New York Grand Jury Indicts 12 Online Payday Lenders and 3 Individuals

In a shot across the bow of online payday lenders who allegedly disregard state law where their borrowers reside, a New York County grand jury recently voted a criminal usury and conspiracy indictment against 12 companies allegedly involved in such lending and their owner, chief operating officer, and general counsel. Manhattan District Attorney Cyrus Vance issued a press release criticizing the “exorbitant interest rates and automatic payments from borrowers’ bank accounts” to which New York borrowers were subject. This appears to be the first enforcement action of its kind against payday lenders.

According to the indictment, prosecutors claim that the defendants offered loans to New York residents at annual interest rates that ranged from 350 to 650 percent, exceeding the state’s maximum of 25 percent. The indictment further asserts that the alleged scheme utilized a number of companies to create a “systematic and pervasive usury scheme” and conceal the defendants’ participation in distributing the loans.

While we are aware of past threatened criminal usury proceedings against payday lenders, The New York Times suggests that criminal usury charges against payday lenders “are rare,” and in our experience they are generally seen in the organized crime context. As far as we know, this is the first criminal case against a payday lender, but the Times reports that “this case is a harbinger of others that may be brought to rein in payday lenders that offer quick cash.” According to the Times, officials have indicated their intention to expand investigations to other entities that allegedly assist unlawful payday lenders.

As noted in a previous alert, the New York State Department of Financial Services (DFS) reached out to banks, debt collectors, and NACHA last August regarding their alleged roles in facilitating the distribution and collection of illegal payday loans. Last September, New York Attorney General Eric Schneiderman announced several settlements with a number of payday lenders and at that time said his “office will continue to crack down on an industry that exploits desperate consumers across our state.”

This week the New York County District Attorney took what we believe is an unprecedented step against payday lenders. In the future, other industries could also be targeted. For example, as we recently warned, the debt collection industry is under increasing government focus. All companies providing financial services to subprime customers should be vigilant in ensuring that they fully comply with applicable civil and criminal laws in every jurisdiction they touch, as well as emerging UDAAP standards addressing unfair, deceptive, and abusive acts and practices.

Topics:  Conspiracies, Grand Juries, Lenders, Payday Loans, Usury

Published In: Consumer Protection Updates, Criminal Law Updates, Finance & Banking Updates

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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