Antitrust Law Daily Wrap Up, CONSUMER PROTECTION—D. Nev.: Order in FTC action bars tribe-affiliated lenders from deceptive collection practices, (Oct 11, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Las Vegas has entered a final order settling FTC charges that certain payday lenders affiliated with American Indian tribes violated the FTC Act, the Truth in Lending Act (TILA), and the Electronic Fund Transfer Act (EFTA) by engaging in deceptive collection practices and conditioning the extension of credit on recurring preauthorized electronic fund transfers (FTC v. AMG Services, Inc., October 8, 2013, Navarro, G.).

According to the FTC’s complaint, AMG Services, Inc., three other Internet-based lending companies, six related companies, and six individuals violated the FTC Act by misrepresenting the amount of fees they would charge and by falsely threatening in collection calls to consumers that the consumers could be arrested, prosecuted, or imprisoned for failing to pay a debt, or that the defendants would file lawsuits against the consumers. The complaint also asserted that the defendants violated the TILA and its implementing Regulation Z by failing to adequately disclose in writing the finance charge, the annual percentage rate, the payment schedule, and the total of payments. Finally, the FTC alleged that the defendants violated the EFTA and Regulation E by conditioning the extension of credit on recurring preauthorized electronic fund transfers.

The case was complicated by the defendants’ contention that the federal laws did not apply to them because the lenders were chartered by American Indian tribes. However, on July 16, U.S Magistrate Judge V. Cam Ferenbach issued an Order and Report & Recommendations, finding that the FTC Act is a statute “of general applicability” that is silent as to its applicability to Indian tribes, and that such statutes “are presumed to apply with equal force to Indians.” Although a “genuine issue” of material fact remained regarding whether the payday lenders were “for profit corporations” as defined in the FTC Act, the court found that the FTC could enforce both the TILA and the EFTA “without regard for any jurisdictional limitations contained in the FTC Act.”

Following the issuance of the magistrate’s report, the defendants agreed to settle the FTC’s claims regarding their allegedly deceptive collection practices and conditioning the extension of credit on recurring preauthorized electronic fund transfers. Under the final order, the defendants are prohibited from misrepresenting that consumers can be arrested or imprisoned for failing to pay the defendants, that the defendants will take formal legal action against the consumers, and any other material facts in connection with their collection calls. The order also bars the defendants from conditioning the extension of credit on preauthorized electronic fund transfers.

Corporate defendants AMG Services Inc., Red Cedar Services, Inc., SFS, Inc., MNE Services, Inc., AMG Capital Management, LLC, Level 5 Motorsports, LLC, LeadFlash Consulting, LLC, Black Creek Capital Corp., and Broadmoor Capital Partners, LLC, as well as five individual defendants, stipulated to entry of the order. The order also provides for submission of a compliance report by each settling defendant one year after the court enters judgment on the last count in the complaint, and annual submission of compliance notices for ten years after entry of judgment. It also provides for compliance monitoring and recordkeeping.

The final order does not dispose of the FTC’s other charges against the defendants, including its claims that the defendants deceived consumers by charging undisclosed charges and inflated fees. The FTC has pursued enforcement actions against a number of payday lenders, including some that have aligned themselves with Indian tribes.

The case is No. 2:12-cv-536, FTC File No. 112 3024.

Attorneys: Nikhil Singhvi for Federal Trade Commission. Bradley Weidenhammer (Kirkland & Ellis LLP) Conly Schulte (Fredericks Peebles & Morgan LLP), and David J. Merrill (David J. Merrill, P.C.) for AMG Services, Inc. Nathan F. Garrett (Graves Bartle Marcus & Garrett, LLC) for Don E. Brady. Nick J. Kurt (Berkowitz Oliver Williams Shaw & Eisenbrandt LLP) for Scott A. Tucker. Paul C. Ray (Paul C. Ray, Chtd.) for Troy L. Little Axe, Jr. Jay Young (Marquis Aurbach Coffing) for Robert D. Campbell.

Companies: AMG Services Inc.; Red Cedar Services, Inc.; SFS, Inc.; MNE Services, Inc.; AMG Capital Management, LLC; Level 5 Motorsports, LLC; LeadFlash Consulting, LLC; Black Creek Capital Corp.; Broadmoor Capital Partners, LLC

Cases: ConsumerProtection FederalTradeCommissionNews