The Consumer Financial Protection Bureau (CFPB) announced it is halting the operations of the Hydra Group, which is alleged to be running an illegal cash-grab scam.
Consumers’ trouble would begin after submitting sensitive, personal financial information to online lead generators that match consumers with payday lenders. The lead generators then auction off the consumers’ information to other companies.
According to CFPB, the Hydra Group would buy this information and use it to access consumers’ checking accounts to deposit unauthorized payday loans, and then began debiting unauthorized fees. The CFPB estimates that over a 15-month period, the Hydra Group made $97.3 million in payday loans and collected $115.4 million from consumers in return.
The CFPB claims the Hydra Group and its operators are in violation of multiple laws, including the Consumer Financial Protection Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. According to the bureau’s complaint, Hydra’s illegal actions include:
• Bi-weekly cash-grab. The bureau alleges that the Hydra Group puts money into consumers’ accounts without authorization. After depositing the payday loans, which range from $200 to $300, it then withdraws a $60 to $90 “finance charge” from the account every two weeks indefinitely. Some consumers have had to get stop-payment orders or close their bank accounts to end these charges, and have lost thousands of dollars.
• Nonexistent or false disclosures. Lenders are required by law to disclose the terms of a loan to the consumer prior to the transaction. They Hydra Group has allegedly given consumer loans without providing a finance charge, annual percentage rate, total number of payments, or payment schedule. Even though some consumers may have received loan terms up front, they are said to be misleading or inaccurate statements.
• Requiring repayment by preauthorized electronic funds transfers. According to CFPB, even when consumers consented to loans, the Hydra Group violated federal law by requiring them to agree to repay by preauthorized electronic fund transfers.
• Bogus loan documents. The bureau alleges that when consumers contact the Hydra Group to dispute the loans and their fees, representatives insist the consumer did authorize the loan and go so far to show them fake applications or electronic transfer authorizations.
When the consumer’s bank or credit union contacted them, they presented the same fake documents, which lead to consumers’ requests being denied to reverse the Hydra Group’s deposits or withdrawals.
• Illegitimate debt collection. Even when consumers successfully close their accounts, the bureau states in many cases the Hydra Group sells the bogus debt to third-party debt collectors. Even though there isn’t any legitimate basis for the debt, consumers are still contacted and pursued for loans they never agreed to.
At the request of CFPB, the court has frozen the defendants’ assets and installed a receiver to oversee the business and ensure that the group’s illegal conduct ceases. The CFPB lawsuit aims to reimburse consumers who were victimized by the scam and requests a civil fine for the company’s malfeasance.
Click here to read the complaint against the Hydra Group [pdf].