The newest financial scheme has everyone baffled: consumers found money in their bank accounts, usually for the sum of $200 to $300, but then between $60 and $90 in fees were taken out every two weeks indefinitely. When consumers disputed the deposits and the withdrawals, the alleged culprits produced fake, unauthorized paperwork and continue the transactions.
In total, the perpetrators issued $28 million in fake loans but unscrupulously received $46.5 million.
These are the allegations that were filed in a lawsuit instigated by the Consumer Financial Protection Bureau (CFPB). The accused defendants consist of the Hydra Group, an online payday lender, and various domestic and offshore firms managed by Richard F. Moseley Sr., Richard F. Moseley Jr. and Christopher Randazzo.
CFPB officials say that the Hydra Group utilized information that was acquired from online lead generators to initiate the scam – the firms in charge of obtaining leads were able to do so by matching consumers with payday lenders, which then auctioned off this data to payday loan firms.
More than 1,000 complaints were issued against the businessmen and their companies. However, the CFPB notes that the defendants allegedly successfully evaded state authorities and court actions brought against them in the states of Idaho, Illinois, New Hampshire and Pennsylvania.
Attorneys were able to win a Missouri federal court ruling that would temporarily freeze the assets of the accused businessmen and their companies. The lawsuit is also trying to return the funds to the victims and apply a fine on the parties involved.
“The Hydra Group has been running a brazen and illegal cash-grab scam, taking money from consumers’ bank accounts without their consent,” said CFPB Director Richard Cordray in a statement. “The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking, and we are taking decisive action to prevent any more consumers from being harmed.”
USA Today reports that the CFPB’s allegations are very similar to the Federal Trade Commission’s (FTC) separate lawsuit against another set of defendants: “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet,” said Jessica Rich, director of the FTC’s consumer protection bureau.
The Hydra Group nor its attorneys have issued a comment on the matter.
Payday loans under scrutiny
Since the financial crisis, the payday loan industry has been put under a microscope.
We reported earlier this year that the CFPB published a report that argued payday loan businesses are trapping borrowers. For instance, the CFPB discovered that nearly half of all payday loans are given to customers who choose to extend the loan – because they can’t afford to pay the loan back or can’t afford to pay back all of the owed money at once – and end up paying more in interest and fees than the initial borrowed funds.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” Cordray said in a statement at the time. “As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them farther behind.”
To avoid getting stuck in the cycle of payday loans, financial experts recommend to find out the full amount, outline what the funds will be used for, decide what company you’ll use, create a plan to pay it back and never use multiple lenders.
The payday loan industry is valued anywhere between $2 billion and $42 billion.
