Consumer Protection Laws Have Teeth
A new Netflix series, “Dirty Money,” shows that consumer protection laws have some seriously sharp teeth to bite into creditors. Dirty Money’s second episode, “Pay Day,” follows the real life story of a man that’s a racecar driver by day and a payday-lending predator by night.
It is unbelievable to watch the payday-lending scheme unfold during the episode. The scheme starts with a consumer borrowing a certain amount of money for a short-term loan. Seems normal, right? The payday loan documentation spells out the amount borrowed, the finance charges, and how much the consumer can expect to pay over the life of the loan. Still seems fine. The consumer provides the payday lender with their bank account information to set up automatic withdrawals every payday. Not unusual– seems okay.
The next part is where the scheme breaks the law – despite the loan documents stating how much the consumer can expect to pay over the life of the loan, the small print stated (in very confusing words and phrases) that if the consumer did not pay back the full balance of the loan by their very next paycheck, they were charged a “service fee.” This cycle goes on for four paydays, and on the fifth payday, the payday lender automatically withdrawals the service fee and the first payment that is actually applied to the principal of the loan. The payday lender then continues to automatically withdraw the service fee for each payday that the loan isn’t paid back in full and the payment towards principal until the loan is fully satisfied.
To demonstrate the insane amount of money this scheme cost individual consumers, let’s look at a specific example – say a consumer borrows $500 to make ends meet. The payday loan document states that the total amount the borrower will end up paying over the life of the loan will be $650, including the $500 principal and $150 in finance charges. However, if the full $500 isn’t paid in full by the consumer’s next payday, the $75 “service fees” start, and on the fifth payday, the $75 “service fee” and another $50 payment is charged to the consumer’s bank account. This process continues until the principal of the loan is paid in full, which ends up costing the consumer a staggering total of about $1,975 for borrowing just $500. That’s $1,495 in finance charges. If this sounds like it’s against the law, that’s because it is.
The racecar driver payday-lending predator faced serious consequences for his illegal scheme. The Federal Trade Commission filed both civil and criminal charges against him. The civil charges resulted in a $1.3 billion judgment to cover the 1.5 million consumers’ out of pocket expenses that were illegally charged. The criminal charges resulted in a 16 year federal prison sentence. When the racecar driver payday-lending predator was asked if he was a moral person, his coldhearted response was, “I’m a business person.” Well, looks like he won’t be a business person anymore.
The moral of the story here is that consumer protection laws have seriously sharp teeth to bite into the creditors that violate them. The Federal Trade Commission used information from individual consumer TCPA and FDCPA lawsuits against the payday lender to build up their case against him, resulting in the final judgment and criminal charges.
If you feel like you have been taken advantage of by a creditor like the payday lending predator, let our office know. You have consumer rights that cannot be violated. We’d jump at the chance to look into your potential claims and have the opportunity to use the consumer protection laws to bite into the creditor that’s violating your individual rights.