The Federal Trade Commission has filed suit against Cash Today, a payday lender that prosecutors say did not properly disclose the terms of its high-interest-rate loans to cash-short consumers.
The FTC's complaint also alleges that Cash Today threatened and intimidated customers who fell behind in their payments, making obscenity-laced calls that claimed consumers could be jailed if they did not keep their payments up to date. The company is also accused of taking money from consumers' bank accounts without permission.
The FTC says that since 2005, it has received a barrage of consumer complaints involving millions of dollars in loans. Complaints to ConsumerAffairs.com echo those received by the FTC.
"A man calling himself Craig called me today and began yelling at me about what I owed," said Michele of Lombard, Ill. "He said I took out a $200 loan and now I owed $2,000 and he was going to keep calling back until I paid them. He called me at work. He would not let me get a word in. He started threatening me, all of this while I'm at work."
Michele said she had to close her bank account to prevent further unauthorized withdrawals.
Cash Today, controlled by British millionaire Aaron Gershfield, is an umbrella company that operates a number of Web sites. London's Daily Telegraph reported Gershfield has denied any wrongdoing.
We are surprised and disappointed that the US Federal Trade Commission has chosen to take this action, given that we believe there is no foundation to the allegations made," Gershfield said, the Telegraph reported. "We have instructed our counsel in the US to cooperate with the proceedings and to assure the FTC that we are complying with all applicable laws.
Payday loans have become so controversial that some states have outlawed them and the U.S. military has complained that troops and their families are often prime targets of unscrupulous loan sharks.
The short-term loans typically come at what Illinois Attorney General Lisa Madigan called "an incredibly high cost" to the consumer -- with annual interest rates often reaching 400 percent.
The Center for Responsible Lending recently estimated that consumers who borrow from payday lenders wind up paying $4.2 billion in excessive fees.
The group's study finds that across the nation payday borrowers are paying more in interest, at annual rates of 400 percent, than the amount of the loan they originally borrowed. "Americans who think they're getting a two-week loan and end up trapped in debt," the report says.
Some consumers, like Anika of Shreveport, La., even contend that they have been hounded by Cash Today for money they never received.
"I received a call from Sabee stating that I owed Cash Today Ltd. over $5000.00 for a $200 loan that I borrowed in 2004. I told him that I did not believe that was me because I had my purse stolen from my place of employment during that time and I did not make a loan. He went on to demand that it was me and told me that if I did not pay the money he would contact my employer to garnish my wages for the money," she told ConsumerAffairs.com.
The FTC complaint charges that, besides concealing the true cost of the loans, Cash Today used a call center in north London whose staffers talked quickly in "poor of heavily accented English," making it difficult for consumers to understand their demands.
According to the complaint, the defendants also used "obscene, profane, threatening or otherwise abusive language in calls to consumers, their co-workers and their employers".
