The Federal Trade Commission expanded its case against an allegedly deceptive payday lender, charging that it sought to unfairly and deceptively manipulate the legal system and force debt-burdened consumers throughout the country to travel to South Dakota and appear before a tribal court that did not have jurisdiction over their cases.
In an amended complaint, the FTC charged that South Dakota-based payday lender Payday Financial, LLC’s suits against customers are unfair, and that its contract language about the court where such suits would be brought is deceptive. The amended complaint also seeks civil penalties for alleged violations of the Commission’s Credit Practices Rule. The company, its owner, Martin A. Webb, and several others named as defendants pitch short-term, high-fee, unsecured payday loans to consumers on television and the Internet.
When customers fall behind in their payments, Payday Financial, LLC improperly files suits against them in the Cheyenne River Sioux Tribal Court, attempting to obtain a tribal court order to garnish their wages, the amended complaint alleges. The tribal court does not have jurisdiction over claims against people who do not belong to the Cheyenne River Sioux Tribe and who do not reside on the reservation or elsewhere in South Dakota.
In its original complaint filed in September 2011, the agency alleged that the defendants illegally tried to garnish employees’ wages without court orders. Under federal law, the government can directly require employers to garnish wages for debts it is owed without a court order, but private creditors must obtain a court order before garnishing a debtor’s wages. The FTC also alleged that the defendants violated the FTC Act by:
- Falsely telling employers that they had the legal authority to garnish an employee’s wages without first obtaining a court order.
- Falsely telling employers that they had given employees an opportunity to dispute a debt.
- Unfairly disclosing the existence and the amounts of consumers’ supposed debts to their employers and co-workers, without the consumers’ knowledge or consent.
The defendants also allegedly violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default, and the Electronic Funds Transfer Act and Regulation E by requiring authorization for recurring electronic payments from their bank account as a condition of obtaining payday loans.
The amended complaint adds a civil penalties demand for the alleged Credit Practices Rule violation. Before filing the amended complaint to seek civil penalties, the FTC notified the Department of Justice, as required by statute, giving the department the opportunity to litigate the case. The Department of Justice stated that it would not initiate the proceeding, allowing the FTC to continue the litigation on its own behalf.
Federal Trade Commission, Plaintiff v. Payday Financial, LLC; Great Sky Finance, LLC; Western Sky Financial, LLC; Red Stone Financial, LLC; Management Systems, LLC; 24-7 Cash Direct, LLC; Red River Ventures, LLC; High Country Ventures, LLC; Financial Solutions, LLC; and Martin A. Webb, individually and as an officer of Payday Financial, LLC; Great Sky Finance, LLC; Western Sky Financial, LLC; Red Stone Financial, LLC; Management Systems, LLC; 24-7 Cash Direct, LLC; Red River Ventures, LLC; High Country Ventures, LLC, and Financial Solutions, LLC, Defendants.(United States District
Court for the District of South Dakota) - Case No. 3:11-cv-03017-RAL
FTC File No. 112 3023