The Hydra Group Uses Phony Payday Loans to Illegally Access Consumer Bank Accounts
WASHINGTON, D.C.—(ENEWSPF)—September 17, 2014. Today the Consumer Financial Protection Bureau (CFPB) announced its action to halt the operations of an online payday lender, the Hydra Group, which it believes is running an illegal cash-grab scam. The lawsuit alleges that the Hydra Group uses information bought from online lead generators to access consumers’ checking accounts to illegally deposit payday loans and withdraw fees without consent. The Hydra Group then uses falsified loan documents to claim that the consumers had agreed to the phony online payday loans. At the request of the CFPB, a U.S. District Court Judge has temporarily ordered a halt to the operation and frozen its assets. The lawsuit also seeks to return the ill-gotten gains to consumers and levy a fine on the company.
“The Hydra Group has been running a brazen and illegal cash-grab scam, taking money from consumers’ bank accounts without their consent,” said CFPB Director Richard Cordray. “The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking, and we are taking decisive action to prevent any more consumers from being harmed.”
The complaint against the Hydra Group can be found at: http://files.consumerfinance.gov/f/201409_cfpb_complaint_hydra-group.pdf
The CFPB’s lawsuit names Richard F. Moseley, Sr., Richard F. Moseley, Jr., and Christopher J. Randazzo, who control the Hydra Group. The lawsuit alleges that the defendants operate the business through a maze of corporate entities created to evade regulatory oversight. Their collection of roughly 20 businesses includes SSM Group, Hydra Financial Limited Funds, PCMO Services, and Piggycash Online Holdings. The entities are based in Kansas City, Missouri, but many of them are incorporated offshore, in New Zealand or the Commonwealth of St. Kitts and Nevis.
Consumers’ trouble would begin after submitting sensitive, personal financial information to online lead generators that match consumers with payday lenders. These lead generators then auction off the consumers’ information to firms that make payday loans. In some cases, they sell large volumes of leads to data brokers that then re-sell them to lenders. The Hydra Group buys this information, uses it to access consumers’ checking accounts to deposit unauthorized payday loans, and then begins debiting unauthorized fees.
While most of the Hydra Group’s victims were consumers who did not even know they had been targeted until they noticed an unauthorized deposit in their bank accounts, some consumers actually did sign up for loans from the Hydra Group. These consumers were also subjected to illegal practices. The CFPB alleges that over a 15-month period, theHydraGroupmade $97.3million in payday loansandcollected$115.4million from consumers in return.
The CFPB is alleging that the Hydra Group and its operators are in violation of multiple laws, including the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. According to the Bureau’s complaint, Hydra’s illegal actions include:
Bi-weekly cash-grab: The Bureau alleges that the Hydra Group puts money into consumers’ accounts without authorization. After depositing the payday loan, typically $200 or $300, it then withdraws a $60 to $90 “finance charge” from the account every two weeks indefinitely. According to the Bureau’s complaint, some consumers have had to get stop-payment orders or close their bank accounts to put an end to these bi-weekly debits. In some cases, consumers have been bilked out of thousands of dollars in finance charges.
Nonexistent or false disclosures: Lenders are generally required by law to disclose the terms of a loan to the consumer prior to the transaction. But in the case of the Hydra Group, the Bureau alleges that consumers typically get the loans without having seen the finance charge, annual percentage rate, total number of payments, or payment schedule. Even where consumers do receive loan terms up front, the Bureau believes they contain misleading or inaccurate statements. For instance, the Hydra Group tells consumers that it will charge a one-time fee for the loan. In reality, it collects that fee every two weeks indefinitely, and it does not apply any of those payments toward reducing the loan principal.
Requiring repayment by pre-authorized electronic funds transfers: According to the Bureau’s complaint, even in the cases where consumers consented to loans from the Hydra Group, the defendants violated federal law by requiring consumers to agree to repay by pre-authorized electronic fund transfers. Federal law says repayment of loans cannot be conditioned on consumers’ pre-authorization of recurring electronic fund transfers.
Bogus loan documents: The Bureau alleges that when consumers contact the Hydra Group to dispute the loans and their fees, representatives insist the consumer did authorize the loan and go so far as to show them copies of bogus applications or electronic transfer authorizations. Similarly, when the consumer’s bank or credit union contacts the Hydra Group to inquire about the charges, the company also shows them bogus documentation. As a result, consumers’ banks or credit unions may deny requests to reverse the Hydra Group’s deposits or withdrawals.
Illegitimate debt collection: Even when consumers successfully close their deposit accounts, the Bureau alleges that in many cases the Hydra Group sells the bogus debt to third-party debt collectors. Though there is no legitimate basis for the debt, consumers are still contacted and pursued for loans they never agreed to.
The CFPB lawsuit seeks to halt the Hydra Group’s illegal business. It also seeks money to be returned to consumers victimized by the Hydra Group’s scam, and requests a civil fine for the company’s malfeasance.
The CFPB lodged its complaint against the Hydra Group and requested a temporary restraining order in the U.S. District Court for the Western District of Missouri on Sept. 9, 2014. The court granted the request that same day, freezing the defendants’ assets and installing a receiver to oversee the business and ensure that the group’s illegal conduct ceases. The court has scheduled a hearing on the Bureau’s request for a preliminary injunction, in which the Bureau seeks to keep this relief in place while the case proceeds.
The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law.
Related Material:
Prepared Remarks of Richard Cordray, Director of the Consumer Financial Protection Bureau, Hydra Group Enforcement Action Press Call, Washington, D.C., September 17, 2014
Thank you for joining us. Today, the Consumer Financial Protection Bureau is announcing an enforcement action against an online payday lender, the Hydra Group, which we believe has been running an illegal cash-grab scam to force purported loans on people without their prior consent. It is an incredibly brazen and deceptive scheme.
In the lawsuit, we allege that this Kansas City-based outfit buys sensitive financial information from lead generators for online payday loans, including detailed information about people’s bank accounts. It then deposits money into the account in the guise of a loan, without getting an agreement or authorization from the consumer. These so-called “loans” are then used as a basis to access the account and make unauthorized withdrawals for expensive fees. If consumers complain, the group uses false loan documents to claim that they had actually agreed to the phony loans.
These kinds of predatory tactics are obviously inexcusable. So at our request, a federal judge has now entered an order temporarily shutting down the Hydra Group’s illegal activities and freezing its assets. We are also seeking to halt these activities permanently, secure refunds for consumers, and impose a penalty.
Rarely is a company so appropriately named. Like the multi-headed serpent in Greek mythology, the Hydra Group is actually a conglomeration of about 20 businesses with various names. They all operate under the control of three men: Richard Moseley, Sr.; Richard Moseley, Jr.; and Christopher Randazzo. Although their payday lending operations are based in Missouri, many of the companies are incorporated offshore, in New Zealand and the Commonwealth of St. Kitts and Nevis. Their maze of businesses and shell companies seems designed to evade effective law enforcement, and includes names like SSM Group, Hydra Financial Limited, and Piggycash Online Holdings.
The trouble begins when a consumer visits an online lead generator and submits their sensitive, personal financial information in hopes of getting a quick loan. Lead generators then auction off the information to the highest bidder, typically either a payday lender or a broker who resells the leads. When the Hydra Group is the buyer of the information, it uses it to access the person’s checking account illegally to deposit a loan and begins debiting unauthorized fees. The Bureau alleges that over a 15-month period, theHydraGroupmade $97.3million in payday loansandcollected$115.4million from consumers in return.
Most consumers targeted by the Hydra Group receive the $200 to $300 deposits in their bank accounts without any prior knowledge. They do not receive a loan disclosure statement. They do not even know the terms of the so-called “loan” – the finance charge, the annual percentage rate, or the payment schedule. They may have been shopping online for a payday loan, but never signed any specific agreements with the Hydra Group.
While most of the Hydra Group’s victims are unaware they have been targeted until they notice unauthorized deposits in their bank accounts, some other consumers may actually sign up for loans from Hydra Group. The Hydra Group deceives these consumers too, for instance by telling them that it charges a one-time fee for the loan, usually $60 to $90, when instead it collects a fee every two weeks and does not apply these payments to the loan principal. The Hydra Group is also violating the Electronic Fund Transfer Act, which bars lenders from requiring that an offer of credit must be repaid by pre-authorized electronic fund transfers.
Consumers who try to contact the Hydra Group may not be able to reach anyone at all, but if they are able to reach one of the companies, they are presented with bogus documents alleged to justify the withdrawals. If instead the consumer disputes the matter with their bank or credit union, the Hydra Group presents the institution with bogus documents, sometimes causing a denial of the consumer’s request to reverse the withdrawals or deposits. Some consumers have had to close out their bank accounts altogether to put an end to the abuse. If that were not enough, even when a consumer closes the account, we found that the Hydra Group may have sold the bogus debt to third-party debt collectors, who then pursue repayment of the bogus loans and charges.
We filed this lawsuit under seal in the United States District Court for the Western District of Missouri on September 9. The court granted our request for a temporary restraining order that same day, freezing the defendants’ assets and installing a receiver to oversee the business and ensure that the group’s illegal conduct ceases. The court has scheduled a hearing on the Bureau’s request for a preliminary injunction, in which the Bureau seeks to keep this relief in place while the case proceeds. We found it necessary and justified to take this action to halt the Hydra Group’s phony payday loan business. The utter disregard for the law shown by these businesses and the men who control them is shocking and the grave harm they are doing to consumers simply has to be stopped.
I now turn it over to Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. Jessica will talk about a case the FTC brought against a similar unlawful online payday lending operation. We have coordinated here to best use our resources to pursue our separate actions against these bad actors and to provide a common front against this grave misconduct. I commend the FTC on its case and its dedication to ferreting out consumer harm in this area, a goal our agencies share. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
Source: www.consumerfinance.gov
