Payday Lenders That Used Tribal Affiliation to Illegally Garnish Wages Settle with FTC

Payday Lenders That Used Tribal Affiliation to Illegally Garnish Wages Settle with FTC
Image: Pixabay
April 15, 2014

A South Dakota-based payday lending operation and its owner will pay $967,740 to the U.S. Treasury as part of a settlement resolving Federal Trade Commission (FTC) charges that they used unfair and deceptive tactics to collect on payday loans and forced debt-burdened consumers to travel to South Dakota and appear before a tribal court that did not have jurisdiction over their cases.

"Debt collectors cannot garnish consumers' wages without a court order, and they cannot sue consumers in a tribal court that doesn't have jurisdiction over their cases," said Jessica Rich, Director of the FTC's Bureau of Consumer Protection. "Regardless of tribal affiliation, debt collectors must comply with federal law."

According to the complaint filed by the FTC, Webb and his companies offered short-term, high-fee, unsecured payday loans of $300 to $2,525 to consumers throughout the country, advertising on television and online. The FTC charged that the defendants illegally tried to garnish consumers' wages without a court order, and sought to manipulate the legal system and force borrowers to appear before the Cheyenne River Sioux Tribal Court in South Dakota, which did not have jurisdiction over their cases. The defendants also attempted to obtain tribal court orders to garnish consumers' wages.

Under the terms of the settlement, Martin A. Webb and his companies have agreed to a $550,000 civil penalty for violating the Credit Practices Rule – which prohibits payday lenders from requiring borrowers to consent to have wages taken directly out of their paychecks in the event of a default. Following a partial judgment in favor of the FTC in September 2013, the defendants surrendered $417,740 in ill-gotten gains stemming from their prior practice of attempting to garnish consumers' wages without court orders.

In addition to the monetary payment imposed on the defendants, the settlement prohibits them from further unfair and deceptive practices, and bars them from suing any consumer in the course of collecting a debt, except for bringing a counter suit to defend against a suit brought by a consumer.