FTC Targets Two Payday Lenders in Beehive State for Deception
By Tom Harvey
Salt Lake Tribune
The Federal Trade Commission has obtained a preliminary injunction against several Utah payday loan operations that it accuses of violating federal law.
The agency, in a complaint in U.S. District Court for Utah, accuses the businesses and managers of using deceptive practices, including garnishing wages without a court order. To garnish wages in order to collect on bad debts, the companies sent letters implying they were acting under a law that allows the federal government to collect certain debts without going to court, the complaint says.
Named in the lawsuit are LoanPointe LLC, of Highland, and EastBrook LLC, of Provo, along with principals and managers Joe S. Strom, Benjamin J. Lonsdale, James C. Endicott and Mark S. Lofgren.
Nice to have the names of these guys. It would be nice to publish the names of all the owner operators of payday loan businesses. It would be more embarrassing than having your name published as a john.
Those parties agreed to the injunction, signed last week by U.S. District Judge Dale Kimball, without admitting wrongdoing. Among other things, the injunction prohibits the companies and officials from violating loan laws and rules, requires them to provide the FTC with financial information about the companies and to preserve all relevant records.
Attorney John J.E. Markham II, of Boston, who represents LoanPointe and the other defendants, said Friday his clients agreed to the injunction because they already had stopped the activities in question after being notified by the Treasury Department in November that they were improper.
“When the company started doing this, it had some professionals on its staff, including a lawyer, who drafted the agreement they had with the people who borrowed money from them,” said Markham. “They thought it was fine.”
Markham, though, admitted the practice of garnishing wages without a court order was “technically” illegal.
Payday loans are commonly those that a person uses to tide them over between paychecks. They usually carry high rates of interest and penalties for missing payments.
The complaint says that since at least September 2008, the Utah companies conducted business as Ecash and GeteCash and through Internet sites such as www.getecash.com, offering loans of $1,000 or less.
Loan applicants filled out an online application that required them to check a box identified as an electronic signature that meant they had accepted the terms of the loan. One of the terms was “NOTICE: I agree to have my wages garnished to pay any delinquent amount on this loan.”
“In defendants’ standard online payday loan application, the wage-assignment clause is written in very small print and located near the bottom of the third of four pages of small print disclosures,” the federal court complaint states. “Because of the small size of the print and the location of the clause, many consumers are likely to be unaware of the existence of the wage-assignment clause.”
Markham disputed that characterization, saying the language was in bold type and said the borrowers had agreed to the garnishment if they failed to follow the terms of the loan.
The complaint also says a typical garnishment letter to an employee cited The Debt Collection Improvement Act of 1996 that “permits agencies to garnish the pay of individuals who owe such debt without first obtaining a court order. Enclosed is a Wage Garnishment Assignment directing you to withhold a portion of the employee’s pay each pay period and to forward those amounts to GeteCash.”
Those letters often were sent without first contacting the employee in question about repayment of the loan, it says.
Markham said the companies should not have cited the federal act because that law only allows federal agencies to bypass the courts and garnish wages for certain debts. But he said the companies’ procedures were cheaper for both sides because it avoided going to court.
“Now if they’re late [on payments] the company can immediately file with the court and immediately refer things to the credit agency as opposed to just doing it quietly with an employer,” he said.
Some employees had even objected when the company stopped garnishing wages because they had found it a convenient way to pay back the loans, Markham said.
The federal government also is seeking a permanent injunction that includes the rescission of contracts with consumers, refunds and the return “of ill-gotten monies.” It also can seek fines and other penalties if it can prove the company broke the law deliberately.
“It’s our position they are not warranted because we didn’t” deliberately break the law, Markham said. “We’re anxious to get into court to prove that.