Ftc Halts Wage Garnishment Tactic Of Payday Lender

The Federal Trade Commission (FTC) filed an action in U.S. district court in September against a payday lender that allegedly attempted to use wage garnishment as a collection tactic against its customers. This illegal activity has been halted by the lender in an attempt to avoid trial.

The FTC has an ongoing effort to curtail illegal behavior practiced by payday lenders. The FTC complaint is against Payday Financial, LLC, doing business as Lakota Cash and Big Sky Cash. These companies, and others, are accused of illegal attempts to threaten wage garnishment on consumers' wages without obtaining a court order. The targeted consumers were delinquent on repaying their payday loans.

Consumers' Employers and Coworkers Notified
The accused payday lenders shared the debt information with consumers' employers and coworkers. This act violated their right to dispute the debt under federal debt collection laws. Consumers also lost the opportunity to set up and make alternate payment plans to resolve the debt.

The FTC complaint states that when a consumer does not pay back their payday loan on time, the defendants send documents to the borrower's employer. The documents look like those used by federal agencies collecting debts owed to the government in an attempt initiate wage garnishment.

What Wage Garnishment Law Really Says
Federal law allows the government to require employers to initiate wage garnishment for debts it is owed without a court order. However, the same law does not apply to private creditors. Instead, private creditors must acquire a court order before attempting to set up the wage garnishment process.

The complaint charges the defendants with violating the FTC Act by:
misrepresenting to employers that the defendants are legally authorized to garnish an employee's wages, without first obtaining a court order;

falsely representing to employers that the defendants have notified consumers about the pending garnishment and have given them an opportunity to dispute the debt;

and unfairly disclosing the existence and the amounts of consumers' supposed debts to employers and coworkers without the consumers' knowledge or consent.

Additional Violations Payday Customers Can Learn From
The complaint further alleges that the defendants have violated the FTC's Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default, and have violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.

The full list of company names included in this action is:
Payday Financial, LLC
Great Sky Finance, LLC
Western Sky Financial, LLC
Red Stone Financial, LLC
Financial Solutions, LLC
Management Systems, LLC
24 7 Cash Direct, LLC
Red River Ventures, LLC
High Country Ventures, LLC