Barbara Shelly

Lawsuits show how online payday lenders fleece consumers

Beware those online payday loans, people. They are worse than you thought.

Newly unsealed court filings shine a light on how perilous it can be to even crack open the door to one of those Internet lures that promise instant approval and quick cash to anyone who asks.

The federal government is trying to shut down online loan networks operated by businessmen from the Kansas City area. Named as defendants in one lawsuit are Timothy A. Coppinger and Frampton T. Rowland III. Named in a different suit are Christopher J. Randazzo, Richard R. Moseley, and his son, Richard F. Moseley Jr.

The information is of more than simple consumer interest to the Kansas City region. This area is a hotbed for the sleazy online payday lending industry. It has made at least a couple of dozen persons astoundingly wealthy, with investors and some banks playing supporting roles.

The allegations in both of the recent legal actions are similar, so we’ll look at the suit brought by the Federal Trade Commission against Coppinger and Rowland and a host of companies to which they are connected.

“Defendants’ tactics serve the single purpose of bilking cash-strapped consumers out of as much money as possible,” is the way one of the court filings begins.

The legal documents shed light on how the online payday loan business works.

Consumers submit personal financial data to one of the many Internet sites advertising quick cash. Operators of these sites sell the information to “lead brokers.” The brokers then sell the data to the highest bidding payday lender.

The idea of one’s bank account information and Social Security number being passed around by various brokers is disconcerting on its own. But investigators allege that the targeted payday loan businesses used the data to make phony “loans” that consumers hadn’t agreed to. “Some consumers attest that they never even applied for a payday loan,” the government alleged.

The defendants used the purchased financial data to draw up phony loan agreements to deceive the banks, according to investigators. After making a one-time deposit of $150 to $300 to the consumer’s bank account for the “principal” of the loan, they debited the account indefinitely for biweekly “finance charges” of $60 to $90. None of those charges reduced the principal of the supposed loan.

Let’s say you are the unfortunate consumer. You complain about your plundered account, but your bank has a loan agreement that looks real. So you shut down your account to get these people off your back. But now your information is on the move again.

Payday lenders will sell your debt to a broker, who will sell it to a debt collector.

The FTC alleges, “many consumers have been subjected to months or even years of abuse and harassment from debt collectors attempting to collect on loans the consumer never agreed to in the first place.”

Even consumers who actually agreed to the loan are easily deceived. Agreements are written to disguise the biweekly finance charges, investigators said. Reports of people paying more than 600 percent of their original loan in interest and fees are not uncommon.

The Online Lenders Alliance, which was founded by a Leawood businessman, has put out a statement calling the alleged behavior detailed in the lawsuits “deplorable” and noting that none of the defendants are members.

But even if lenders aren’t making phony loans, the fees and interest on Internet payday loans can far exceed the amount of the loan itself. Besides, the industry is replete with bad actors. There’s no way to be certain your information won’t fall into the wrong hands.

Borrowers, beware. These places are not your friends. They’re set up so that some nouveau riche operator can cruise away in his yacht or private jet while you’re left running from the debt collector.

Reach Barbara Shelly at 816-234-4594 or Twitter: @bshelly.