Two online payday lending companies linked to a professional racecar driver have agreed to pay a record $21 million to resolve charges by U.S. regulators that they engaged in deceptive practices, the Federal Trade Commission said on Friday.
The settlement with Kansas-based AMG Services Inc, which serviced the loans, and MNE Services Inc, which lent to consumers under names including Ameriloan and US Fast Cash, marked the largest FTC recovery in a payday lending case.
The companies also agreed to waive $285 million in charges that were assessed but not collected, the agency said.
The companies did not admit or deny the allegations. AMG's lawyer did not respond to requests for comment.
"It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more," said Jessica Rich, director of the FTC's Bureau of Consumer Protection.
The settlement followed a 2012 lawsuit filed in Nevada federal court against AMG Services and several other companies the FTC said were controlled by racecar driver Scott Tucker.
In May, Reuters reported that AMG received a grand jury subpoena as part of a criminal probe by the office of Manhattan U.S. Attorney Preet Bharara.
The status of the criminal investigation was not immediately clear on Friday. A spokeswoman for Bharara declined comment, and Tucker's New York lawyer, Paul Shechtman, did not respond to requests for comment.
Payday lenders provide short-term loans tied to borrowers' paychecks that carry high charges ranging from $10 to $30 for every $100 borrowed, according to the Consumer Financial Protection Bureau. Critics say payday lenders take advantage of low-income borrowers. Lenders counter they provide a valuable service
In its lawsuit, the FTC said AMG and related entities violated federal law by misrepresenting to consumers the cost of loans.
The FTC said the companies claimed a $300 loan would cost $390 to repay, but actually charged $975 for repayment.
The lawsuit said the lenders also failed to accurately disclose the annual percentage rate and other terms and violated federal law by conditioning loans on preauthorized debits from consumers' bank accounts.
The defendants claimed their affiliations with Native American tribes made them immune from the FTC's enforcement powers. But a federal judge rejected their arguments last year.
Several other defendants remain in the case, including Tucker, who the FTC said with his now-deceased brother transferred more than $40 million collected from consumers to racing team Level 5 Motorsports for sponsorship fees. The defendants have denied wrongdoing.
The case is Federal Trade Commission v. AMG Services Inc, et al, U.S. District Court, District of Nevada, No. 12-00536.
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