Jeannie Morris thought she’d snag a loan on the Internet to pay for her daughter’s wedding photographer.
So she punched personal information into websites that offered to match her with payday lenders. Soon, without asking her approval, two unrelated online lenders based in Kansas City had plopped $300 each into her bank account. Together, they began withdrawing $360 a month in interest payments.
After the loan companies cleaned out her account, sharp calls from collection companies started.
“(They) called me at work and threatened to garnish my paycheck or serve me with legal papers,” Morris, who lives in Panama City, Fla., explained recently in a federal court filing.
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Her complaint and thousands of others filed in recent years prompted federal consumer watchdogs to seek court action against two Kansas City-based online payday loan networks. In response, a federal judge closed the businesses, at least temporarily, to allow investigators and court-appointed receivers to scrutinize the companies’ business practices.
Like Morris, many consumers reported that loans they’d never authorized had been dropped into their bank accounts. Then those accounts often evaporated as the lenders snatched out money for interest payments while never applying any of the money to the loan principal.
“It has been frustrating to read all the complaints of these people who’ve lost so much money,” said Aaron Reese, a manager at the Better Business Bureau of Greater Kansas City, which handled hundreds of such reports.
The Federal Trade Commission filed suit against two Johnson County men, Timothy A. Coppinger and Frampton T. Rowland III, and the 14 companies they controlled, including CWB Services, Orion Services, Vandelier Group and St. Armands Group.
The Consumer Financial Protection Bureau sued Richard F. Moseley Sr., Richard F. Moseley Jr. and Christopher J. Randazzo, and 20 companies that they ran, including SSM Group, CMG Group, Hydra Financial and Piggycash Online Holdings.
Defense attorneys say they plan to contest the government’s allegations.
The companies specialized in making payday loans over the Internet. Such loans are short-term, high-interest financial instruments that generally are paid back quickly, usually at the borrower’s next pay day.
The two lawsuits included sworn statements from about 40 people describing themselves as victims. Affidavits from them brim with lessons learned, such as the need to keep close track of your checking account and to immediately contest any unknown charges.
One borrower, Bobbi Kennedy of Farmer City, Ill., never recalled applying for an Internet payday loan, though she did ask for a car loan online about 10 years ago. Still, she noted, that decision haunted her when she argued with a manager about taking back a $200 payday loan that somehow had appeared in her account.
“(He) said I should be more careful about what information I put on the Internet,” Kennedy wrote.
Most of the borrowers recalled searching for payday loans online and punching their financial information — including Social Security numbers and bank account and routing information — into websites that promised to match them with lenders.
The websites were operated by “lead generators,” as federal officials described them. After collecting the financial information, the lead generators auctioned it to the highest bidder, either payday lenders or brokers who resold it.
“We are seeing more and more of these types of lead brokers online, collecting sensitive information and then selling it to whoever,” said Jessica Rich, director of the FTC’s consumer protection bureau.
Brenda Light of Delavan, Wis., learned just how loosely that information could be treated when two payday loans, from different companies, dropped into her bank account on the same day in May 2013.
When she called the Kansas City lender to complain, a representative blamed her for any problems, she wrote.
“They … accused me of not reading the fine print that by applying on a general payday loan website, my information could be shared with other lenders,” wrote Light, who did not recall seeing any such fine print.
Most borrowers said resolving their issues with the lenders was difficult.
Ginger O’Neal of Villas, N.J., immediately spotted an unauthorized $250 deposit into her account in May 2013, almost a year after she had secured, and paid off, a payday loan through a different firm.
After a month of telephone calls and emails, she finally persuaded the lender to take back the money.
“Never have I had to fight so hard to give money back,” she wrote in one of the emails.
For those who didn’t watch their accounts as closely, the experience could be a lot more expensive.
Anitra Watts of Frederick, Md., was late paying a bill in February 2012 and took out a $250 loan. She assumed that the Kansas City-based lender would stop withdrawing money from her account after the loan was paid off in a couple of months.
“Unfortunately, I did not keep a close eye on my bank account,” she wrote.
A year later she found that the lender had taken out $1,950 in interest payments on the $250 loan. Watts complained to her bank, which investigated. The lender produced paperwork purporting to show that Watts had electronically signed documents agreeing to the loan at an annual rate of 1,368.75 percent.
“I did not agree to these terms,” Watts wrote.
The networks’ collection efforts could be particularly unpleasant, dozens of victims reported.
Jarret C. Edmunds, an Orlando, Fla., marketing executive, wrote that he never applied for a payday loan, and he hotly contested the deposit of $300 in his bank account by one of the Kansas City lenders.
The lender responded by showering him with 50 telephone calls a day, likely coming from a call center in India, Edmunds said.
“They threatened to sue me and send me to jail,” Edmunds wrote. “Some of the callers used obscenities.”
Such business practices appalled the leader of an industry trade group that represents Internet loan providers.
“Their treatment of consumers is deplorable,” said Lisa McGreevy, president of the Online Lenders Alliance.
The income from such a business model is enormous — and illegal, federal consumer watchdogs said in their lawsuits.
Companies controlled by Coppinger and Rowland made about $28 million in payday loans over one 11-month period, while “extracting” more than $46.5 million in return, FTC lawyers alleged.
The Moseleys and Randazzo worked with thinner margins, but the volume was greater, according to federal court records. Their companies allegedly made $97.3 million in payday loans over a 15-month period, while collecting $115.4 million from consumers.
Investigators alleged that some of the owners used the companies for lavish spending.
Coppinger spent more than $19,000 at the Indian Hills Country Club from November 2012 to September 2013 and made substantial payments to Aristocrat Motors and for an Infiniti auto loan, FTC investigator Michael B. Goldstein said in a court filing.
Coppinger also took multiple trips to Las Vegas resorts, where he spent $14,000 at casinos between January 2012 and February 2013, court records allege.
And over two weeks in March 2013, a corporate debit card for one lending company made $3,100 in purchases in Gulf Shores, Ala., including $2,300 at a beach resort. And a company card paid for more than $4,100 in bills “at various food and alcohol establishments,” Goldstein alleged.
Lawyers said they are preparing answers to the government’s allegations.
“Mr. Coppinger and his companies deny the allegations and we are working very hard to defend against every claim,” said Pat McInerney.
Rowland’s lawyer also said he’s planning a “vigorous” defense against the allegations.
Attorneys representing the Moseleys and Randazzo could not be reached for comment.
With dozens of bank accounts frozen, some of the defendants are scrambling to sell property and vehicles to meet day-to-day living expenses, court records show.
But the payday loan cash flow probably won’t resume any time soon.
Brian Holland, a lawyer representing one of the court-appointed receivers, recently filed a notice in federal court saying the receiver had looked closely at whether he could reopen the businesses.
“(T)he receiver has made a good faith determination that the … businesses cannot be operated both legally and profitably,” Holland said.
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The Federal Trade Commission said consumers should think carefully before taking out an online payday loan. Such lenders don’t always follow the rules, and sensitive personal financial information can fall into the wrong hands, experts said.
For cheaper alternatives, the FTC suggested:
▪ Consider a small loan from a bank or credit union, or explore a credit card cash advance. But find out the terms before you decide.
▪ Thoroughly research credit offers for the lowest annual percentage rate and finance charges.
▪ Contract creditors if you are having problems making a payment and ask for more time. Find out what the charges are for that service.
▪ Make a realistic budget and avoid unnecessary purchases. Build your savings with small deposits.
▪ Ask about overdraft protection from your bank, but understand the terms. Some programs can be costly.