Payday Lending Viewed From Inside A NY Courtroom

The payday lending and debt collection industry is controversial, to say the least, and it is getting a day in court.

As The Wall Street Journal reports, a racketeering trial that is currently taking place in New York may bring greater scrutiny to bear on how payday lenders operate.

The financial publication reported that the trial centers on Scott Tucker, who is alleged to have run a $2 billion payday lending operation that advanced funds to more than 4.5 million people. Tucker’s co-defendant is Timothy Muir, a lawyer affiliated with Tucker’s company. The government has lodged 14 criminal counts against each of the two men.

Prosecutors in the federal racketeering trial say that Tucker charged illegally high interest rates — of as much as 700 percent on short-term loans — and then hid the terms of those loans in the paperwork. In addition, say prosecutors, Tucker dodged state laws as he forged partnerships with Native American tribes. His lawyers have said that the tribal relationships were legal ones, and that terms tied to the extended loans were, in fact, disclosed.

The prosecution wrapped up its presentation and the defense’s own case will be on hand this week.

Tucker’s company, AMG Services, allegedly sidestepped state-by-state caps in place on the interest rates that can be levied on consumers through its links to Native American tribes, which operate as sovereign states and are not governed by those caps. Tucker’s agreements with the tribes allegedly gave the latter a portion of profits generated by lending.

Customers signed on for the high interest rates, which kept renewing unless borrowers exercised opt-out options, and the defense has argued that the choice was not there to renew. Proceeds from lending activities also bolstered what the Journal has described as Tucker’s “extravagant” lifestyle that has a notable racing “side career.”

The trial helps illustrate the controversy around debt collection and payday lending’s role in society, where short-term loans with interest rates in the hundreds of percentage points are assessed on borrowers who may be unable to shoulder the financial burden, yet may be seeking the loans out of financial desperation.

As has been reported, the Consumer Financial Protection Bureau is bringing regulatory efforts to bear on payday lending, which is accessed by 10 million to 12 million Americans annually.

Separately, Law360 reported that borrowers from Tucker’s lending operations topped 4.6 million in areas like Texas, California and New York, across 2008 to 2012.