Federal prosecutors are plotting sweeping criminal charges against a car-racing mogul whose online payday lending empire uses American Indian tribal lands as a base of operations to evade state law, Bloomberg reports.
Predatory payday loans with triple-digit interest rates remain legal in most states, and even the jurisdictions that have banned or heavily regulated the industry have to contend with internet-based versions of the business model that are far more difficult to police. But the Federal Bureau of Investigation (FBI) and the Manhattan U.S. Attorney’s office are readying an unprecedented crackdown against one such online lender that may even include racketeering charges under a law initially created to fight the mob, Bloomberg’s sources say.
Scott Tucker’s AMG Services Inc. operates in affiliation with various tribes, who act as official owners of the business so that the company’s conduct is immune from state law. A judge recently upheld AMG’s legal immunity in Colorado, derailing the state attorney general’s attempt to pursue Tucker for violating the state’s restrictions on high-interest short-term lending. But a separate outstanding suit against Tucker’s firm’s advertising practices has been allowed to proceed. A judge in that case ruled in favor of the Federal Trade Commission (FTC), finding that the company lead borrowers to believe that it would cost $650 to repay a $500 loan while using the fine print of loan agreements to dramatically increase the actual cost. That same $500 loan “could actually cost the borrower $1,925” as a result, the Center for Public Integrity reported.
Courts have yet to decide on Tucker’s final liability in that case, but new federal charges against Tucker’s payday loans empire could present a far greater threat not only to his finances but to his freedom. If prosecutors do decide to use the Racketeer Influenced and Corrupt Organizations Act (RICO) against Tucker’s lending businesses, that could open the door to seizing Tucker’s assets. RICO defines criminal usury “as lending at costs that are twice the prevailing interest rate,” Bloomberg notes, and imposes penalties of up to 20 years in prison and $25,000 fines. RICO was enacted in 1970 in large part to facilitate prosecution of mafia loan sharks, the sort of unsavory outfit that payday lenders argue would take over their customers if the industry were pushed out of business by well-meaning regulation.
The payday lending industry is adroit at manipulating public policy through campaign contributions and fights against transparency. Only 15 states have banned payday lending storefronts, and the internet makes it easy to dodge the regulations that other states have imposed on brick-and-mortar lenders.
There are 30 different Native American tribes that sponsor payday lending businesses, according to a June report from Al Jazeera America, out of the 566 federally recognized tribes in the country. The tribes have almost no involvement in the actual business of making small-dollar higher-interest loans and collecting on them later. They appear on official paperwork regarding the legal status of the lending companies, but “the call centers and other operations are elsewhere, and the tribes themselves get as little as 1 percent of the revenue,” AJA reported.
Tucker himself has no such cashflow problem, according to the FTC suit, which says that AMG has paid more than $40 million to Tucker and his wife, financed his career as an amateur race car driver, and covered the mortgage on his $8,000,000 Aspen home and other expenses he incurs in his high-flying personal life.
Payday loans, which typically carry annual interest rates over 300 percent but obscure that astronomical cost in marketing materials, are a last resort solution for a genuine consumer need. Many desperate borrowers go into the loans with eyes open about the consequences. But industry data show that these companies turn their multi-billion-dollar annual profits primarily off of the minority of their customers who end up trapped in long cycles of borrowing and re-borrowing, and end up paying thousands of dollars to pay off a loan for a few hundred.
With wages stagnant, costs of living continuing to rise, and little hope of erasing the conditions that create demand for predatory loans, opponents of the industry’s business model must propose alternatives. One option favored by progressives and championed in Congress by Sen. Elizabeth Warren (D-MA) would give the U.S. Postal Service the power to provide basic financial services in their communities, including short-term loans at affordable rates.