The Federal Trade Commission (“FTC”) was awarded a significant victory against payday lender AMG Services, Inc. (“AMG”) on March 7, 2014, when the United States District Court for the District of Nevada ruled that the FTC has authority under the FTC Act to regulate Indian tribes and their associated organizations. As a reminder to readers of this blog, a payday loan is a small, short-term unsecured loan that usually carries with it a very high interest rate. In Federal Trade Commission v. AMG Services, Inc., et al., the defendants argued that the FTC lacked Constitutional and legal authority to apply the FTC Act to payday lenders associated with Indian tribes.
In its complaint, the FTC alleges that AMG, and other payday lenders who happen to be associated with Indian tribes, violated the FTC Act in connection with their payday lending activity. Specifically, the complaint alleges that the defendants represented to consumers that scheduled payments from the consumers’ bank accounts would be withdrawn by the defendants on specific dates. However, contrary to these representations, the payday lenders would instead initiate withdrawals on multiple occasions, resulting in multiple finance charges for the consumer. As a result, according to the FTC, “a consumer ends up paying significantly more to satisfy his loan than the ‘Total of Payments’ that [d]efendants conspicuously represent and in their loan disclosures.”
The federal district court rejected the payday lenders’ arguments that the FTC Act did not apply to their businesses because they are associated with Indian tribes. While Indian tribes are recognized as sovereign entities, statutes of “general application” may nonetheless be used to regulate tribal activities. The court ruled that although the FTC Act contains certain specific exemptions, it is nevertheless a statute of “general application” and, as such, the FTC has the authority to enforce the FTC Act against payday lenders even if they happen to be connected, directly or indirectly, with Indian tribes.
As we have previously observed, the State of New York has been aggressively investigating payday lenders, resulting in substantial settlement awards (See New York State Reaches Settlement with Payday Lenders) and a revised focus on payday loan marketers (See New York Expands Payday Lending Industry Investigation to Focus on Marketers). The federal Consumer Financial Protection Bureau has also been targeting payday lenders. (See Major Payday Lender Settles Lawsuit). With federal and state regulators on the attack, payday lending is becoming an increasingly dangerous business proposition.