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.
