The Federal Trade Commission recently charged a group of data brokers and individuals with selling financial information regarding payday loan applicants to a third party that made millions of dollars in unlawful charges.
The FTC alleged that the defendants—Florida-based Sequoia One LLC, Gen X Marketing Group LLC, and four individuals—purchased payday loan applications submitted by consumers to third-party sites and collected similar applications from their own sites. The applications contained personal information such as consumers' bank accounts, routing numbers and Social Security numbers. But instead of passing the application on to a legitimate payday lender, the agency said the defendants violated Section 5 of the Federal Trade Commission Act by selling data on almost 500,000 consumers to third parties that had no legitimate need for the information.
Third parties such as Ideal Financial Services, the subject of an agency enforcement action in 2013 that resulted in a $25 million settlement with a company executive, used the information to unlawfully debit consumers' bank accounts and charge their credit cards without consent for approximately $7 million in fraudulent transactions. Unknowing consumers faced bank fees for insufficient funds or were forced to close their accounts, the FTC alleged.
While legitimate payday lenders will pay up to $100 for a loan application, Ideal Financial purchased applications for about 50 cents each—an indication that the third parties were engaging in a scam, the FTC said. The defendants knew about Ideal Financial's unlawful activities, the agency added, and even tried to help cover up the fraud by establishing a front company.
Three of the individual defendants agreed to settle with the Commission. In proposed consent orders, they agreed to a $10.8 million judgment suspended upon a payment of $15,000, as well as a prohibition from selling or otherwise benefitting from customers' personal information.
Litigation continues against the other defendants.
To read the complaint and stipulations in FTC v. Sequoia One LLC, click here.
Why it Matters: The FTC's enforcement action demonstrates the agency's continued oversight of data brokers following a staff report from the agency last year or as Director of the FTC's Bureau of Consumer Protection Jessica Rich noted in a press release about the action, "Companies that collect people's sensitive information and give it to scammers can expect to hear from the FTC."