By: Linda Goodman
On September 17, 2014, the FTC unsealed a lawsuit filed against Tim Coppinger, Ted Rowland, and the dozens of shell companies they allegedly used to defraud online payday-loan applicants out of millions of dollars. The FTC actually filed the suit on September 5, but it was kept under seal until last Friday to allow investigators to halt the businesses and freeze the assets and appoint a receiver to take over the operation.
“These defendants bought consumers’ personal information, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet. The Federal Trade Commission will continue to use every enforcement tool to stop these unlawful and harmful practices.”
This case, part of the FTC’s continuing crackdown on scams that target consumers from every community in financial distress, alleges that the defendants violated the FTC Act, the Truth in Lending Act (“TILA”), and the Electronic Funds Transfer Act (“EFTA”). The FTC is seeking a court order to permanently stop the defendants’ unlawful practices.
On September 16, 2014, a second lawsuit filed on September 8th was unsealed, but this one was by the CFPB who also sought and received asset freezes and the appointment of a receiver against Richard F. Moseley; his son, Richard F. Moseley Jr.; Christopher J. Randazzo; Hydra Group including a network of business entities they are said to have used to con U.S. consumers out of millions through payday loans. Many of Moseley’s businesses (SSM Group, FSR Services, Rocky Oak Services, Hydra Financial, Piggback Online Holdings, and about 15 others) were organized in foreign countries like New Zealand and the Caribbean island of Nevis. But court documents allege that the scheme was conducted from Kansas.
As in the FTC suit, investigators pieced together their case by compelling banks to open up their books to the agency. In doing so, the CFPB tracked the byzantine path of money through shell companies and payment processors to U.S. Bank accounts held by the defendants.
As of August 31, 2014, $10.6 million was held in holding company accounts controlled by Moseley. “Because of Defendants’ ties to Nevis and New Zealand, Defendants are likely to move this money offshore upon notice of this action,” CFPB’s attorneys wrote in the filing requesting and subsequently receiving an asset freeze and appointment of a receiver to take over the operation. The CFPB is alleging that the Hydra Group and its operators are in violation of multiple laws, including the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act.
More than 1,300 complaints have been filed by consumers against Moseley’s businesses since 2010. State authorities in Pennsylvania, New Hampshire, Idaho, and Illinois have issued cease-and-desist orders to Moseley’s companies since 2011.
According to the complaints, the lender’s illegal actions include:
• Bi-weekly cash-grab: The Bureau alleges that the Hydra Group puts money into consumers’ accounts without authorization. It then withdrew “finance charge” from the account every two weeks indefinitely. Some consumers were forced to get stop-payment orders or close their bank accounts to put an end to these bi-weekly debits.
• Nonexistent or false disclosures: Lenders are generally required by law to disclose the terms of a loan to the consumer prior to the transaction. But in these cases, consumers typically received the loans without having seen the finance charge, annual percentage rate, total number of payments, or payment schedule. Even where consumers did receive loan terms up front, they contain misleading or inaccurate statements.
• Requiring repayment by pre-authorized electronic funds transfers: According to the complaints, even in the cases where consumers consented to loans, the defendants violated federal law by requiring consumers to agree to repay by pre-authorized electronic fund transfers. Federal law prohibits repayment of loans conditioned on consumers’ pre-authorization of recurring electronic fund transfers.
• Bogus loan documents: When consumers contact the lenders to dispute the loans and fees, representatives insist the consumer authorized the loan and produced bogus applications or electronic transfer authorizations. Similarly, when the consumer’s bank or credit union contacted the lenders to inquire about the charges, the company showed them bogus documentation.
• Illegitimate debt collection: Even when consumers successfully closed their deposit accounts, the lenders sold the bogus debt to third-party debt collectors. Though there is no legitimate basis for the debt, consumers were still contacted and pursued for loans they never agreed to.
“The Hydra Group has been running a brazen and illegal cash-grab scam, taking money from consumers’ bank accounts without their consent,” said CFPB Director Richard Cordray. “The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking, and we are taking decisive action to prevent any more consumers from being harmed.”
The most unfortunate outcome of this matter is that legitimate payday lenders and their lead generators will also come under scrutiny. Be sure your lead generation is compliant as it is not a matter of if they will come knocking….it is when they will come knocking.
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This article is a publication of The Goodman Law Firm and is intended to provide information on recent legal developments. This article does not create an attorney-client relationship, nor should it be construed as legal advice or an opinion on specific situations. This may constitute “Attorney Advertising” under the Rules of Professional Conduct and under the law of other jurisdictions.
© 2014 TGLF, A.P.C.