A Billion Dollars in Payday Loan Refund Checks Issued

Inside Subprime: Oct 08, 2018

By Grace Austin and Kerry Reid

More than a million Americans are receiving a refund check in the mail after a payday loan provider was found guilty of fraud, say federal authorities.

On September 27, the Federal Trade Commission announced that 1,179,803 checks totaling more than $505 million would be mailed immediately to consumers affected by a massive payday lending scam They come after a record-setting $1.3 billion judgment against Scott A. Tucker and his Kansas City-based umbrella corporation for several payday loan companies.

Working jointly with the U.S. Department of Justice, the FTC obtained a record-breaking judgment of $1.3 billion in a civil suit against Tucker and his companies for violations of the FTC Act and the Truth in Lending Act.

The Federal Trade Commission said in a release that consumers were charged far more for payday loans than they expected, duped into believing they’d pay a one-time finance fee. Instead, the company racked up additional finance fees, debiting them directly from their back accounts.

The payday loan providers charged exorbitantly high APR rates, up to 1,000 percent, according to officials. In many states, interest rates that high are illegal.

Tucker was convicted in criminal court in October of 2017 of 14 criminal counts related to his activities and sentenced to 16 years and 8 months in prison in early January of 2018. As noted in a report by Steve Vockrodt for the Kansas City Star, Tucker had also been convicted for bank fraud many years earlier. He served a year in prison and was released in 1992.

Tucker, a former professional racecar driver based out of Leawood, Kansas, was charged along with his co-defendant and attorney, Timothy Muir, of charging interest rates as high as 1,000% on loans through online lending schemes.

Tucker ran his firm from 1997 to 2013, making billions of dollars from it, which he used to bankroll a professional racing career. The company was based out of Overland, Kansas.

Tucker used the “rent-a-tribe” loophole, in which payday lenders establish a business on Native American reservations where state regulations are more lenient. 

As reported by the Department of Justice at the time of the convictions, Acting U.S. Attorney Joon H. Kim, who represented the government in the criminal case brought before a jury in New York, said “Tucker and Muir sought to get away with their crimes by claiming that this $3.5 billion business was actually owned and operated by Native American tribes. But that was a lie. The jury saw through Tucker and Muir’s lies and saw their business for what it was – an illegal and predatory scheme to take callous advantage of vulnerable workers living from paycheck to paycheck.”

The U.S District Attorney’s Office for the Southern District of New York also obtained a penalty of $528 million against the umbrella company for violations of the Banking Secrecy Act, including failure to report suspicious banking activity by Tucker in a timely manner.

As reported by the FTC, Tucker falsely claimed that consumers who took out online loans with his companies would only be charged the loan amount, plus a one-time fee. Instead, the FTC says, “The defendants made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee with each withdrawal. As a result, consumers paid far more for the loans than they had originally agreed to pay.”

Refund checks began being mailed out in early October; they’re being sent to customers who took out loans before 2013 from various internet payday lenders under Tucker’s control. Officials said more than 4.5 million Americans took out loans with his firm. 

So far, it’s the largest litigated judgment by the FTC.

The FTC also provides some advice on how to avoid being ripped off by a payday lender.

For information on predatory payday loans in your area, check out all of our Subprime Reports, including:

California | Illinois | Florida | Texas

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