Read the article and answer the two discussion questions at the bottom.
Race Car Driver Sentenced to 16 Years in Prison for Fraudulent Pay Day Loans; Audacious Practices Uncovered
By Karen Morris
Professional race car driver Scott Tucker not only drove fast on the race track, but played fast and loose in the payday loan business. His unsavory practices, which continued over a 15 year period, included fraud (intentional misrepresentation) and usury (lending money at higher than legal rates). After a five week trial Tucker was found guilty of 14 counts and has now been sentenced to 16 years and 8 months in prison. Additionally he is required to disgorge (return, give back) all the proceeds of his illicit businesses.
His companies made loans known as payday loans, meaning he lent small amounts of money at high interest rates made with the expectation that borrowers would repay when they receive their next paycheck. Tucker’s several lending companies operated in all 50 states and made loans to more than five million people. The names of his companies included Ameriloan, Cash Advance, OneClickCash, Preferred Cash Loans, United Cash Loans, US FastCash, Advantage Cash Services, and Star Cash Processing.
The usury consisted of charging between 700-1,000 % interest, notwithstanding that many states have a maximum interest rate significantly below those figures. For example, the highest legal interest rate for this type of loan in NY is 25%.
Tucker was also convicted of violating the Truth-In-Lending Act (TILA), a federal law intended to ensure that credit terms are disclosed to borrowers in a clear and understandable way. The purpose is to protect borrowers from unfair credit practices, and enable them to compare credit terms easily. TILA requires lenders to disclose clearly, conspicuously, and truthfully, prior to extending any credit, the following information: the amount of interest the borrower will pay over the life of the loan, the annual percentage rate, and the total of all the money the borrower will pay to satisfy the loan. Tucker’s companies misrepresented this information. Borrowers were told that for a loan of $500, they would pay $150 in interest for a total of $650. In fact, borrowers paid much more.
Repayment was structured so that on the borrower’s payday, Tucker companies automatically withdrew the entire interest on the loan and applied no money to principal. On the borrower’s next payday, Tucker companies again automatically withdrew the entire interest payment notwithstanding the interest had already been paid. This was repeated for at least five payments. Thereafter, Tucker would continue to withdraw the full interest plus an additional $50 each payday to apply to the outstanding principal balance. This continued, with the full interest amount being withdrawn each paycheck until the entire principal was repaid. As a result, a typical repayment on a $500 loan included $1,425 of interest. Thus, the information Tucker provided to borrowers about the interest on the loan greatly understated the amount the borrower would pay. The deception did not stop there.
Tucker was nothing if not shrewd. He knew that Indian tribes are sovereign nations, and as such they enjoy sovereign immunity which means, among other things, they are free from prosecution by other governments including the US and the states. To avoid prosecution by state attorneys general(the chief law enforcement officer in a state), Tucker represented that his companies were Native American-owned. But the connection with Indian tribes was a sham. Tucker and his lawyer had prepared untrue factual declarations for tribal representatives to sign which falsely claimed that the tribe owned, controlled and managed portions of Tucker’s business targeted by those state prosecutors.
Tucker opened company bank accounts that he represented were owned by tribal corporations but which in fact were owned and controlled by Tucker . He paid the tribes one percent of revenues. The tribes made no payment to him to purchase the portion of the business Tucker claimed they owned, nor did the tribes operate any part of Tucker’shttp://community.cengage.com/GECResource2/cfs-file/__key/communityserver-blogs-components-weblogfiles/00-00-00-00-09/PayDayLoans.jpghttp://community.cengage.com/GECResource2/cfs-file/__key/communityserver-blogs-components-weblogfiles/00-00-00-00-09/PayDayLoans.jpg
businesses. As a result of these ruses, several state courts dismissed enforcement lawsuits against Tucker’s companies.
Other charges of which he was convicted include racketeering (dishonest and fraudulent business dealings, usually involving intimidation), wire fraud, (fraud committed using electronic communication such as a phone or computer), and money laundering (concealing large amounts of money obtained illegally by creating the appearance that it came from a legitimate source).
Predictably, the law caught up with Tucker. As he spends the next decade and a half, and more, in prison, the borrowing public will be free from his deceptions and swindles.
Why is the Truth-In-Lending Act an important statute?
Why did Tucker’s attempt to benefit from sovereign immunity fail?