Say a consumer is thinking about buying something. They give a company information that would be necessary if they ultimately decide to make the purchase. Now suppose the company auctions off that data to the highest bidder, who completes the transaction without ever getting the consumer’s consent to the terms. Then that business uses the information to withdraw money from the consumer’s bank account week after week after week – inflated fees for something the consumer never agreed to buy in the first place. The FTC says that’s just what Missouri-based CWB Services and a host of affiliated companies were up to when they bought consumers’ personal information from lead generators and data brokers, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization.
It's the latest in a series of cases the FTC has brought to shed light on the shadowy – and often illegal – practice of trafficking in consumers’ financial information. The ramifications are serious, especially for people already struggling to make ends meet.
According to the complaint, consumers input their information online, but they were still, in effect, at the window-shopping stage. The defendants bought consumers’ personal data, including checking account and bank routing numbers, from online lead generators or data brokers, and then made a small deposit – between $200 and $300 – into a consumer’s account without the person’s knowledge or approval.
That’s when the onslaught started. The FTC lawsuit alleges the defendants took $60-$90 from consumers' bank accounts every two weeks. And there was no end in sight because the defendants allocated everything to “finance charges,” with none of the money paying down the principal. When consumers complained, the defendants insisted they had to pay up. When consumers asked their banks for help, the defendants assured the banks the transactions were authorized. Trapped in a vortex of relentless unapproved withdrawals and exorbitant finance charges, consumers faced a dilemma. Some knuckled under to the illegal withdrawals. Others closed their accounts only to learn the defendants had sold the supposed "loan" to debt buyers, who often subjected consumers to a fresh round of harassment.
And it didn’t end there. The complaint alleges the defendants' loan paperwork was a jumble of fine print and conflicting information about the cost. Amid all the doubletalk, a lot of things were missing – including key consumer disclosures required by law. And this was no small-potatoes operation. In a little less than a year, the FTC says the scheme squeezed more than $46 million from consumers, many of whom never even applied for a loan in the first place.
The FTC has gone to court to put a stop to the illegal practices, alleging that the defendants have violated Section 5 of the FTC Act, the Truth in Lending Act, the Electronic Fund Transfer Act, Reg E, and Reg Z. A federal judge in Missouri issued a temporary restraining order that appoints a receiver to take over the defendants’ operations, gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.
Even at this early stage, there's a message for businesses: The FTC will continue to pull back the curtain on egregious lending practices and use every enforcement tool to combat the misuse of consumers’ financial information.