U.S. District Judge Finds that FTC Can Sue Deceptive Payday Loan Business Regardless of American Indian Tribal Affiliation

U.S. District Judge Gloria M. Navarro handed the Federal Trade Commission a significant victory in its crackdown on deceptive payday lenders, affirming a magistrate judge’s finding that the defendants in its AMG Services case are within the reach of FTC enforcement actions, even if they are affiliated with American Indian tribes.

District Judge Navarro ruled that Magistrate Judge V. Cam Ferenbach, of the U.S. District Court for the District of Nevada, correctly found that the FTC Act “grants the FTC authority to regulate arms of Indian tribes, their employees, and their contractors.”

“This ruling makes it crystal clear that the FTC’s consumer protection laws apply to businesses that are affiliated with tribes,” said Jessica Rich, Director of the agency’s Bureau of Consumer Protection.  “It’s a strong signal to deceptive payday lenders that their days of hiding behind a tribal affiliation are over.”  

The FTC has sued a number of payday lenders for engaging in unfair and deceptive practices against consumers. The FTC alleged that these lenders, like AMG Services, have employed deception and other illegal conduct to take advantage of financially distressed consumers seeking loans.

When the FTC sued the defendants behind AMG Services in 2012, they argued that they were exempt from FTC enforcement because of their affiliation with American Indian tribes.  They argued that the FTC lacked authority to enforce the FTC Act, the Truth in Lending Act (TILA), and Electronic Fund Transfer Act (EFTA) against tribes and tribal businesses. The AMG defendants have likewise previously claimed immunity from state legal proceedings, despite their tenuous connections to American Indian tribes.

But in a report and recommendation issued in July 2013, Magistrate Judge Ferenbach disagreed. Magistrate Judge Ferenbach found that payday lenders cannot avoid key federal consumer protection statutes simply by aligning themselves with American Indian tribes. He concluded that the FTC Act has “broad reach” and applies generally, giving the agency “the authority to bring suit against Indian Tribes, arms of Indian Tribes, and employees and contractors of arms of Indian Tribes.”  The magistrate judge likewise found that the FTC has authority to bring its TILA and EFTA claims. The March 7, 2014 ruling by Judge Navarro affirms the magistrate judge’s findings.

The FTC alleged that the defendants violated the FTC Act by piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits.  The FTC also alleged that the defendants violated TILA by giving inaccurate loan information to borrowers, and violated EFTA by requiring consumers to preauthorize electronic withdrawals from their bank accounts as a condition of obtaining credit.  According to documents filed by the FTC, the defendants’ deceptive and illegal tactics generated thousands of complaints to law enforcement authorities. In many cases, the defendants’ inflated fees left borrowers with supposed debts of more than triple the amount they had borrowed.

The Federal Trade Commission reached a partial settlement on other issues last year with the principal AMG defendants. The settlement bars the settling defendants from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit. The FTC continues to litigate other charges against the AMG defendants, including allegations that they deceived consumers about the cost of their loans by charging undisclosed charges and inflated fees. In a separate decision issued on January 28, 2014, Magistrate Judge Ferenbach found that AMG’s loan documents were deceptive and violated the FTC Act and TILA. That ruling is now before District Judge Navarro.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.