(Reuters) - A U.S. judge has ruled a payday lending operation affiliated with a Native American tribe is liable for engaging in deceptive practices and violating federal law by failing to disclose loan terms, a victory for the Federal Trade Commission.
U.S. District Judge Gloria Navarro in Las Vegas ruled on Wednesday no jury could find that loan documents at issue in the case against Kansas-based AMG Services Inc were not likely to mislead borrowers.
She also granted the FTC a summary judgment against the other defendants in the case, including Scott Tucker, a race car driver the agency contends controls AMG and other online payday lenders the FTC says are related to the company.
In a 2012 lawsuit, the FTC accused the defendants of deceptive practices, including failing to disclose the true costs of loans to borrowers and falsely threatening consumers with arrest or prosecutions if they failed to pay.
It was one of two lawsuits brought by the FTC against a payday lender that claimed an affiliation with Native American tribes exempted them from state laws because of their sovereign status.
Payday lenders provide short-term loans, generally $500 or less, tied to borrowers’ paychecks. The loans carry high charges ranging from $10 to $30 for every $100 borrowed, according to the Consumer Financial Protection Bureau.
Critics say they take advantage of low-income borrowers by charging high fees, while lenders argue they provide a valuable service by providing short-term loans between pay periods.
Referring to a loan note disclosure document used in the payday loans under scrutiny in the case, Navarro said “no reasonable factfinder could conclude that the document was not likely to mislead consumers.”
U.S. Magistrate Judge Cam Ferenbach previously had recommended Navarro rule for the FTC.
A spokeswoman for the FTC had no immediate comment. Lawyers for AMG and Tucker did not immediately respond to requests for comment.
The ruling came less than a month after Reuters reported AMG, which is chartered under the laws of the Miami Tribe of Oklahoma, had received a grand jury subpoena as part of a criminal investigation by the office of Manhattan U.S. Attorney Preet Bharara.
The criminal probe as well as the FTC’s case against AMG come amid increased scrutiny of online payday lenders by authorities including the FTC, Justice Department and the CFPB.
According to the FTC, more than $40 million that AMG and related companies collected from borrowers was transferred by Tucker and his now-deceased brother to racing team Level 5 Motorsports for sponsorship fees.
The defendants have denied wrongdoing. In 2013, AMG, Tucker and most of the other defendants reached a partial settlement, though other claims moved forward.
In March, Navarro held that the defendants were not immune from the FTC’s enforcement powers despite their affiliations with Native American tribes.
The case is Federal Trade Commission v. AMG Services Inc, et al, U.S. District Court, District of Nevada, No. 12-00536.
Reporting by Nate Raymond in New York; Editing by Noeleen Walder and Paul Simao