A nationwide payday lender that tried to collect loan payments by tapping consumers' paychecks without a court order has agreed to stop this practice -- at least for now.
That's according to the Federal Trade Commission, or FTC, which filed a complaint against the lender in U.S. district court.
The complaint alleges that Payday Financial in Timber Lake, S.D., doing business as Lakota Cash and Big Sky Cash, illegally tried to garnish wages, thereby revealing consumers' supposed debts to their employers and depriving them of the right to dispute those debts or make payment arrangements.
The lender offers short-term unsecured loans of $300 to $2,525, advertising on television and through websites, according to an FTC statement.
According to the complaint, the company sent employers documents that looked like those that federal agencies use to garnish wages to collect debts owed to the government. Federal law allows the government to require employers to garnish wages for debts it is owed without a court order. Private creditors must obtain a court order to tap wages for payment.
The FTC files a complaint when it has reason to believe a federal law has been or is being violated and a proceeding is in the public interest. The complaint is not a finding or ruling that the company has violated the law. The agency and lender agreed to a stipulated preliminary injunction to immediately halt the alleged unlawful conduct, pending trial, the FTC said.
The FTC complaint charges that the lender:
• Misrepresented to employers that the company was legally authorized to garnish an employee's wages without a court order.
• Falsely represented to employers that the company had notified consumers of the pending garnishment and given them an opportunity to dispute the debt.
• Unfairly disclosed the existence and amounts of consumers' supposed debts to employers and co-workers without the consumers' knowledge or consent.
• Required consumers who obtained payday loans to consent to have wages taken from their paychecks in the event of a default and required authorization for electronic payments from consumers' bank accounts as a condition of obtaining a payday loan.
Follow me on Twitter: @marciegeff