Payday Lenders Cut Slack While Charging More Interest Than the Mob
Recently, the New York Attorney General’s Office announced indictments of nearly a dozen individuals tied to an alleged organized crime family for engaging in broad scale illegal loansharking. The long-term investigation reportedly uncovered “the largest” loan sharking operation ever investigated by the agency, with defendants allegedly saddling victims (lured in by an illegal gambling operation) with interest payments that topped $1 million in just a single year.
Investigators say victims were required to drop off weekly interest payments at “exorbitant” rates that averaged 200 percent annually, setting a trap of high-cost debt for those who took out the loans.
Meanwhile, let’s compare that to the investigation into payday lending firms that was suddenly dropped by the Consumer Financial Protection Bureau under the Trump administration earlier this year. The CFPB announced in January it was no longer pursuing litigation against a group of payday lenders – despite the fact that this group allegedly carried interest rates as high as 950 percent annually. That is almost five times as much what the accused loan sharks in New York were allegedly charging their victims.
In its initial announcement of the lawsuit, the CFPB alleged these lenders failed to tell consumers about the real cost of these loans and the interest payments they would be expected to make.
Defendants belonged to a group of online payday lenders associated with American Indian tribes who carved their business out of a regulatory loophole. For the most part, payday loans are checked by state regulations. The American Indian tribes associated with these four different payday lenders were asserting those rules didn’t apply to them. Consumer advocates reported the payday lending groups required these loans to be repaid in rapid succession, which in turn ensnared borrowers into a debt trap from which many couldn’t escape.
They offered loans of between $300 and $1,200, charging annual interest rates that ranged anywhere from 440 percent to 950 percent (and again, the low-end of that scale is still more than twice the interest rate being charged by the accused loan sharks in New York).
Debt defense attorneys in Miami know this clearly violates the interest cap rates in 17 states – including Florida. F.S. 687.02 delves into “usurious contracts,” which involves charging illegal or exorbitant rates of interest for loans. That statute defines usurious contracts as those that impose an interest rate of higher than 18 percent.
The payday lenders were accused of going after customers for interest payments even though the loan at issue was void in whole or in part under state law. Not only that, but the lenders were accused of failing to file for registration in the states they were doing business. They allegedly collected loans customers didn’t owe and intentionally hid the real cost of the credit – all violations of various provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Despite all this, the CFPB, now under the direction of Trump appointee Mick Mulvaney, announced in January it was dropping the case, though didn’t give a reason and instead said it would continue to investigate the transactions at issue.
One former CFPB employee, now a professor of law, told Bloomberg at the time the decision was “earth-shattering,” and indicated this clearly sent a message that payday lenders could act with impunity in violation of state interest rate caps, at least where regulators are concerned. That doesn’t mean victims are without recourse. Consulting with an experienced debt defense lawyer and challenging your continued obligations to make these payments is one way you can fight back.
If you’re battling debt collection in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.