FTC challenges tactics of online payday lender

For a company called Harvest Moon, its business practices sure leave consumers in the dark about key aspects of its payday loans. That’s what the FTC alleges in a case filed in federal court in Nevada.

Using consumer-facing names like Harvest Moon Financial, Gentle Breeze Online, and Green Stream Lending, 11 related Nevada- and California-based defendants – including a tribal lending enterprise chartered under the laws of the La Posta Band of Diegueño Mission Indians – operate an online payday lending operation. Consumers typically borrow amounts ranging from $50 to $800.

The defendants represent that they’ll withdraw a fixed number of payments from consumers’ bank accounts to cover both the principal and finance charges associated with the loan. But according to the complaint, in many cases, the defendants make repeated finance charge-only withdrawals from consumers’ accounts without ever crediting the withdrawals to the principal that consumers owe. As a result, consumers end up paying significantly more than what the defendants represented.

The complaint cites the example of a consumer who borrowed $250. According to the defendants’ Loan Agreement, she would repay the loan by making one payment of $366.19 – $250 to cover the loan amount and a finance charge of $116.19. But the FTC alleges that beginning on the due date, the defendants took $116 from her bank account and continued to help themselves to another $116 every two weeks after that. By the time the consumer successfully reached the defendants and threatened to report them to law enforcement if they didn’t stop, they had withdrawn a total of $1,391.64 in finance charges – not a penny of which had been applied to her $250 principal.

Even after consumers have paid the amount the defendants originally said they would owe, the FTC alleges the defendants come back for more. In many instances, the withdrawals continued until consumers closed their bank accounts, told their banks to reject ACH debits or remotely created checks initiated by the defendants, or filed complaints with their State AG or the Better Business Bureau.

That’s just the start of the illegality alleged in the lawsuit. You’ll want to read the complaint for details, but the FTC says the defendants also violated the Telemarketing Sales Rule by using remotely created checks, a form of payment the Rule prohibits for use in telemarketing. In addition, the defendants are charged with violations of the Truth in Lending Act, Reg Z, the Electronic Fund Transfer Act, and Reg E. One notable count alleges the defendants never even obtained proper authorization under Reg E to debit consumers’ bank accounts on a recurring basis in the first place.

The economic upheaval affiliated with COVID-19 may have more people looking for online payday loans. This pending case serves as a reminder that companies must honor their representations – and long-standing consumer protections built into the credit statutes – when offering loans to people struggling to keep afloat financially.