Lawsuits: Payday loan scheme victimized consumers
Richard Cordray, director of the Consumer Financial Protection Bureau, meets with USA TODAY's editorial board. (Photo: H. Darr Beiser - USAT)
Three Kansas City men were accused Wednesday of running a payday lending scheme that took millions of dollars from consumers nationwide by saddling the victims with unauthorized loans and using the purported debts as authorization to siphon their bank accounts.
The alleged defendants include online payday lender the Hydra Group and a related maze of offshore and domestic companies controlled by Richard F. Moseley Sr. Richard F. Moseley Jr. and Christopher Randazzo, said U.S. Consumer Financial Protection Bureau officials.
CFPB attorneys who filed the complaint won a Missouri federal court ruling that temporarily froze the assets of the businessmen and their companies as the federal investigation continues.
The allegations are nearly identical to an alleged payday loan scheme targeted by the Federal Trade Commission in a separate lawsuit disclosed Wednesday.
"Rarely is a company so appropriately named. Like the multiheaded serpent in Greek mythology, the Hydra Group is actually a conglomeration of about 20 businesses with various names," said CFPB Director Richard Cordray.
The maze of firms and shell companies incorporated in New Zealand and Saint Kitts and Nevis seemed designed to help the Moseleys and Randazzo "evade effective law enforcement," he said.
The defendants also allegedly evaded state authorities and disregarded court actions in previous payday loan cases filed in Pennsylvania, New Hampshire, Idaho and Illinois, according to a declaration filed with the CFPB action. More than 1,000 consumer complaints targeted the businessmen and their companies in all, the declaration stated.
John Aisenbrey, a Kansas City attorney representing the defendants, did not immediately respond to messages seeking comment on the CFPB lawsuit.
Federal regulators said the alleged scheme began when consumers sought payday loans: short-term advances carrying extremely high interest rates that are expected to be paid from the borrower's next payroll check. Consumer advocates have historically argued that payday loans take advantage of low-income consumers and should be tightly monitored.
Consumers who seek payday loans often shop the market via online lead-generation companies that generally required them
to key in their name, Social Security number and other private data. The lead generators then sell the identifying data to a payday lender or a broker who resells the information.
Cordray said Hydra Group companies bought data from lead generators and used it to deposit unauthorized loans of $200 to $300 in an individual consumer's checking account. The companies then levy a $60 to $90 finance charge from the account "every two weeks indefinitely," without applying the payments toward reducing the initial loan amount, the CFPB complaint alleged.
During a 15-month period, the Hydra Group made $97.3 million in payday loans and collected $115.4 million from consumers in return, said Cordray. The Moseleys and Randazzo received more than $5.8 million from their companies during the last five years, a court filing in the case alleged.
The CFPB lawsuit seeks to halt Hydra Group operations, return money to victimized consumers and require the business network and its operators to pay civil fines.
As the investigation continues, CFPB officials said they are focusing in part on the role lead-generation companies play in payday lending.
Allegations in the Hydra Group case echo a Sept. 5 lawsuit in which the Federal Trade Commission won an asset freeze and temporary order to halt a second Missouri-based payday lending operation.
The FTC's federal court complaint alleged that CWB Services, Timothy Coppinger, Frampton (Ted) Rowland III and other companies they controlled also bought consumers' personal information, placed unauthorized loans in their bank accounts and then charged continuing, unauthorized fees.
The defendants issued approximately $28 million in purported payday loans to consumers during an 11-month period in 2012-13 and extracted more than $46.5 million from consumer bank accounts, the FTC action alleged.
"This egregious misuse of consumers' financial information has caused significant injury, especially for consumers already struggling to make ends meet," said Jessica Rich, director of the FTC's consumer protection bureau.
Patrick McInerney, an attorney for CWB Services, Coppinger and some of the other defendants, said they deny the allegation and intend "to vigorously defend against each of the claims."
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Category: Payday loans