According to a Federal Trade Commission announcement this morning, a federal court has found that racecar driver Scott A. Tucker and several corporate defendants in a Kansas City-based payday lending scheme violated Section 5 of the FTC Act and has ordered them to pay $1.3 billion for deceiving consumers across the country and illegally charging them undisclosed and inflated fees.

The $1.3 billion order handed down by the U.S. District Court for the District of Nevada represents the largest litigated judgment ever obtained by the FTC. It stems from a complaint filed in 2012 by the agency, which alleged that the operators of AMG Services Inc. falsely claimed they would charge borrowers the loan amount plus a one-time finance fee. Instead, the defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan. The judgment represents the difference between what consumers actually paid on the loans and what they were told they would have to pay.

In her latest ruling granting the FTC's request for summary judgment against the defendants, Chief Judge Gloria M. Navarro found that Scott Tucker ran the operation and was individually responsible for the unlawful conduct. The order announced today bans Tucker and his companies, including AMG Capital Management LLC, Level 5 Motorsports LLC, Black Creek Capital Corporation, and Broadmoor Capital Partners, from any aspect of consumer lending, and prohibits them from conditioning the extension of credit on preauthorized electronic fund transfers, misrepresenting material facts about any good or service, and engaging in illegal debt collection practices.

The operation had claimed in state legal proceedings that it was affiliated with Native American tribes, and therefore immune from legal action, but, in an earlier decision, the district judge found otherwise.

According to the Court record, the Tucker Defendants object to nearly all of the evidence relied upon by the FTC in its Motion for Summary Judgment. Among the evidence relied upon was a set of emails, which Tucker claimed “must be excluded as unauthenticated and inadmissible hearsay.” The Court, however, found that all but one email was presumptively authentic because they were 1) produced by a party opponent, and 2) deemed authentic per Federal Rule of Evidence 901(b)(4) because of their distinctive characteristics, citing Haack v. City of Carson City, No. 3:11-CV-00353-RAM, 2012 WL 3638767, at *7 (D. Nev. Aug. 22, 2012) and Brown v. Wireless Networks, Inc., No. C 07-4301 EDL, 2008 WL 4937827, at *4 (N.D. Cal. Nov. 17, 2008), respectively.

The Court also addressed the hearsay objection, saying many of the emails are non-hearsay as they were sent by Tucker or an employee, and were relied on only to show that Scott Tucker was “aware that the loan repayment model was problematic and confusing to consumers.”

The Court also mentions that some of the additional objections raised by Tucker “…do not merit further discussion.” Although, there is additional discussion.

One of these other objections that will be of interest to the debt collection community was that the FTC abused its discretion under the FTC Act by proceeding through adjudication rather than rulemaking.

In its rejection of the FTC abuse argument, the Court said, 

“The choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.” S.E.C. v. Chenery Corp., 332 U.S. 194, 203 (1947). The Ninth Circuit has clarified that where “adjudication change[d] existing law, and ha[d] widespread application,” the FTC “exceeded its authority by proceeding to create new law by adjudication rather than by rulemaking.” Ford Motor Co. v. F.T.C., 673 F.2d 1008, 1010 (9th Cir. 1981). Subsequent cases have clarified that an agency may announce new principals during adjudication so long as “its action [does not] 1) constitute an abuse of discretion or 2) circumvent the [Administrative Procedure Act’s] requirements.” Union Flights, Inc. v. FAA, 957 F.2d 685, 688 (9th Cir. 1992).

Here, adjudication by the FTC is proper. First, this litigation will not result in any changes to existing law. It merely applies the established principles of the FTC Act to the Tucker Defendants’ particular unfair business practices. Moreover, this action is against a single set of defendants and involves one discrete fraudulent practice. The Court’s instant Order does not have “widespread application.” Further, the FTC has not abused its discretion nor attempted to circumvent the APA. The FTC is not using this “adjudication to amend a recently amended rule, or to bypass a pending rulemaking proceeding.” Union Flights, 957 F.2d at 688. Similarly, the Tucker Defendants cannot claim that they relied on a former FTC policy, or any other recognized situation constituting an abuse of discretion. See id. Without these showings, the Tucker Defendants have not demonstrated an abuse of discretion or an attempt to circumvent the APA.

The FTC reached a partial settlement with some of the other defendants in July 2013. In January 2015, AMG Services and MNE Services Inc. agreed to pay $21 million to resolve the charges against them; and in January 2016, Red Cedar Services Inc. and SFS Inc. paid a total of $4.4 million to resolve the case against them.

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