Fintech Horror Stories - Payday Lending Edition

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The payday lending industry has been in existence since the early 1900s , first with the emergence of loan sharks and eventually evolving to the storefronts that were all the rage in the post-1980s deregulation era, and finally to now where the industry can operate from everywhere and anywhere with the rise of online lending. The CFPB has placed this business model squarely in its sights since it came into existence post-2008-recession, but its oversight may be at risk. Before we get into that, I want to focus on one particular lender - LDF Holdings.

Their website is sparse on details. They state that they own and manage the “entire online lending business”. They also state that they are governed by the LDF Tribal Financial Services Regulatory Authority, which is a legitimate organization and has its own bylaws . LDF is actually governed by a Wisconsin tribe called the?Lac du Flambeau Band ?of Lake Superior Chippewa Indians, of which this Regulatory Authority stems out of. However, it’s quite alarming that the President of LDF Holdings doesn’t appear to be native (as noted by one of numerous lawsuits filed against them over the years, with many specifically calling her out) and furthermore, she doesn’t even reside in Wisconsin (I believe she lives in Florida at the moment).

Why have they come to our attention? As usual, they seem to be an occupying an increasing chunk of complaints made to the CFPB by customers. In the category of “Payday loan, title loan, or personal loan” from a product perspective, LDF has the most CFPB complaints of any company to date in 2023 . In some of these complaints, they are also cited as getting called out on the Better Business Bureau’s website (albeit in a redacted way). Taking a look at BBB.com , there isn’t actually a direct home page for them to consolidate all the complaints against them. This is when I realized the tentacles of this company spread far and wide. They have and had numerous subsidiaries that don’t seem to be acknowledged anywhere else all in one place. So I’m going to try to do it here - the ones I could find include Lendgreen (out of business), Quick Help Loans, National Small Loan, Skytrail Cash, Nine Torches, AvailBlue, Lendumo, Cash Aisle, Makwa Finance, Bridge Lending Solutions, Evergreen Services, Stone Lake Lending, Mitig Capital, and Radiant Cash. I’m not sure what’s going on here (any experts in the space, feel free to chime in the chat) but worth noting that Wisconsin (along with Texas) is one of only eight states where there is no interest rate cap for payday loans . One borrower ended up having a 565% interest rate!

“Didn’t the CFPB recently regulate payday loans, though?” one might ask. That was true since 2017, when the payday lending rule was put into effect seven years after the CFPB came into existence to prevent abuse that was rampant in the space. However, in recent months, specifically October 2022, a Fifth Circuit Court of Appeals vacated the rule and went even further by putting the entire existence of the CFPB into question with their decision . While the specific provision that was called out as invalid was one that said payday lending companies needed consent before they could auto-debit bank accounts of those customers that missed a payment, the framing was that the entire rule along with the Bureau itself, were invalid. The case has been appealed to the Supreme Court by the CFPB, but in the meantime, it seems that LDF Holdings has resumed what can only be called unfair practices in this writer’s opinion. Some examples from the CFPB database that have been filed since November 2022:

“I had been in an incredibly tight situation where I applied for a loan of {$500.00}, and I received a statement stating that I would have a loan with an APR of around 39 percent. I thought that was fine because my credit is terrible, but I couldnt download the PDF, but it didnt matter because I was in a state of urgency to cover unexpected expenses. I saw that my total cost for the loan would be {$1000.00} and some odd change. I however, on signing, could not log into my account for two days, could not verify anything, tried to correct an incorrect payment date on the email I received and on logging back in, I saw that the loan amount was for {$3200.00} and the APR skyrocketed to 762 % I tried to correct this, I looked into them on the XXXX XXXX XXXX, and every response theyve given to anyone complaining about their experience has been about how theyre on tribal grounds and thus exempt from the surrounding laws and cant be touched. They tore XXXX XXXX XXXX from me and I cant get it back, I managed to block their payments after they were eating the entirety of my weekly paychecks as XXXX XXXX XXXX but it still got so much that I havent been able to pay rent for the past two months I want to go through and find a way to make sure they can never do this to anyone else and this complaint is one of the ways Im trying to do exactly that.”

“On XX/XX/2022, I sent a XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX XXXX Evergreen Services and can confirm that they received the document ( attached to this complaint ). On XX/XX/2022, Evergreen Services debited {$190.00} from my bank account. I never authorized this transaction or rescinded the XXXX XXXX XXXX to XXXX XXXX Funds Transactions.”

“On XX/XX/22 I went online to explore a short term loan as my funds would not be available from a deposit I had made until XXXX. I first visited national small loans, but in working on the application when I came to understand the terms of the loan I chose not to proceed. I received an email notification from them indicating the need to sign the application to proceed and intentionally did not, as I chose to go with another lender. XXXX when I checked my account a deposit of {$500.00} had been made to my checking account. I called and attempted to speak with someone to notify them of the unauthorized loan and coordinate the return of funds and was advised the representative could not help me and I would have to wait until the billing department reached out to me, but they could not indicate when this would be. I then forwarded the email to them that showed I had not authorized the loan and indicated I wanted to resolve this and have not had a response. I researched and found numerous complaints in the XXXX XXXX XXXX of similar experiences of the provider in question depositing despite the loan not being authorized. I called and filed a complaint with the FTC # XXXX, and upon their encouragement have contacted my bank that reports they can not reverse the deposit. The FTC advised that I not contact National Small Loan further at this time and contact the Consumer Financial Bureau regarding the need to end this loan that was not authorized.”

“The transaction, in the amount of {$500.00} occurred on Friday XX/XX/2022. I was not told by the Lendumo Representative, XXXX that the payments in the amount of {$160.00} would be drafted from my checking account biweekly. Twice each month. I have used the {$500.00} I borrowed to make 1 payment already in the amount of {$200.00} drafted from my account today XX/XX/2022. The next payment is due XX/XX/2022. I'm saving that amount to make this payment and 3 payments are outstanding. How could this process be a help to the working class? I pray noone else gets caught in this criminal scam.”

A look at the Better Business Bureau (and specifically at the complaints filed across the various subsidiaries noted earlier) reveals the standard response baked into all responses: “Due to its immunity, the loan is not subject to state law and the Company is not required to be licensed with any state.” Specifically, it would seem that the non-native leadership of LDF Holdings has found a way to exploit the existence of the Lac du Flambeau Band to launch a company that then seeks protection under Tribal Law from some of the rigor that state regulations would impose over it. But now, even if that was applicable from a state perspective, the ruling by the Fifth Circuit - that has in essence defanged the CFPB - seems to have emboldened LDF to go even further and test how much money they can pull from folks’ accounts given federal protections have been wiped out. Some precedent for this sort of behavior: one BBB complaint cites the subsidiary Evergreen Services, to which LDF (posing as Quick Help Loans) states “First, we would like to make it clear that we are not affiliated with a Company by the name of Evergreen” yet a hop over to Evergreen Services’ BBB page reveals they are literally “a wholly owned and operated subsidiary of LDF Holdings, LLC” - and interestingly, they appear to have hidden their affiliation with LDF in their public BBB responses until shortly after the Fifth Circuit’s ruling. Talk about the mask coming off!

It’s very uncertain what will happen to the payday lending industry given the CFPB’s existence may potentially be at risk. With a business-friendly House having recently been elected and the Supreme Court leaning right, it’s possible there could be one less regulator around and more of these sorts of complaints may arise. However, leave it to numerous fintechs to come to the rescue. Many have stepped up to try and fill the void of “ethical payday lending” - meaning trying to do the same thing as payday lenders (provide early wage-based loans to desperate consumers) except without the ridiculous interest rates. Some of them like Dave and EarnIn actually provide the loans early and only ask for an optional tip back to the company for the service (although Dave’s stock has dropped 97% this past year, raising questions about whether this is a sustainable business model). Others like Payactiv and DailyPay, Inc. charge a small non-interest flat fee for every withdrawal and integrate with HR departments to allow seamless experiences. While the CFPB commented on the existence of these back in 2020 and was generally supportive by stating that these sorts of loans are exempt from Regulation Z , it stands to reason that the fees could also be a sneaky way to have consumers pay the same amount as they would with payday loans, just over different periods of time.

What does the future hold? Much depends on the economy. Given the current state of markets, with the fed dealing with inflation, a potential recession ahead and layoffs already commencing at some of the biggest companies out there, it’s possible the industry (whether payday lenders or early wage access fintechs) may start losing sources of revenue and could be forced to resort to fee hikes and/or higher interest rates, even as funding dries up, and without the CFPB around to keep an eye on things or even with the payday lending rule permanently gone, it could lead to more complaints as noted above. No matter what happens economically, let us hope a bit of kindness pervades through and ethical business practices prevail. We all need some of it right now.