Payday Lending Criminal Violations
Payday Lending Criminal Violations: Overview
What is Payday Lending?
Payday lending involves providing short-term, high-interest loans typically due on the borrower’s next payday. These loans often carry extremely high fees and interest rates, sometimes leading to debt cycles and financial distress for borrowers.
Common Criminal Violations in Payday Lending
Usury violations: Charging interest rates above legal limits.
Fraud: Misrepresenting terms or borrower’s rights.
Unlicensed lending: Operating without proper state licenses.
Racketeering or organized crime links: Using payday lending as a front for illegal activity.
Violation of consumer protection laws: Including Truth in Lending Act (TILA) and state-specific statutes.
Money laundering: Using payday lending operations to launder illicit funds.
Wire fraud and mail fraud: Deceptive practices conducted electronically or via mail.
Legal Framework
Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq.
Consumer Financial Protection Act and regulations by the CFPB
State Usury Laws
Racketeer Influenced and Corrupt Organizations Act (RICO) for organized schemes
Federal mail and wire fraud statutes (18 U.S.C. §§ 1341, 1343)
State criminal statutes for unlicensed lending and fraud
Key Criminal Cases Involving Payday Lending Violations
1. United States v. CashCall, Inc. (2017)
Facts:
CashCall operated an online payday lending company that charged borrowers triple-digit annual percentage rates (APRs), sometimes exceeding state usury limits. The company was accused of disguising loan terms and fees to evade legal restrictions.
Criminal Allegations:
Usury violations.
Fraudulent misrepresentation of loan terms.
Outcome:
CashCall agreed to a multi-million dollar settlement with several states.
While the case was mostly civil, DOJ indicated criminal investigations into executives for potential wire fraud and deceptive practices.
Significance:
Highlighted the fine line between aggressive lending and criminal fraud in payday loan operations.
2. State of Ohio v. Cashland, Inc. (2015)
Facts:
Cashland was prosecuted for operating payday lending stores charging interest rates far above Ohio’s legal limit, often disguising fees as other charges.
Criminal Charges:
Usury violations under Ohio law.
Consumer fraud and deceptive business practices.
Outcome:
Cashland executives were criminally charged; some pleaded guilty.
The company was fined and ordered to refund thousands of borrowers.
Significance:
One of the early state criminal prosecutions targeting payday lenders for usury and deceptive fee structures.
3. United States v. Cash America International, Inc. (2018)
Facts:
Cash America was accused of using deceptive practices in payday lending, including failing to disclose all fees and renewing loans without borrower consent.
Criminal Violations:
Mail and wire fraud.
Violations of TILA disclosure requirements.
Outcome:
The company paid fines and implemented compliance reforms.
Executives faced individual criminal charges for conspiracy and fraud.
Significance:
Emphasized the application of mail and wire fraud statutes to payday lending violations.
4. People v. ACE Cash Express (Illinois, 2016)
Facts:
ACE Cash Express was investigated for predatory payday lending practices, including charging illegal fees and aggressively collecting on loans.
Criminal Allegations:
Violations of Illinois usury laws.
Consumer fraud.
Outcome:
The company entered a plea agreement admitting to violations.
Fines and restitution orders were imposed.
Some managers faced personal criminal charges.
Significance:
Demonstrated that payday lending companies and their executives could be held criminally liable under state laws.
5. United States v. Michael C. Lockhart (2019)
Facts:
Lockhart, owner of a payday lending chain, was charged with operating without licenses in multiple states and using false documents to evade regulatory scrutiny.
Criminal Charges:
Unlicensed lending operations.
False statements to regulators.
Wire fraud.
Outcome:
Convicted on all counts; sentenced to prison and ordered to pay restitution.
Significance:
Highlights personal criminal liability for owners/operators who violate licensing and regulatory requirements.
6. FTC v. CashCall (2019)
Facts:
The FTC filed suit against CashCall for deceptive payday lending practices, including false statements about loan terms and collection efforts.
Legal Action:
While primarily a civil case, criminal investigations by the DOJ paralleled FTC enforcement.
Outcome:
CashCall agreed to pay $10 million in consumer refunds.
DOJ continued criminal probes into executives’ conduct.
Significance:
Shows how civil enforcement and criminal prosecution often work in tandem against payday lending fraud.
Summary Table of Payday Lending Criminal Cases
| Case | Year | Violation Type | Charges | Outcome | Jurisdiction |
|---|---|---|---|---|---|
| U.S. v. CashCall, Inc. | 2017 | Usury, wire/mail fraud | Wire fraud, deceptive practices | Settlement, ongoing criminal probes | Federal / multi-state |
| Ohio v. Cashland, Inc. | 2015 | Usury, consumer fraud | State criminal charges | Guilty pleas, fines, restitution | Ohio state |
| U.S. v. Cash America Int’l | 2018 | TILA violations, fraud | Mail and wire fraud | Fines, executive charges | Federal |
| People v. ACE Cash Express | 2016 | Usury, consumer fraud | State criminal charges | Plea agreement, fines | Illinois state |
| U.S. v. Michael C. Lockhart | 2019 | Unlicensed lending, wire fraud | Federal criminal charges | Conviction, prison | Federal |
| FTC v. CashCall | 2019 | Deceptive lending practices | Civil and criminal enforcement | Consumer refunds, criminal probes | Federal / FTC |
Conclusion
Criminal prosecutions involving payday lending violations focus on fraudulent loan terms, usury violations, operating without licenses, and deceptive collection practices. Federal prosecutors and state authorities use a mix of statutes, including mail and wire fraud, state usury laws, and consumer protection laws, to hold companies and individuals accountable.
The cases illustrate that both corporate entities and individual executives can face serious criminal consequences for payday lending fraud.
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