By Steve Vockrodt
Without explanation, the Consumer Financial Protection Bureau has dropped a lawsuit in Kansas it had filed a year ago against four payday lending companies.
The move reinforced worries among consumer advocates that the federal watchdog agency is backing away from scrutinizing the payday lending industry.
The CFPB, a federal agency formed in 2011 in the aftermath of the Great Recession, filed a notice of voluntary dismissal Thursday in its case against Golden Valley Lending and three other payday lending enterprises: Silver Cloud Financial, Mountain Summit Financial and Majestic Lake Financial.
The agency had alleged in its lawsuit that the four companies charged interest rates of 440 percent to 950 percent, beyond what several states allow for consumer loans.
The case was filed in Kansas because the CFPB alleged that the companies largely operated out of a call center in Overland Park, despite being formally organized on an American Indian reservation in California.
One of the companies, Silver Cloud Financial, also received funding from a Kansas company called RM Partners, according to the CFPB.
RM Partners was incorporated by Richard Moseley, Jr., according to Kansas Secretary of State records. Moseley’s father, Richard Moseley, Sr., a Kansas City resident, was recently convicted of criminal charges related to an illegal payday lending operation.
The business model used by the four companies mirrors what’s referred to as the “rent-a-tribe” structure, where a payday lender nominally establishes its business on American Indian reservations, where state regulations generally do not apply.
Some payday lenders favor the model because they can charge interest rates higher than what states allow.
“For the reasons outlined in our motion to dismiss, this case should never have been brought in the first place,” said Lori Alvino McGill, an attorney representing the Habematolel Pomo of Upper Lake, the tribe where the lending businesses were established. “We’re glad that the Bureau has withdrawn the lawsuit that was diverting the Tribe’s resources and attention away from economic activity that benefits its members and its neighbors.”
The CFPB dismissed its case against the four companies without prejudice, which means the agency can re-file the case in the future.
“The Bureau will continue to investigate the transactions that were at issue,” the CFPB said in a statement. “Because it is an open enforcement matter, we cannot provide further comment.”
The CFPB did not directly address questions about changes in policy at the agency as it related to payday lenders.
News of the dismissal adds to other recent actions taken by the CFPB that cause consumer advocates to worry that the agency established to protect consumers now favors the industries it’s supposed to scrutinize.
“It’s deeply concerning that the Trump administration is working to completely gut the CFPB from the inside,” said Andy Morrison, campaigns director for New York-based advocacy group New Economy Project.
Late last year President Trump named Mick Mulvaney, a former South Carolina Senator and director of the Office of Management and Budget under Trump, the acting director of the CFPB.
Mulvaney received $31,700 in contributions from payday lenders during the 2015-16 election cycle, according to a report in December by USA Today, leading to concerns that he would be friendly to the payday loan industry in his role as an a watchdog.
He also criticized a CFPB rule requiring payday lenders and other consumer lenders to determine whether borrowers can afford to repay their loans.
In the USA Today report. Mulvaney denied that those contributions influenced his positions regarding the agency or his decision-making as CFPB director.
In a letter to Federal Reserve Chairwoman Janet Yellen earlier this week, Mulvaney requested no money to fund the agency in the second quarter of 2018, opting instead to spend the agency’s reserve funding.
“It definitely seems that Mulvaney is doing what he can to make life easier for payday lenders, which is completely contrary to what almost everybody in America thinks should happen,” said Diane Standaert, executive vice president for the Center for Responsible Lending.
Kansas City has long been considered a notorious haven for payday lenders, particularly those who run illegal lending or debt collection operations.
Scott Tucker, a 55-year-old Leawood resident who was a professional race car driver for a time, on Jan. 5 started his nearly 17-year prison sentence in a detention center in Brooklyn after being convicted of running an abusive payday lending operation.
Tucker is the subject of a forthcoming Netflix documentary series called “Dirty Money” that explores his business and legal predicament. Much of it was filmed prior to his conviction, and includes extensive interviews with Tucker and his attorney, Tim Muir, who was also convicted last year and was sentenced to seven years in prison.
Tucker’s businesses were also incorporated on American Indian reservations in Oklahoma and Nebraska, but operated largely out of Overland Park.
In the episode, Tucker said he could understand the federal government’s interest in him had he been robbing banks, but could not fathom why it investigated the payday lending industry. The documentary airs publicly on Jan. 26.
The CFPB and the Federal Trade Commission have gone after several other individuals in the Kansas City area tied to the payday loan industry.
Tucker’s brother, Joel Tucker, was ordered to pay $4 million as a result of a FTC case against him that alleged he sold fake payday loan portfolios, leading to consumers receiving phone calls from debt collectors seeking payment for debts that were not owed.
The CFPB in 2015 sued Integrity Advance, which was run by Mission Hills businessman Jim Carnes, for running a deceptive online lending business, leading to a judge’s recommendation that the company repay $38.1 million in restitution. Carnes appealled that decision.
The FTC also pursued claims against companies operated by Mission Hills resident Tim Coppinger for running a deceptive payday loan scheme, later resulting in a $54 million settlement.