The Federal Trade Commission recently announced a settlement with two online payday lenders to resolve charges that they violated the FTC Act, the Truth in Lending Act (TILA), and the Electronic Fund Transfer Act (EFTA). The settlement, which the FTC is calling its largest recovery in a payday lending case, requires the lenders to pay a $21 million judgment and waive approximately $285 million in charges that were assessed but not collected.

The FTC’s complaint, which was filed in a Nevada federal district court in April 2012, alleged that the TILA disclosures given by the lenders understated the amount of a borrower’s repayment obligation because they were based on a borrower’s use of a single payment option, rather than on a renewal plan involving multiple payments, in which a borrower would be automatically enrolled unless he or she opted out. According to the FTC, a renewal plan would result in total borrower payments that included a substantially higher finance charge than had been disclosed.

The FTC charged that the existence of the automatic renewal plan and the process for declining renewal involved a convoluted e-mail and hyperlink procedure that was not clearly disclosed. The FTC claimed that the lenders had engaged in deceptive acts and practices in violation of the FTC Act, failed to accurately disclose the annual percentage rate and other loan terms in violation of the TILA, and required borrowers to repay loans by preauthorized debits in violation of the EFTA.

The lenders had initially challenged the FTC’s authority to bring the action based on their tribal affiliation. In March 2014, the district court accepted and adopted the magistrate judge’s finding that the FTC Act was a federal statute of general applicability that gave the FTC authority to regulate Indian tribes, as well as arms of Indian tribes, their employees, and their contractors. (For a fuller discussion of the court’s ruling, see our prior legal alert.) The settlement follows a May 2014 decision by the district court granting summary judgment to the FTC on its FTC Act and TILA claims.

The stipulated order entered by the court provides that the required $21 million payment may be deposited into a fund administered by the FTC or its designee to be used for equitable relief, including consumer redress and any related expenses for administration of the fund. It also provides for the extinguishment of all loans issued by the lenders before December 27, 2012, to the extent a borrower’s outstanding debt “exceeds the amount financed plus one finance charge.” The FTC estimates this amount to be a total of $285 million. The order also includes provisions that prohibit the lenders from misrepresenting loan terms, violating TILA, or conditioning loans on preauthorized debits, and impose compliance monitoring obligations.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, or CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or

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