the FTC contends.

The CFPB’s announced action was very similar. In fact, it was filed in the same district court as the FTC action and is presided over by the same judge.

Richard Cordray, CFPB Director, noted in a press call Wednesday that the cases were separate, but that the two agencies cooperated in the investigations.

“We have coordinated here to best use our resources to pursue our separate actions against these bad actors and to provide a common front against this grave misconduct,” said Cordray. “I commend the FTC on its case and its dedication to ferreting out consumer harm in this area, a goal our agencies share.”

The CFPB also won a temporary restraining order against its defendants Richard F. Moseley, Sr., Richard F. Moseley, Jr., and Christopher J. Randazzo, who control the Hydra Group. The lawsuit alleges that the defendants operate the business through a maze of corporate entities created to evade regulatory oversight. Their collection of roughly 20 businesses includes SSM Group, Hydra Financial Limited Funds, PCMO Services, and Piggycash Online Holdings. The entities are based in Kansas City, Missouri, but many of them are incorporated offshore, in New Zealand or the Commonwealth of St. Kitts and Nevis.

Like in the FTC’s action against CWB, the CFPB alleges that Hydra would get personal information from online lead generators that match consumers with payday lenders. The company would use the information to access consumers’ checking accounts to deposit unauthorized payday loans, and then begin debiting unauthorized fees.

The CFPB alleges that over a 15-month period, the Hydra Group made $97.3 million in payday loans and collected $115.4 million from consumers in return.

Even when consumers successfully close their deposit accounts, the Bureau alleges that in many cases the Hydra Group sells the bogus debt to third-party debt collectors. Though there is no legitimate basis for the debt, consumers are still contacted and pursued for loans they never agreed to.

Both companies’ assets, and those of the owners, are currently frozen pending further legal action.