FTC Gets Payday Lenders to Back Off

     PIERRE, S.D. (CN) - A long list of lenders agreed to stop trying to garnish the wages of consumers who are delinquent on payday loans, pending trial on FTC charges that the South Dakota-based businesses have been doing so without a court order.
     South Dakota is a preferred corporate home of payday lenders because the state has no limit on interest rates.
     The FTC sued Payday Financial dba Lakota Cash and Big Sky Cash, and a long list of other South Dakota-based lenders operated by defendant Martin A. Webb.
     The FTC says Webb's companies send to employers of its delinquent customers documents that look like those used by federal agencies.
     PayDay offers short-term, high-fee unsecured payday loans of $300 to $2,525 to consumers across the country. It advertises on TV and websites.
     PayDay advertises itself on its website as a Native American-owned business operating "within the exterior boundaries of the Cheyenne River Sioux Reservation, a sovereign nation located within the United States of America." Borrowers apply for loans online and sign the application electronically.
     The FTC says PayDay and its cousins use unfair and deceptive credit practices, including hiding garnishment provisions - in small print deep in the loan application - which illegally deprive applicants of the right to revoke the garnishment agreement in favor of a payment plan and allow garnishment of future wages as well as those already earned by the borrower.
     PayDay requires borrowers to agree to electronic funds transfers on future earnings and extends credit to borrowers against future earnings, creating a constant cycle of debt, the FTC says.
     The day after FTC sued it, PayDay stipulatedto a preliminary injunction preventing it from trying to garnish the wages of its borrowers unless their loans were made without the garnishment provisions to which the FTC objects.
     PayDay also agreed not to extend any more credit to its borrowers against the mandatory preauthorized electronic fund transfers the company required.
     The FTC seeks disgorgement and a permanent injunction, alleging violations of the Electronic Funds Transfer Act, the Federal Trade Commission Act and the FTC Credit Practices Rule.