Payday lender turned racecar rookie, Scott Tucker Level 5 Motorsports/Flickr
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The Federal Trade Commission today took up a case that had thwarted state authorities for years, accusing an Internet payday lender with ties to Indian tribes of illegally deceiving borrowers.

The agency is asking a federal judge in Nevada to order AMG Services of Overland Park., Kan., to stop the deceptive practices and pay back borrowers who its says got cheated.

“The defendants have deceived consumers about the cost of their loans and charged more than they said they would, said Malini Mithal, the FTC’s assistant director of financial practices. “The FTC is trying to stop this deception and get refunds for consumers.”

While the company has won arguments in state courts that it has tribal sovereign immunity, allowing it to make loans even in states that restrict or forbid payday loans, that protection doesn’t apply to the federal courts. Court records suggest the business has made more than $165 million, charging interest rates as high as 800 percent on small loans. Borrowers have complained in droves about the lender’s tactics. Law enforcement authorities have received more than 7,500 complaints about the business, the FTC says.

Among the defendants in the lawsuit is Scott Tucker, a professional race-car driver from Kansas City, Kan. Tucker became a millionaire from the payday-lending business he started more than a decade ago. When state investigators started digging into the company’s practices, Tucker came up with a plan to sell the business to three Indian tribes while continuing to run the company and to collect most of its profits, according to recent court records filed in Colorado.

The Center for Public Integrity and CBS News jointly investigated and exposed Tucker’s involvement in the tribal payday lending business in September.

Critics have dubbed this tactic “rent-a-tribe” and other lenders have copied the practice. Several states have tried to take action against the company without success. The business has even won major court challenges in the California Court of Appeals and the Colorado Supreme Court.

Colorado Attorney General John Suthers has been trying to stop Tucker and the tribes from lending in his state for seven years and uncovered evidence that the deal Tucker cut with the tribes allowed him to keep 99 percent of the revenue. But a Denver judge recently ruled that, despite this evidence, the state was unable to prove that the deal was a sham. As a result, the business continues to make unlicensed loans even in states where payday lending is restricted or illegal.

“Despite the hard work of state attorneys general, these defendants have been successful in evading prosecution so far,” Mithal said. “But the law that applies to the federal government is different than the law that applies to the states, so the FTC action should put an end to the defendants’ deceptive and unfair practice.

The FTC released exhibits of bank records that show that Tucker and his brother control the bank accounts of the lending business. From September 2008 to March 2011, AMG Services had deposits and withdrawals of more than $165 million. Money from the business was used to pay for Tucker’s $8 million vacation home in Aspen, Colo., flights on a private jet to races, and even plastic surgery, according to court documents. The FTC says Tucker’s racing team has received $40 million in sponsorship fees from the payday-lending business.

Besides Tucker, the FTC is also suing business leaders from the Miami and Modoc tribes of Oklahoma and the Santee Sioux tribe of Nebraska who claim to own and manage the business as well as the tribal companies involved. Among the other companies named in the lawsuit is Tucker’s racing team, Level 5 Motorsports, and even a limited partnership Tucker used to buy his home in Aspen.

Neither Tucker nor attorneys from the tribes responded to a request for comment.

The FTC accuses the company of deceiving borrowers about how much they’d have to pay back. On a typical $300 loan, borrowers were told they’d have to pay only $90 in interest. But the FTC alleges that the lender would automatically “renew” the loan every two weeks, so that the borrower would in reality have to pay $975 on the loan.

The FTC alleges the company also deceived borrowers who were late on payments by falsely threatening to sue them or even to have them arrested. And the lawsuit alleges that borrowers were required to sign over electronic access to their checking accounts, which under federal law cannot be a condition of a loan.

“This provision allows defendants to prey on vulnerable consumers by making automatic withdrawals from their bank accounts,” the lawsuit alleges.

The loans are often made through a separate lead generator called MoneyMutual.com, which uses former talk-show host Montel Williams to promote its loans, sources told The Center for Public Integrity. Neither MoneyMutual.com nor Williams were named in the lawsuit.

The loans are made under several brand names, including OneClickCash, UnitedCashLoans, USFastCash, Ameriloan and 500FastCash.

This is not the first case the FTC has brought against tribal payday lenders. The consumer-protection agency has also filed lawsuits against Payday Financial LLC of South Dakota for trying to garnish wages of its borrowers and threatening to sue them in the Cheyenne River Sioux tribal court. The FTC says the company has no authority to garnish wages or to file cases against nontribal members in a tribal court.

Online payday lenders are the fasting growing segment of the industry, accounting for more than $10 billion a year in loans. Only a fraction of that money goes to tribal affiliated lenders.

Angela Vanderhoof of Olympia, Wash., borrowed $400 from OneClickCash in October 2010, not realizing she would eventually pay $690 in interest on her loan or that she would be hit with as many as four overdraft charges on her checking account in a single day. The withdrawals left her nearly penniless, she said.

When she talked to the Center for Public Integrity last fall, she wondered if she would ever be able to get any of that money back. Today, she’s one of the borrowers listed in the FTC court documents.

“I think it’s great that somebody doing something,” she said. “I didn’t know if anybody would be able to do anything.”


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