Joan Loughnane, the Acting Deputy United States Attorney for the Southern District of New York, announced today that SCOTT TUCKER was sentenced to 200 months in prison for operating a nationwide internet payday lending enterprise that systematically evaded state laws for more than 15 years in order to charge illegal interest rates as high as 1,000 percent on loans. TUCKER’s co-defendant, TIMOTHY MUIR, an attorney, was also sentenced, to 84 months in prison, for his participation in the scheme. In addition to their willful violation of state usury laws across the country, TUCKER and MUIR lied to millions of customers regarding the true cost of their loans to defraud them out of hundreds, and in some cases, thousands of dollars. Further, as part of their multi-year effort to evade law enforcement, the defendants formed sham relationships with Native American tribes and laundered the billions of dollars they took from their customers through nominally tribal bank accounts to hide Tucker’s ownership and control of the business.
After a five-week jury trial, TUCKER and MUIR were found guilty on October 13, 2017, on all 14 counts against them, including racketeering, wire fraud, money laundering, and Truth-In-Lending Act (“TILA”) offenses. U.S. District Judge P. Kevin Castel presided over the trial and imposed today’s sentences.
Acting Deputy U.S. Attorney Joan Loughnane said: “For more than 15 years, Scott Tucker and Timothy Muir made billions of dollars exploiting struggling, everyday Americans through payday loans carrying interest rates as high as 1,000 percent. And to hide their criminal scheme, they tried to claim their business was owned and operated by Native American tribes. But now Tucker and Muir’s predatory business is closed and they have been sentenced to significant time in prison for their deceptive practices.”
According to the allegations contained in the Superseding Indictment, and evidence presented at trial:
The Racketeering Influenced Corrupt Organizations (“RICO”) Crimes
From at least 1997 until 2013, TUCKER engaged in the business of making small, short-term, high-interest, unsecured loans, commonly referred to as “payday loans,” through the Internet. TUCKER’s lending enterprise, which had up to 1,500 employees based in Overland Park, Kansas, did business as Ameriloan, f/k/a Cash Advance; OneClickCash, f/k/a Preferred Cash Loans; United Cash Loans; US FastCash; 500 FastCash; Advantage Cash Services; and Star Cash Processing (the “Tucker Payday Lenders”). TUCKER, working with MUIR, the general counsel for TUCKER’s payday lending businesses since 2006, routinely charged interest rates of 600 percent or 700 percent, and sometimes higher than 1,000 percent. These loans were issued to more than 4.5 million working people in all 50 states, including more than 250,000 people in New York, many of whom were struggling to pay basic living expenses. Many of these loans were issued in states, including New York, with laws that expressly forbid lending at the exorbitant interest rates TUCKER charged. Evidence at trial established that TUCKER and MUIR were fully aware of the illegal nature of the loans charged and, in fact, prepared scripts to be used by call center employees to deal with complaints by customers that their loans were illegal.
Fraudulent Loan Disclosures
TILA is a federal statute intended to ensure that credit terms are disclosed to consumers in a clear and meaningful way, both to protect customers against inaccurate and unfair credit practices, and to enable them to compare credit terms readily and knowledgeably. Among other things, TILA and its implementing regulations require lenders, including payday lenders like the Tucker Payday Lenders, to disclose accurately, clearly, and conspicuously, before any credit is extended, the finance charge, the annual percentage rate, and the total of payments that reflect the legal obligation between the parties to the loan.
The Tucker Payday Lenders purported to inform prospective borrowers, in clear and simple terms, as required by TILA, of the cost of the loan (the “TILA Box”). For example, for a loan of $500, the TILA Box provided that the “finance charge – meaning the ‘dollar amount the credit will cost you’” – would be $150, and that the “total of payments” would be $650. Thus, in substance, the TILA Box stated that a $500 loan to the customer would cost $650 to repay. While the amounts set forth in the Tucker Payday Lenders’ TILA Box varied according to the terms of particular customers’ loans, they reflected, in substance, that the borrower would pay $30 in interest for every $100 borrowed.
In fact, through at least 2012, TUCKER and MUIR structured the repayment schedule of the loans such that, on the borrower’s payday, the Tucker Payday Lenders automatically withdrew the entire interest payment due on the loan, but left the principal balance untouched so that, on the borrower’s next payday, the Tucker Payday Lenders could again automatically withdraw an amount equaling the entire interest payment due (and already paid) on the loan. With TUCKER and MUIR’s approval, the Tucker Payday Lenders proceeded automatically to withdraw such “finance charges” payday after payday (typically every two weeks), applying none of the money toward repayment of principal, until at least the fifth payday, when they began to withdraw an additional $50 per payday to apply to the principal balance of the loan. Even then, the Tucker Payday Lenders continued to assess and automatically withdraw the entire interest payment calculated on the remaining principal balance until the entire principal amount was repaid. Accordingly, as TUCKER and MUIR well knew, the Tucker Payday Lenders’ TILA box materially understated the amount the loan would cost, including the total of payments that would be taken from the borrower’s bank account. Specifically, for a customer who borrowed $500, contrary to the TILA Box disclosure stating that the total payment by the borrower would be $650, in fact, and as TUCKER and MUIR well knew, the finance charge was $1,425, for a total payment of $1,925 by the borrower.
The Sham Tribal Ownership of the Business
In response to complaints that the Tucker Payday Lenders were extending abusive loans in violation of their usury laws, several states began to investigate the Tucker Payday Lenders. To thwart these state actions, TUCKER devised a scheme to claim that his lending businesses were protected by sovereign immunity, a legal doctrine that, among other things, generally prevents states from enforcing their laws against Native American tribes. Beginning in 2003, TUCKER entered into agreements with several Native American tribes (the “Tribes”), including the Santee Sioux Tribe of Nebraska, the Miami Tribe of Oklahoma, and the Modoc Tribe of Oklahoma. The purpose of these agreements was to cause the Tribes to claim they owned and operated parts of TUCKER’s payday lending enterprise, so that when states sought to enforce laws prohibiting TUCKER’s loans, TUCKER’s lending businesses would claim to be protected by sovereign immunity. In return, the Tribes received payments from TUCKER, typically one percent of the revenues from the portion of TUCKER’s payday lending business that the Tribes purported to own.
In order to create the illusion that the Tribes owned and controlled TUCKER’s payday lending business, TUCKER and MUIR engaged in a series of lies and deceptions. Among other things:
* MUIR and other counsel for TUCKER prepared false factual declarations from tribal representatives that were submitted to state courts, falsely claiming, among other things, that tribal corporations substantively owned, controlled, and managed the portions of TUCKER’s business targeted by state enforcement actions.
* TUCKER opened bank accounts to operate and receive the profits of the payday lending enterprise, which were nominally held by tribally owned corporations, but which were, in fact, owned and controlled by TUCKER. TUCKER received over $380 million from these accounts on lavish personal expenses, some of which was spent on a fleet of Ferraris and Porsches, the expenses of a professional auto racing team, a private jet, a luxury home in Aspen, Colorado, and his personal taxes.
* In order to deceive borrowers into believing that they were dealing with Native American tribes, employees of TUCKER making payday loans over the phone told borrowers, using scripts directed and approved by TUCKER and MUIR, that they were operating in Oklahoma and Nebraska, where the Tribes were located, when in fact they were operating at TUCKER’s corporate headquarters in Kansas.
These deceptions succeeded for a time, and several state courts dismissed enforcement actions against TUCKER’s payday lending businesses based on claims that they were protected by sovereign immunity. In reality, the Tribes neither owned nor operated any part of TUCKER’s payday lending business. The Tribes made no payment to TUCKER to acquire the portions of the business they purported to own. TUCKER continued to operate his lending business from a corporate headquarters in Kansas, and TUCKER continued to reap the profits of the payday lending businesses, which generated over $3.5 billion in revenue from just 2008 to June 2013 – in substantial part by charging struggling borrowers high interest rates expressly forbidden by state laws.
In addition to their prison terms, TUCKER, 55, of Leawood, Kansas, and MUIR, 46, of Overland Park, Kansas, were each sentenced to three years of supervised release. Judge Castel ordered the defendants to forfeit the proceeds of their crimes. TUCKER was remanded into custody.
In pronouncing sentence, Judge Castel described the crimes as “a scheme to extract money from people in desperate circumstances” that “created heartbreak and sorrow . . . not just a financial loss.”
Mrs. Loughnane praised the outstanding investigative work of the St. Louis Field Office of the IRS-CI. Mrs. Loughnane also thanked the Criminal Investigators at the United States Attorney’s Office, the Federal Bureau of Investigation, and the Federal Trade Commission for their assistance with the case.
