A Payday Lender’s Race to the Bottom

Scott Tucker loves fast cars. That might be why he raced to the bottom as the owner and operator of a payday lending business whose complicated and lopsided repayment plan duped millions of consumers. Now the details of this operation have finally come to light, thanks to Public Justice and our client, Americans for Financial Reform.

Over the course of four years, Tucker’s company, AMG Services, pocketed $1.32 billion of payday borrowers’ money by funneling them through a repayment scheme that was actually designed to prevent them from repaying – despite their best efforts – for as long as possible.

Under AMG’s plan, a $300 loan would cost a consumer $960. A $500 loan cost them $2,575. And a $1,000 loan would ultimately cost $6,650.

In 2012, the Federal Trade Commission went after AMG for cheating borrowers with this plan. But despite the agency’s admirable efforts, the most important documents in the case were filed under seal. The court endorsed an official veil of secrecy over AMG’s operations, preventing the public from knowing how the company worked, and the lengths it went to in order to pull the wool over customers’ eyes. Given AMG’s egregiously predatory scheme, it’s no wonder Tucker worked hard to keep the details hidden from view.

But on October 12, Public Justice won a motion to unseal those documents. For the first time, the public can now access more than 500 files that reveal the truth behind AMG’s deceptive practices.

Here’s what they show.

AMG led borrowers to believe that their loan would cost a certain amount. Then it quietly placed them on a repayment plan that was, in fact, far more expensive. The details of this plan—and how to choose a different one— were hidden in a tangle of tiny hyperlinks and check-boxes on the company’s website. And customer service representatives were explicitly told not to explain these options to borrowers in a way that would be easy to understand.

During the loan application process, borrowers were led to believe they’d be responsible for repaying the principal of their loan, and a one-time finance charge. They were then required to give AMG direct access to their bank accounts.

And while borrowers technically had three repayment options, they were all quietly defaulted to one called “renewal.” Under the renewal option, borrowers paid 30% of the remaining loan principal as a “renewal fee,” which extended the loan for another payment period. The twist was that this renewal fee did not go toward the principal balance. The first four times a borrower “renewed,” AMG debited the renewal fee only (for a total of 120% of the loan balance). Starting with the fifth renewal, AMG debited the fee plus $50 towards the principal balance.

That’s how a $1,000 loan magically became a $6,650 bill for a consumer.

Not surprisingly, transcripts of AMG customer service calls that were unsealed by our motion, demonstrate the anger and frustration that borrowers felt when they found out that after four debits from their accounts, not only had they not finished paying back their loans, but they had not even begun to pay it back. Those that refused or could not pay were faced with illegal loan collection practices including abusive phone calls, threats to sue, and even warnings that non-payment could lead to arrest.

How did Tucker shield this deception from legal scrutiny? Native American sovereign immunity.

The law recognizes Native American tribes as sovereign nations that generally cannot be sued by private individuals, companies, or even states. That includes businesses owned by tribal governments.

Starting in 2003, Tucker, who was then running a payday lending company called CLK Management, began approaching representatives of tribal governments in Oklahoma with a deal. He proposed that they organize a payday lending company under tribal law, assign at least one tribal member to be an officer of this company, and set up an “office” for the business on tribal land. In exchange CLK would be completely responsible for running the lending businesses – including providing all of the lending capital, staff, management, and executives– and would cut the tribe in on a portion of the revenue. In other words, Tucker rented the tribes’ immunity.

The tribes, however, only received modest payments from Tucker’s companies. The rest of the money coming in from consumers lined Tucker’s pockets. Funds were used to pay Tucker’s personal taxes, to fund luxury travel, and to finance a company (controlled and owned by the Tucker family) whose sole purpose was to purchase and maintain an $8 million mansion in Aspen, Colorado.

Which brings us back to Tucker’s fast cars. 

AMG, Tucker’s crooked payday lending company, “sponsored” Level 5 Motorsports, a company that managed an international sports car racing team, to tune of $60 million.

Level 5, you might not be surprised to know, was controlled and owned by Scott Tucker.

And Tucker himself was the racing team’s star driver.

Hard-up consumers in need of a financial break were misled into financing Tucker’s Formula 1 fantasies.

Fortunately, Public Justice, Americans for Financial Reform, and the FTC have all helped to slow Tucker’s race to the bank. Since Public Justice got involved a year ago, AMG Services has settled with the FTC and has ceased lending operations.

Tucker, by the way, is no longer racing cars. Instead, he is under investigation in connection to a possible criminal indictment in the Southern District of New York. And now, his billion dollar deception has finally been revealed, shedding light on the predatory practices of the payday lending industry, and giving hope to future advocacy and litigation in other, similar battles.