CFPB takes legal action against online payday lender

The Consumer Financial Protection Bureau has announced a lawsuit against online payday lender Hydra Group. The suit alleges fraudulent practices associated with their payday loans.

The Consumer Financial Protection Bureau has announced a lawsuit against online payday lender Hydra Group. The suit alleges fraudulent practices associated with their payday loans. This is the latest CFPB action in an ongoing crackdown on the payday loan industry which has already featured a $10 million fine for Ace Cash Express in July. The complaint can be found here.

The CFBP has been keeping a close eye on payday loans, where borrowers take out small loans that usually must be paid back when they receive their next paycheck, typically in one or two weeks. Consumer advocates say these high-interest loans can trap primarily low-income borrowers in a cycle of mounting debt. They have been concerned in particular about online lenders, which they say sometimes skirt state laws that regulate payday loans.

The Hydra Group is one such entity, which has no physical retail offices. The individual defendants named in the lawsuit allegedly operate the business through a maze of corporate entities created to evade most regulatory oversight. Their collection of roughly 20 businesses are incorporated in several states. Many of them are actually incorporated overseas. 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.

The lawsuit alleges that the Hydra Group uses key information purchased at auctions from online lead generators to access consumers’ checking accounts. They then illegally deposit payday loans into the accounts and immediately begin withdrawing payments and fees without consent. The Hydra Group then uses falsified loan documents to claim that the consumers had agreed to the phony loans. At the request of the CFPB, a US District Court judge has temporarily ordered a halt to the operation and frozen its assets, installing a receiver to oversee the business and ensure that the group’s illegal conduct ceases until the case can be adjudicated. The lawsuit also seeks to return the ill-gotten gains to consumers and levy a fine on the company. The CFPB alleges that over a 15-month period, the Hydra Group made $97.3million in payday loans and collected $115.4million from consumers in return.

“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.”