Agency Alleges Company Packed Additional Products On to Loans,Trained Employees to Mislead Consumers
The Federal Trade Commission has charged subprime lender Stewart Finance Company, its owner John Ben Stewart, Jr., and nine related companies, with violating federal lending laws and has asked a U.S. District court to immediately halt their practices and order redress for consumers who were victims. Stewart Finance operates approximately 60 branch offices in Georgia, Louisiana, Missouri, Illinois, and Tennessee.
According to the FTC complaint, Stewart Finance provides small personal loans to consumers in the subprime market, typically in amounts less than $1,000 to be repaid in less than one year. Many of the borrowers are recipients of Social Security or other government benefits who may have difficulty obtaining financing from prime lenders. The FTC alleges that Stewart Finance engages in deception and other illegal practices to induce consumers to unknowingly purchase expensive add-on products, such as insurance and Car Club membership, to obtain costly refinance loans, and to participate in a “direct deposit” program, which imposed additional fees.
For example, the complaint alleges Stewart Finance sells accidental death and dismemberment insurance and Car Club memberships with its consumer loans, setting high goals or quotas for the sales of these products. The entire cost for the products is due up-front and the defendants allegedly package the finance of these products as part of the loan. As a result, consumers pay additional interest and other finance charges, according to the FTC. The agency alleges that Stewart Finance employees do not tell customers that the add-on products are optional or that they cost money in addition to the loan. Some consumers who notice the additional charges and object to purchasing the products allegedly find themselves disqualified from taking out a loan for which they were previously approved or are told the products are mandatory. In many cases, “Stewart Finance has sold Car Club to borrowers who do not own cars or do not have driver’s licenses,” and has sold accidental death and dismemberment “. . . .to borrowers who are not eligible for the product due to age restrictions,” the FTC complaint says.
According to the FTC, Stewart Finance “frequently and aggressively” solicits its customers to take out additional loans through “cash available” promotions. Instead of offering the borrower a new loan for the specific amount of cash offered in the promotion, however, Stewart Finance allegedly refinances the customer’s existing loan. This renewal loan is larger and more expensive than the one Stewart Finance advertised. In addition, the FTC alleges that Stewart Finance employees frequently tack on another Car Club membership or insurance policy without canceling any pre-existing memberships or policies, or offering any refunds on the premiums paid for the products. In many instances, borrowers had, and paid for, two overlapping memberships or policies.
The FTC further alleges that Stewart Finance actively solicits consumers by offering loans of $150 if they sign up for Stewart Finance’s direct deposit program at a financial institution Stewart designates. Stewart Finance trains its employees to tell customers that direct deposit is a “free service” that “will not cost you any money.” When consumers sign up, Stewart Finance allegedly charges the consumer a fee for the service, and more recently began deducting this fee ($4-6 a month), as well as the customer’s monthly loan payment from the consumer’s account. In addition, the consumers may only withdraw money from their accounts using automated teller machines, where they incur additional charges.
The FTC complaint also charges that Stewart Finance typically requires that borrowers pledge personal property – telephones, microwave ovens and sewing machines, for example – as security for their loans. According to the FTC, Stewart Finance agents threaten to take possession of the personal property if consumers are delinquent on their loan payments. This practice violates the FTC’s Credit Practices Rule.
Finally, the FTC alleges that when Stewart Finance rejects a loan application based on a consumer’s credit report, its notice to consumers does not comply with the Fair Credit Reporting Act, which requires that the consumer be notified, among other things, that the creditor, and not the consumer reporting agency denied the loan.
The FTC alleges that Stewart has violated the FTC Act, the Truth In Lending Act, its implementing regulation, Regulation Z, the Credit Practices Rule, and the Fair Credit Reporting Act. It asks the court to bar the illegal practices and order redress for consumers. Along with its complaint, the FTC filed under seal a motion for a temporary restraining order.
In addition to Stewart Finance and John Ben Stewart, Jr., the FTC complaint names Stewart Finance Company Holdings, Inc., Stewart Finance Company, Ind., Stewart National Finance Company, Inc., Stewart Finance Company of Louisiana, Inc., Stewart Finance Company of Missouri, Inc., Stewart Finance Company of Illinois, Inc., Stewart Finance Company of Tennessee, Inc., D & E Acquisitions, Inc., Preferred Choice Auto Club, Inc., Stewart Insurance, Ltd., and J & J Insurance, Ltd.
The Commission vote to authorize staff to file the complaint was 4-0, with Commissioner Pamela Jones Harbour not participating. The complaint was filed in the U.S. District Court for the Northern District of Georgia in Atlanta.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaint are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(FTC File No. 032 3005)
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