One of America’s leading online illegal payday lenders was sentenced to almost 17 years in prison. Are US payday loan regulations really as bad as we thought? Read on to find out more…
People think of US payday regulations as almost non-existant. Often when comparing the rules of payday lenders in the US with the UK it could seem that the UK has far stricter regulations. You could also say that the FCA is very on top of regulations. However, is the US really behind? Do payday lawbreakers really get away with illegal lending? Read on to find an in-depth examination of a US payday lender case. You can decide whether there is any difference between regulations in the UK and the US.
US Payday Loan Regulations
In early January 2018, the court sentenced an American pioneer of online payday lending to 16 years 8 months in prison on 14 different criminal counts including fraud. The police took Scott Tucker (55), of Leawood, Kansas away from the court in handcuffs to begin serving his sentence. The court sentenced Timothy Muir (46), of Overland, Kansas, his general counsel, to 7 years for his role in Tucker’s illegal payday loan business.
In this article, we take a look at why the men received such heavy prison sentences. We also discuss details about the way Tucker ran the business. We then compare US payday loan regualtions and their treatment with the enforcement powers of the FCA. Could the same ever happen in the UK? Maybe US payday loan regulations for the lending industry isn’t as bad as we’ve been led to believe?
The Criminal Case against a Illegal Payday Lender
In the trial held in New York in October 2017, the jury heard evidence of the scope and illegality of Tucker’s business practices as a payday lender.
The Scope of Tucker’s Business Empire
Firstly, Tucker’s payday loan empire charged interest rates of 600% to over 1,000%. They issued instant payday loans all over the US including states that have banned lending at such extortionate interest rates. The US District Judge, Kevin Castel, said that the scope of the lending was ‘staggering’. The business offered loans worth $4.5 billion in 50 states, and it’s believed that 1.5% of the US population were victims.
The Judge was harsh in his criticism saying that the business was a fraud from the beginning and a scam to ‘extract money from people in desperate circumstances’ which ‘created heartbreak and sorrow…not just a financial loss’.
Tuckers Illegal Payday Lending Practices
Apart from the outrageous interest rates and their availability in states where they forbid such loans, there were other charges against Tucker. To hide the illegality of his business operation, Tucker tried to claim that Native American tribes in Nebraska and Oklahoma owned and operated the business. He gave his employees daily weather reports from the tribal lands. This was so they could ‘prove’ that’s where they operated the business. If any borrower complained about the illegality of the loans, Tucker gave his employees a prepared script to read from.
Tucker operated his business under at least 9 different names, including Ameriloan, Cash Advance and OneClickCash. One of their illegal business practices was to withdraw interest payments on the borrower’s loan balance automatically. As they didn’t touch the principal, they would automatically renew the loan on the consumer’s next payday. Charges for renewals and extra interest meant that a loan of $500 could end up costing their victims nearly $2,000.
Apart from the criminal charges, Tucker has also been charged with filing a false tax return. He did not declare $100 million of income. He also faces a $1.3 billion fine from the Federal Trade Commission. Officials are now looking at forfeiture of his property including his houses and cars.
Tucker’s Reaction to his Conviction
First of all, Tucker is going to appeal against his criminal conviction and the penalty imposed by the Federal Trade Commission. In a letter to the court, Tucker asked the Judge for mercy and voiced remorse but defended his business practices and implied that he had been misunderstood. He said that his payday loan operation had employed thousands and offered a ‘fast, simple and reliable service’. He said,
“I saw myself…as an entrepreneur, a jobs provider and a contributor to the American economy, I’ve learnt that others view me through a different lens. I am very sorry our leaders castigate me as a villain or some type of predator.”
How does the US Treatment of Illegal Payday Lenders Compare to the UK’s?
After reading about this case, you might think that US payday loan regulations are superior to the UK. After all, there have been no criminal charges brought against British payday lenders even before the FCA took over regulation when abuse was rampant.
Are US Payday Loan Regulations Better?
The first thing to bear in mind is that Tucker set up his business in 1997 and was able to operate until 2013 when he was closed down. The question remains: how was he able to operate for so long and no one challenged him? And remember, he didn’t operate in a forgotten backwater beyond the reach of the law – he offered payday loans openly on the Internet. Shouldn’t a regulator have stepped in long before and saved his victims years of untold misery and exploitation?
The FCA, the UK regulator of the payday loan industry, do have a wide range of powers at their disposal to deal with illegal and unethical business practices. Let’s see what they are.
The Enforcement Powers of the FCA
The powers of the FCA are regulatory, civil and criminal. Although they can’t directly prosecute business owners for illegalities, they can prepare evidence and forward it to the Crown Prosecution Service.
In the cases of payday lenders, it’s felt that regulatory action is more appropriate. Therefore, firms can face measures such as having their authorisation suspended or withdrawn. The FCA also publishes these enforcement notices to inform the public. This ‘name and shame’ policy is often a powerful deterrent. Rogue or clone firms working illegally are also published on their website. Imposing fines is another way that the FCA ensures compliance for all businesses in the financial industry. In 2016 alone, the FCA collected fines of £22,216,466 in total.
Conclusion: US Payday Loan Regulations
It’s hoped that the example of Scott Tucker will act as a warning for other US online payday lenders which are using illegal and unethical business practices. Finally, the FCA may not choose to go down the route of criminal prosecution. However, their enforcement powers can be just as powerful in keeping UK payday lenders honest and ethical. Hence, they regulate the entire financial industry in the UK. Ultimately, this makes it easier for them to monitor firms and for consumers to know who to turn to when they have a complaint.