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The Consumer Financial Protection Bureau (CFPB) announced its action to halt the operations of an online payday lender, the Hydra Group, which it believes is running an illegal cash-grab scam. The lawsuit alleges that the Hydra Group uses information bought from online lead generators to access consumers' checking accounts to illegally deposit payday loans and withdraw fees without consent. The Hydra Group then uses falsified loan documents to claim that the consumers had agreed to the phony online payday loans. At the request of the CFPB, a U.S. District Court Judge has temporarily ordered a halt to the operation and frozen its assets. The lawsuit also seeks to return the ill-gotten gains to consumers and levy a fine on the company.
The CFPB's lawsuit names Richard F. Moseley, Sr., Richard F. Moseley, Jr., and Christopher J. Randazzo, who control the Hydra Group. The lawsuit alleges that the defendants operate the business through a maze of corporate entities created to evade regulatory oversight. Their collection of roughly 20 businesses includes SSM Group, Hydra Financial Limited Funds, PCMO Services, and Piggycash Online Holdings.
Consumers' trouble would begin after submitting sensitive, personal financial information to online lead generators that match consumers with payday lenders. These lead generators then auction off the consumers' information to firms that make payday loans. In some cases, they sell large volumes of leads to data brokers that then re-sell them to lenders. The Hydra Group buys this information, uses it to access consumers' checking accounts to deposit unauthorized payday loans, and then begins debiting unauthorized fees.
While most of the Hydra Group's victims were consumers who did not even know they had been targeted until they noticed an unauthorized deposit in their bank accounts, some consumers actually did sign up for loans from the Hydra Group. These consumers were also subjected to illegal practices. The CFPB alleges that over a 15-month period, the Hydra Group made $97.3 million in payday loans and collected $115.4 million from consumers in return.
The CFPB is alleging that the Hydra Group and its operators are in violation of multiple laws, including the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. According to the Bureau's complaint, Hydra's illegal actions include:
Bi-weekly cash-grab: The Bureau alleges that the Hydra Group puts money into consumers' accounts without authorization. After depositing the payday loan, typically $200 or $300, it then withdraws a $60 to $90 "finance charge" from the account every two weeks indefinitely. According to the Bureau's complaint, some consumers have had to get stop-payment orders or close their bank accounts to put an end to these bi-weekly debits. In some cases, consumers have been bilked out of thousands of dollars in finance charges.
Nonexistent or false disclosures: Lenders are generally required by law to disclose the terms of a loan to the consumer prior to the transaction. But in the case of the Hydra Group, the Bureau alleges that consumers typically get the loans without having seen the finance charge, annual percentage rate, total number of payments, or payment schedule. Even where consumers do receive loan terms up front, the Bureau believes they contain misleading or inaccurate statements. For instance, the Hydra Group tells consumers that it will charge a one-time fee for the loan. In reality, it collects that fee every two weeks indefinitely, and it does not apply any of those payments toward reducing the loan principal.
Requiring repayment by pre-authorized electronic funds transfers: According to the Bureau's complaint, even in the cases where consumers consented to loans from the Hydra Group, the defendants violated federal law by requiring consumers to agree to repay by pre-authorized electronic fund transfers. Federal law says repayment of loans cannot be conditioned on consumers' pre-authorization of recurring electronic fund transfers.
Bogus loan documents: The Bureau alleges that when consumers contact the Hydra Group to dispute the loans and their fees, representatives insist the consumer did authorize the loan and go so far as to show them copies of bogus applications or electronic transfer authorizations. Similarly, when the consumer's bank or credit union contacts the Hydra Group to inquire about the charges, the company also shows them bogus documentation. As a result, consumers' banks or credit unions may deny requests to reverse the Hydra Group's deposits or withdrawals.
Illegitimate debt collection: Even when consumers successfully close their deposit accounts, the Bureau alleges that in many cases the Hydra Group sells the bogus debt to third-party debt collectors. Though there is no legitimate basis for the debt, consumers are still contacted and pursued for loans they never agreed to.
The CFPB lawsuit seeks to halt the Hydra Group's illegal business. It also seeks money to be returned to consumers victimized by the Hydra Group's scam, and requests a civil fine for the company's malfeasance.