Federal judge allows Pa. AG’s case alleging illegal payday loan scheme to move forward

By Jessica Karmasek | Feb 11, 2016


HARRISBURG, Pa. (Legal Newsline) - A federal court last month sided with Pennsylvania Attorney General Kathleen Kane in a consumer protection lawsuit filed against a Texas-based company for allegedly engineering an illegal payday loan scheme over the Internet.

Judge J. Curtis Joyner, for the U.S. District Court for the Eastern District of Pennsylvania, denied most of the motions to dismiss filed by the defendants in the case, allowing the lawsuit to proceed.

According to Kane’s lawsuit, originally filed in Philadelphia County’s Court of Common Pleas in November 2014, the defendants allegedly targeted Pennsylvania consumers in violation of state law.

In particular, the attorney general alleged defendants Think Finance Inc. (formerly ThinkCash), TC Loan Service LLC, Tailwind Marketing LLC, TC Decision Sciences LLC, Financial U LLC and Kenneth Rees violated Pennsylvania and federal laws prohibiting usurious and otherwise illegal lending practices.

Rees and the companies use an address of 4150 International Plaza, Suite 400, Fort Worth, Texas, according to Kane’s office.

Kane also alleged that various debt buyers and collectors, including defendant National Credit Adjusters LLC, and affiliated marketing companies, like defendants Selling Source LLC and PartnerWeekly LLC, participated in the scheme by referring residents to the Think defendants’ products and by collecting or attempting to collect these loans.

Payday loans, which typically charge interest rates as high as 200 or 300 percent, are illegal in Pennsylvania.

According to the attorney general’s lawsuit, Think Finance targeted consumers in the state using three Native American tribes, who function as the apparent lender, as a cover. In turn, Think Finance earned significant revenues from various services it charged to the tribes.

Kane said before establishing the tribal partnerships, the company allegedly used the cover of a rogue bank based in Center City Philadelphia, in what is commonly referred to as a “rent-a-bank” scheme, until the federal government shut down the bank.

The defendants, which maintain they are merely service providers and have violated no laws, had the attorney general’s case removed to the Eastern District of Pennsylvania in December 2014.

Soon after, in March 2015, Kane filed a motion to remand the case back to state court; her motion was denied in May.

In August, the defendants filed various motions to dismiss, arguing that Kane’s Corrupt Organizations Act and other state law claims based on the alleged “rent-a-bank” scheme are preempted by a section of the Federal Deposit Insurance Act.

The federal court, in its Jan. 14 memorandum, ruled that preemption did not apply.

“We find that even though the complaint contains state usury claims, that there are no claims made against a bank is sufficient to avoid preemption,” Joyner wrote.

The defendants also tried arguing that the interest charged on the loans at issue was authorized by law, and does not fall under the definition of “racketeering activity.”

More specifically, they alleged that the tree tribal lending enterprises that issued the loans in question are licensed under their respective tribe’s laws, so they are considered “foreign financial institutions” under the Banking Law Modernization Package, or BLMP.

The BLMP, passed in 2012, removed interest rate restrictions on Pennsylvania state-chartered banks.

But Joyner, writing for the federal court, said the General Assembly did not intend for “foreign financial institutions” in a section of the law to include payday lenders such as the tribal entities at issue.

“Accordingly, we find that the loans are not ‘authorized by law’ such that COA would not apply,” the judge wrote.

The attorney general is seeking, among other things:

- Injunctive relief to prohibit defendants from violating Pennsylvania law;

- Restitution for all consumers harmed by the scheme;

- Civil penalties of up to $1,000 for each violation of state law;

- Civil penalties of up to $3,000 for each violation involving a senior citizen; and

- Notification of credit bureaus to remove all negative information related to the scheme and all references to any of the defendants from consumers’ credit reports.

Joyner has ordered Financial U, National Credit Adjusters, PartnerWeekly, Rees, Selling Source, TC Loan Service and Think Finance to file an answer to the attorney general’s first amended complaint. The answers were due last week.

Philadelphia law firm Langer Grogan & Diver PC is assisting Kane’s office in the lawsuit.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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