Trial Puts Focus on Payday Lending

 

By REBECCA DAVIS O’BRIEN, Oct. 4, 2017 for The Wall Street Journal

A federal racketeering trial under way in New York is shedding light on the controversial business of payday lending, a multibillion-dollar industry that some describe as predatory and others defend as a vital service.

Prosecutors allege that Scott Tucker, a Kansas City businessman and race car driver, ran a $2 billion payday-lending enterprise that illegally charged as much as 700% interest on short-term loans to more than 4.5 million people. Government lawyers say Mr. Tucker’s company hid the terms of the loans in deceptive paperwork and used partnerships with Native American tribes to evade state laws.

Lawyers for Mr. Tucker have argued at trial that he formed legal business partnerships with tribes, relying on lawyers to help him navigate an unevenly regulated and unfairly maligned industry. They say the terms of the loans were spelled out in documents and emails to customers. Mr. Tucker’s co-defendant, Timothy Muir, is a lawyer who worked for Mr. Tucker’s company.

The case could go to the jury by the end of this week, according to a spokesman for the Manhattan U.S. Attorney’s office. The defense is presenting its case this week.

Much of the evidence presented at trial by the government focused on the particularities of Mr. Tucker’s business practice. But hanging above the trial looms a larger question about the value of payday lending—whether it largely offers critical financial help to the uncreditworthy, or preys on those who can least afford its lofty fees.

Lenders have pushed back against the proposed federal regulations, saying that an estimated 10 million to 12 million Americans who take out payday loans every year could lose access to credit.

This argument has been echoed in Mr. Tucker’s trial. “Payday lending is a lifeline for some people who don’t have access to other ordinary lines of credit,” for “millions of people who survive on paycheck to paycheck,” said James M. Roth, a lawyer for Mr. Tucker.

Prosecutors from the Manhattan U.S. Attorney’s Office have painted Mr. Tucker as a symbol of the industry’s worst excesses.

“It’s a case about how together both these men built an illegal payday lending empire that took billions of dollars from millions of people who were struggling to get by and how they hid that crime from the law for over a decade,” Assistant U.S. Attorney Hagan Scotten said in opening remarks on Sept. 12.

BN-VI747_2uAhL_OR_20170929111336Scott Tucker, whose company, AMG Services,  prosecutors say bilked customers of as much as 700% interest on short-term loans. 

Mr. Tucker then used the proceeds to support an extravagant lifestyle, including a successful side career in racing, prosecutors have argued. Mr. Tucker and Mr. Muir have each pleaded not guilty to 14 criminal counts, including violations of racketeering and lending laws.

Prosecutors allege that Mr. Tucker’s company, AMG Services Inc., and its affiliates tried to skirt state caps on interest rates by using business arrangements with Native American tribes, whose sovereign status means they aren’t subject to the same state laws.

Customers ended up on the hook for huge interest payments in part because the loans automatically renewed unless the customer opted out, prosecutors allege. The government says those terms were deliberately hidden in confusing language on loan documents.

The defense pointed to the language as proof that customers were, in fact, informed of the loans’ terms. “You’ll see that the customer was told, ‘This loan is going to be renewed,’ and if you didn’t want to renew the loan, you merely just sent an email,” Timothy Muir’s lawyer, Thomas J. Bath, said in opening arguments. “Many people didn’t do that, but it’s not like they didn’t have a choice.”

The competing arguments were crystallized in the testimony of Amy Weatherwax, a 42-year-old single mother from upstate New York. Ms. Weatherwax testified that she took out a $500 loan from an AMG portfolio, 500FastCash, in 2012. As with most payday loans, Ms. Weatherwax agreed to pay back the loan plus a flat fee all at once, and gave 500FastCash access to her bank account. The loan paperwork indicated it would cost her $650, in all, to pay it back.

Six months later, Ms. Weatherwax realized $1,850 had been withdrawn from her account—the loan had been renewed automatically, and she still owed money. Alarmed, she called 500FastCash. “They stated they were an Indian tribe and this was the way they did business,” Ms. Weatherwax told the jury.

On cross-examination, a lawyer for Mr. Tucker asked if she had received emails from the loan company. Ms. Weatherwax said she hadn’t been regularly checking her email.

Other evidence in the trial has focused on Mr. Tucker’s deals with several tribes in which he allegedly offered them a cut of the lending profits.

Lisa Adams, a former lawyer for the Yurok Tribe of northern California, told the jury that in 2004, Mr. Tucker flew Yurok representatives to Kansas on his LearJet for a meeting to discuss a possible partnership.

But in subsequent months, Ms. Adams testified, it became clear that “any decision, any decision making . . . would be carried out” in Kansas, not on tribal lands.

The Yurok never approved the deal—even after Mr. Tucker’s company made several “good-faith payments” of $12,500—but other tribes did, according to evidence presented at trial. Witnesses have said Mr. Tucker controlled the AMG subsidiaries, and that the tribes had no meaningful role in the businesses.

[We not only fleeced them of their native land but are now using them as stooges to fleece our own poor.]

—Yuka Hayashi contributed to this article.

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