Feds go after seven payday loan companies

By Steve Green

Tuesday, Feb. 24, 2009 | 9:20 a.m.

Federal and state regulators have obtained a court order in Nevada barring seven online payday loan companies from engaging in deceptive lending and collection practices, the Federal Trade Commission said Monday.

U.S. District Judge Brian Sandoval signed the order Jan. 5 at the request of the FTC and the Nevada Attorney General's Bureau of Consumer protection.

The payday loan companies were accused in a November 2008 lawsuit of operating as part of an international Internet payday lending operation that failed to disclose key loan terms and used abusive and deceptive collection tactics in violation of federal and state laws. The U.S.-based companies and their principal agreed to the court order, which will remain in effect pending trial, the FTC said. The FTC and the state are seeking to permanently bar the defendants from future violations and want an order requiring them to give up the money they obtained using the allegedly illegal collection tactics.

The complaint said the companies offered loans of $500 or less within 24 hours without requiring a credit check, proof of income or other documentation. Consumers were told that they qualified for a loan that had to be repaid by their next payday with a fee ranging from $35 to $80, and that if the loan was not repaid by then, it would be extended automatically for an extra fee that would be debited from the consumer’s bank account "until the loan is repaid."

The FTC and the state allege the companies violated the law by using unfair and deceptive collection tactics, including falsely threatening consumers with arrest or imprisonment, falsely claiming that consumers are legally obligated to pay the debts, threatening to take legal action they cannot take, repeatedly calling consumers at work and using abusive and profane language; and disclosing consumers’ purported debts to co-workers, employers and other third parties. They also allegedly violated the U.S. Truth in Lending Act and federal Regulation Z by failing to make required written disclosures about key terms including the amount financed, itemization of the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total number of payments and any late payment fees.

The order also prohibits the defendants from violating the laws of the state by making loans from Nevada or identifying Nevada as the source of a loan or as their principal place of business, unless they are properly licensed; and by failing to provide notice and disclosure of all facts as required by state law, including failing to disclose the location, physical address, and non-toll-free telephone number of all of their locations.

"After paying substantial sums of money to defendants — sometimes hundreds of dollars above the loan amounts — many consumers concluded, in the absence of written loan terms, that they had more than repaid their loans," the lawsuit alleged. "Many consumers terminated defendants' access to their bank accounts, often by closing those accounts and usually after having paid defendants substantial sums of money.

"Once consumers close their bank accounts, they face defendants' campaign of deceptive and abusive collection tactics aimed at regaining access to those consumers' bank accounts. Defendants falsely represented to consumers that they have a legal obligation to repay the loans, even though many consumers have no such obligation, because defendants' payday loans do not comply with the payday lending laws of those consumers' states or because defendants are not licensed to make consumer loans in those states.''

The defendants named in the court order are Leads Global Inc., Waterfront Investments Inc., ACH Cash Inc., HBS Services Inc., Lotus Leads Inc., First4Leads Inc., Rovinge International Inc. and Nevada businessman Jim Harris, whom the plaintiffs say is an officer with or is involved with all of those companies.

Also charged in the complaint but not named in the order are four United Kingdom-based companies operating in the United States as Cash Today, Route 66 Funding, Global Financial Services International Ltd., Interim Cash Ltd. and their principals, Aaron Gershfield and Ivor Gershfield.

In court papers, attorneys for Harris said he will file his response to the complaint by March 1 and that progress is being made to resolve and settle the complaint. He is represented by attorneys Daniel Bogden and Pat Lundvall of the law firm McDonald Carano Wilson.