FTC Takes Action Against Deceptive Payday Loan Marketers: What Businesses Can Learn
May 15, 2011
In a recent action, the Federal Trade Commission (“FTC”) charged two men, Michael Bruce Moneymaker and Daniel De La Cruz, along with their companies, for unlawfully billing consumers without their consent. These deceptive practices, which primarily targeted individuals seeking payday loans, involved enrolling consumers in costly “continuity” programs without their knowledge or approval. The FTC has sought to halt these practices and secure refunds for the affected individuals. This case highlights critical lessons for businesses about the importance of transparency, consumer consent, and proper billing practices.
According to the FTC’s complaint, Moneymaker, De La Cruz, and their businesses obtained consumer personal information from websites designed to match consumers with payday lenders. Unbeknownst to the consumers, the businesses enrolled them in multiple programs that carried up-front costs of up to $49.99 and additional recurring charges of up to $19.98. These “continuity” programs billed consumers on an ongoing basis unless they took active steps to cancel.
The defendants used deceptive tactics to enroll consumers in these programs. After submitting their information on payday loan sites, consumers were presented with a pop-up box labeled “Terms and Conditions,” which seemed to be a part of the payday loan application process. In reality, this pop-up was a mechanism to enroll consumers in the defendants’ continuity programs. Many consumers unwittingly authorized these charges, believing they were part of the payday loan process.
Once enrolled, the defendants accessed consumers’ bank account details and withdrew money through “remotely created checks,” a practice that allowed them to siphon funds without explicit consent. Consumers often only discovered the unauthorized charges when they checked their bank accounts or when they were overdrawn. Attempting to resolve the issue, many consumers encountered unresponsive customer service lines or were put on hold for extended periods. Even when they managed to speak with someone, they were often met with evasive tactics and false promises of refunds that never materialized.
The FTC’s complaint alleges that the defendants violated several key provisions of the FTC Act. These include obtaining consumers’ bank account information without proper authorization, falsely representing that consumers’ approvals were part of a payday loan application, and failing to disclose the automatic enrollment in third-party offers. Furthermore, the defendants misled consumers about their right to refunds and frequently promised refunds that were never provided.
For businesses, this case serves as a stark reminder of the importance of obtaining clear, informed consent from customers before initiating any financial transaction. Transparency is key: all terms, conditions, and associated costs should be clearly disclosed to consumers at every stage of the process. Any “free trials” or subscription-based models must be clearly outlined, ensuring consumers understand the potential charges they could face.
Moreover, businesses must be vigilant in ensuring that they provide effective customer support. The failure to resolve complaints in a timely and fair manner can lead to serious legal repercussions, not to mention a loss of consumer trust. Finally, businesses should ensure that their billing practices are ethical and in compliance with applicable consumer protection laws. This includes not only obtaining consent but also making it easy for consumers to cancel services or request refunds.
This FTC action is a critical warning to businesses in any industry that deals with consumer financial data, particularly those offering recurring services or subscriptions. Being upfront about billing practices, maintaining a commitment to customer satisfaction, and adhering to legal and ethical standards are essential steps to avoid costly legal battles and protect your business reputation.
If you would like to read more about this case and others, visit our Case Studies Library.
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This article is for information purposes only. It is not intended to be and should not be relied on as legal advice for any particular matter.
