FTC Settles with Payday Lender over Alleged UDAAP Violations


The United States District Court for the District of South Dakota Central Division entered a final order and judgment approving a settlement between the FTC and a payday lender, in which the company agreed to pay civil money penalties for alleged unfair and deceptive acts and practices in violation of the FTC Act, the FTC’s Credit Practices and the Electronic Fund Transfer Act. According to the FTC, the payday lender’s wage garnishment practices (1) did not meet the requirements of the Credit Practices Rule, which required that wage assignment clauses be revocable, a payroll deduction or preauthorized payment plan made at the time of the transaction, or applicable only to wages or other earnings already earned at the time of assignment and (2) violated the EFTA and Regulation E by conditioning the extension of credit on repayment by means of preauthorized electronic funds transfers. Consequently, the payday lender was alleged to have violated Section 5 of the FTC Act for making misrepresentations or deceptive omissions, for including in its communications with consumers and their employers that it was legally authorized to garnish wages. The FTC also alleged that the payday lender attempted to manipulate the legal system by forcing consumers to appear in a tribunal court that did not have jurisdiction over the debt collection cases.  In addition to the civil money penalty, the terms of the settlement require that the payday lender surrender profits and bars the payday lender from suing any consumer in the course of collecting a debt, except where such suit is a counterclaim. This continues a trend by the FTC, CFPB and state regulators to target the practices of payday lenders.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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