DOJ Orders North Dakota Payday Loan Processor to Pay $6 Million

Inside Subprime: Dec 6, 2018

By Grace Austin

An electronic funds transfer company is ponying up millions to the federal government after being found guilty of processing illegal payday loans.

A North Dakota-based firm was ordered to pay nearly $6 million from the Department of Justice after an ongoing investigation into its role in helping several payday loan companies, including those under Charles Hallinan, nicknamed the “godfather of payday lending.” The firm is also being placed on probation for two years and was fined an additional $500,000, after pleading guilty to operating an illegal money transmitting business.

Hundreds of thousands of payday loan victims lived in states in which payday loan interest is either capped or outright illegal. The money transfers involved the funding of the loans by the payday loan companies to the borrowers, and the collection of the loan payments from borrowers to the companies.

Without the firm, the DOJ said the payday loan companies wouldn’t have been able to nab as much cash from needy borrowers. The firm made millions in profits from the various payday loan companies, according to the DOJ.

The firm was notified several times of the illegal nature of its business doings since it began processing the payments for the payday loan companies. The DOJ said the first time was May 2008, when The firm was notified that a payday loan transaction by one of its clients was against Connecticut law. In June 2009, Intercept was again notified that one of its clients made an illegal payday loan, this time in California.

In 2012, the firm was outrightly told by its bank it had to stop processing payday loan payments to borrowers who lived where payday loans were limited or banned. And in August 2012, a payday lending client directly told Intercept’s leadership that payday loans were being made in states in which payday lending was illegal. But, the DOJ said, they kept on processing those illegal payments.

“Godfather of Payday Lending” Hallinan was sentenced to 14 years fraud and money laundering. Philadelphia-based Hallinan ran dozens of lending businesses, sometimes charging borrowers over 780 percent on payday loans. Hallinan’s lawyer was also sentenced to eight years behind bars in May 2018.

The DOJ said that the firm’s role in Hallinan’s payday loan scheme was “essential.”

The company’s president testified at the trial that, between May 2008 and August 2013, the firm wittingly processed those illegal payments for Hallinan’s companies. Smith testified against Hallinan and his lawyer at their trials, in which he admitted to helping theses companies collect more than $490 million from consumers.

The investigation involved a slew of federal agencies: The Federal Bureau of Investigation, Internal Revenue Service, and U.S. Postal Inspection Service all contributed.

For more information on payday loans, scams, cash advances, and title loans, check out our state financial guides including, Illinois, Texas, Florida and more.