Controversial lenders that claim to be owned by Indian tribes and offer payday loans over the Internet have agreed to stop practices that federal authorities say deceive borrowers and violate federal laws.
The agreement, filed in federal court, could save borrowers hundreds of dollars on each payday loan.
The Federal Trade Commission last year sued an Overland Park, Kan., company, AMG Services, to recover millions of dollars in revenues, alleging that borrowers were illegally deceived. The business was founded and is still managed by Scott Tucker, best known as an endurance race-car driver who recently won the Baltimore Grand Prix.
The Center for Public Integrity first exposed Tucker’s business practices in an investigation done with CBS News.
The case awaits trial. But the FTC argued that AMG Services was continuing to mislead thousands of new borrowers. Tucker and the representatives from the Indian tribes last month agreed to change the practices that the FTC said were illegal.
Borrowers previously had to give the lenders direct access to their bank accounts and have payments automatically withdraw from their checking account. But instead of a single payoff, the lenders would withdraw interest-only payments for months.
By drawing out the loan payments out, a $300 loan could end up costing the borrower nearly $1,000. The FTC said this was not properly disclosed under the Truth-in-Lending Act.
With the agreement filed in a federal court in Nevada, the lenders will no longer require access to a borrower’s bank account and the loans will be paid off in one payment. The lenders also agreed not to tell borrowers that they could go to jail or be sued if they didn’t pay the loan back.