CLEVELAND, Ohio -- The U.S. government shut down two online payday lenders that siphoned a combined $162 million from consumers' bank accounts in what regulators described as a "cash-grab scam."
The payday lenders used information from online loan shopping sites to deposit loans in unwitting consumers' accounts and then repeatedly dinged them for finance charges.
"It is an incredibly brazen and deceptive scheme," said Richard Cordray, director of the Consumer Financial Protection Bureau, which joined the Federal Trade Commission in tag-team enforcement actions.
When people disputed the debits with their banks, the lenders fabricated documents that purported to show consumers had agreed to the loans, Cordray said. As a result, banks sometimes sided with the payday lenders, and customers lost their disputes.
And if consumers tried to close their bank accounts to avoid charges, they were hounded by debt collectors.
As many as 2,300 consumers nationwide complained to the CFPB and FTC about the unwanted payday loans. Two separate lending groups used the same basic scheme, which started with online payday loan shopping sites known as lead generators.
Consumers shared personal and banking information with the sites, which promise to match consumers with lenders. The payday lenders bid for these sales leads.
Once the payday groups had consumer information in hand, they deposited "payday loans" of several hundred dollars into people's bank accounts without their consent. Every two weeks, the companies then debited finance charges as high as $90 from their unwitting customers' accounts.
Both companies established multiple corporate identities in what the agencies said was an attempt to throw off banks and regulators.
"There were some consumers who appear to have actually applied for the loans," said Jessica Rich, director of the Federal Trade Commission. "But make no mistake: even these consumers were horribly deceived about the costs of the loans." The payday group the FTC sued advertised one-time fees, but repeatedly tapped accounts, in some cases, until they were drained, she said.
Rich warned consumers who are shopping for loans online not to share personal information with companies they don't know -- because they sell it to other companies, some of whom might be scammers.
"We're seeing more and more of these types of scams," she said. Rich said the agency is trying to identify online brokers who sold the information to the sued payday lenders.
The CFPB won a court order temporarily halting Hydra Group, which the bureau said made as much as $97 million in payday loans and collected as much as $115 million from customers' bank accounts since 2011.
The CFPB's lawsuit names Richard F. Moseley Sr., Richard F. Moseley Jr., and Christopher J. Randazzo, who control the Hydra Group. Other companies in the group include SSM Group, Hydra Financial Limited Funds, PCMO Services and Piggycash Online Holdings.
In a separate action, the FTC got a temporary court order shutting a web of companies owned by Timothy Coppinger and Frampton (Ted) Rowland III. Those include limited liability companies known as CWB Services; Orion Services; Sandpoint; Sand Point Capital; Basseterre Capital; Namakan Capital; Vandelier Group; St. Armands Group; Anasazi Group; Anasazi Services; Longboat Group, dba Cutter Group; Oread Group, dba Mass Street Group.
The FTC said the CWB Services group made an estimated $28 million in loans and collected $47 million from consumers' accounts in an 11-month period. The court appointed a receiver.
Both suits seek restitution for consumers.