Middlemen for Payday Lenders Under Fire
Federal and state officials are cracking down on businesses that provide sensitive consumer financial data to payday lenders, the latest front in a continuing battle to curb high-cost loans.
In the latest salvo, Illinois Attorney General Lisa Madigan filed a lawsuit Monday against a company that serves as a middleman between consumers seeking loans and payday lenders, some of which the prosecutor alleges aren't licensed to do business in the state.
The suit, filed in state court, alleges that the company, MoneyMutual LLC, is operating as an unlicensed lender by arranging loans for customers that violate Illinois's law limiting the fees that can be charged to borrowers.
Illinois seeks to stop MoneyMutual from marketing payday loans to Illinois consumers, while issuing fines against the company.
A spokesman for MoneyMutual declined to comment on the suit.
MoneyMutual, which isn't a lender, is one of dozens of so-called lead generators that help drum up business for payday lenders by taking customer information, such as bank-account numbers and email addresses, and selling the information to firms that make the loans.
The company's advertisements and website feature television personality Montel Williams.
Regulators have expanded their focus to businesses that may not engage in lending but provide services, such as customer information and payment processing, to lenders that may have found loopholes around state regulations. The push coincides with moves to go after the lenders themselves.
A spokesman for MoneyMutual said that the company has a "history of positive consumer experience."
A spokesman for Mr. Williams said that his client "takes positive consumer experiences very seriously" and adds that "there has been a historically low rate of consumer complaints received by us directly" over the partnership with MoneyMutual.
"We are unaware of any unresolved complaints and have been very pleased with how thoroughly the company has addressed the handful of complaints we have received from actual customers," the spokesman added.
By targeting lending firms' partners, regulators hope to hinder the lenders' ability to operate.
Benjamin Lawsky, superintendent of the New York Department of Financial Services, sent subpoenas in December to 16 lead-generation companies, including MoneyMutual, that he alleged marketed illegal payday loans.
The Consumer Financial Protection Bureau, which is expected to issue new rules for payday lenders, is also investigating MoneyMutual as part of its review of the payday-lending industry, according to documents the agency posted on its website last month.
Consumer advocates and regulators are worried that lead generators such as MoneyMutual, based in Las Vegas, could put consumers' information at risk.
"In addition to connecting consumers to unregulated and unprotected payday loans, they're also having consumers give them an extraordinary amount of information," Ms. Madigan said in an interview. "We don't know if that information is being protected."
MoneyMutual and other lead-generation companies are an important source of business for payday lenders. In the past, as much as 75% of online payday-loan volume has been sourced from such companies, said John Hecht, an analyst with investment-banking firm Stephens Inc.
The MoneyMutual spokesman said the company takes steps to ensure that consumer information isn't misused or accessed by unauthorized parties.
At least 15 states have effectively banned payday loans, which typically are made for a few hundred dollars and last a few weeks. Customers repay the loans when they get their next paycheck, often through an automatic payment from their bank accounts.
New rules that Illinois put in place in 2005 limit the fees payday lenders can charge to $15.50 per $100, cap the number of loans a borrower can have out at one time and include other requirements.
In addition to suing MoneyMutual, Ms. Madigan filed lawsuits Monday against four payday lenders accused of operating without a license and other alleged violations.
Some payday lenders have responded to new rules by setting up shop online, arguing in some cases that their e-commerce operations aren't subject to state laws because they don't operate physical storefronts.