A $2.1 million penalty and an agreement to cease using a famous face as an endorser are the latest blows struck against the payday lending industry in New York state.
Selling Source LLC, a Nevada-based company that does business as MoneyMutual, along with celebrity endorser Montel Williams, agreed to a consent order including the $2.1 million penalty to settle charges from the New York State Department of Financial Services. The charges alleged that Selling Source sold payday lenders sales leads for more than 800,000 New Yorkers. The lenders then made loans to those New York residents with interest rates far above those allowed by state law, according to the state agency.
The sanctions against Selling Source are the result of the first successful enforcement action against a lead-generation firm. Lead-generation firms do not typically make payday loans directly, but instead set up websites marketing those illegal loans, according to the Department of Financial Services. Through promises of easy access to quick cash, the lead-generation companies entice consumers to provide them with sensitive personal information such as Social Security and bank account numbers, and then sell that information to payday lenders operating unlawfully in New York and other states.
Williams, a talk show host and celebrity endorser for Selling Source, agreed to no longer extend his endorsement of Selling Source to New York customers. In addition, Williams and Selling Source will no longer advertise specifically to New York residents.
“Using Mr. Williams”™ reputation as a trusted celebrity endorser, MoneyMutual marketed loans to struggling consumers with sky-high interest rates ”” sometimes in excess of 1,300 percent ”” that trapped New Yorkers in destructive cycles of debt,” Benjamin F. Lawsky, superintendent of the Department of Financial Services, said in a press release announcing the settlement. “The company made special efforts to target the more than 55 percent of their customers who were ”˜repeat clients”™ ”” including so-called ”˜gold”™ customers who took out a new loan to pay off a previous loan.”
Payday loans are short-term, small-value loans that are typically structured as an advance on a consumer”™s next paycheck but frequently have extremely high interest rates that can trap consumers in an increasing cycle of debt.
The settlement with Selling Source is part of a continuing investigation by Lawsky”™s department into illegal payday lending in New York that began in 2013. Since the investigation began, the Department of Financial Services has gotten Visa and MasterCard to take steps to stop payday lenders from using debit card networks, gotten five banks ”” Bank of America, Citibank, JPMorgan Chase, M&T Bank and Valley National Bank ”” to use a database created by the department to curtail payday lending, and warned debt collectors that loans with interest rates above the statutory maximums are void and unenforceable, and that collecting on such loans is therefore illegal.
Connecticut”™s Department of Banking has taken similar steps to protect its residents from payday lending. In 2014, the Banking Department settled with CashCall Inc., Western Sky Financial LLC and Martin Webb, the owner of Western Sky Financial, for violating Connecticut law pertaining to small-loan lenders after an investigation determined that CashCall had made more than 3,800 illegal loans to Connecticut residents, netting more than $5 million in excess interest. The lenders were forced to pay a $350,000 fine and also paid more than $3.7 million in restitution to the borrowers.
In January, the Connecticut Department of Banking ordered $1.5 million in fines be levied against the head of an Oklahoma-based Native American tribe and its two payday lending companies.
John Shotton, the chairman of the Otoe-Missouria tribe, and Great Plains Lending LLC were each fined $700,000, and Clear Creek Lending was fined $100,000 for violations of the state”™s laws governing unsecured consumer loans.
In New York state, Lawsky indicated that his department will continue investigating payday lenders, including Selling Source.
“London Bay Capital LLC is a private equity company that acquired Selling Source in late 2007,” the Department of Financial Service”™s press release stated. “(The) agreement does not release London Bay from liability for the conduct uncovered during DFS investigation, which remains ongoing.”
