Feds Crack Down on Two KC-Based Predatory Lenders: Live from the Roasterie
Every time I think that the east and west coasts are too over-bureaucratized I visit the Missouri-Mississippi-Ohio valley and find something like this--and I haven't even gone to the real south, or to Texas.
Remind me again why the Federal Reserve hasn't Incorporated every single American as a bank holding company? It makes payday loans for banks, so why doesn't it make payday loans for individuals? Remind me again please why you don't have a post office small banking and payday loan business?
David Hudnall, in Kansas City:
David Hudnall: A closer look at the Feds' crackdown on two KC-based predatory lenders: "On Wednesday, September 10...
...U.S. Marshals, local law enforcement and a temporary receiver appointed by a federal judge arrived at the headquarters of CWB Services LLC, at 6700 Squibb, in Mission.
Larry Cook, the temporary receiver, ordered all employees present to step away from their desks. Photos and video were taken of the premises. Employees submitted to in-depth interviews and filled out questionnaires about their roles in the company. All items in the office that could contain information about the business — desktop computers, laptops, filing cabinets, phones — were seized.
Tim Coppinger, whom investigators say owns CWB Services, was served papers informing him that the Federal Trade Commission had filed a civil lawsuit charging him with operating a payday-lending scheme. Every bank account on which Coppinger was a signatory — CWB Services accounts, other business accounts, his personal accounts, his family members' accounts — was frozen. Around the same time, authorities changed the locks at 7301 Mission, the Prairie Village office from which, according to the FTC, Ted Rowland assisted Coppinger's operation. All of Rowland's assets were also frozen. And in Waldo, at 2 East Gregory Boulevard, the feds were unplugging computers and confiscating documents at the headquarters of the Hydra Group, a separate alleged payday-lending scheme, charged the same day by the Consumer Financial Protection Bureau. Like Coppinger and Rowland, Hydra Group's owners — whom the CFPB contends are Richard F. Moseley Sr., Richard F. Moseley Jr. and Christopher Randazzo — suddenly found their credit cards not functioning.
Both lawsuits are civil, not criminal. None of the five Kansas City businessmen was arrested. But the actions sent a clear signal from the federal government to the notoriously shady online-lending industry, which has deep roots in Kansas City. The steps taken in both cases are unusually severe for a civil complaint. The FTC's and the CFPB's lawsuits were filed under seal in federal court the week prior to the raids. On September 9, U.S. District Judge Dean Whipple granted motions for ex parte temporary restraining orders in both complaints. He found good cause to believe that the defendants have engaged in, and were likely to continue to engage in, practices that violate several federal laws and acts and put U.S. consumers in harm's way. Whipple also was convinced that giving advance notice to the defendants would allow them to transfer and conceal their assets. Moseley Sr., for example, had $10.6 million in bank accounts as of August 31. "Because of Defendants' ties to Nevis and New Zealand, Defendants are likely to move this money offshore upon notice of this action," the CFPB's attorneys wrote in the filing.
Richard Cordray, head of the CFPB, explained Hydra Group's foreign connections and intentionally complex structure in colorful terms. "Rarely is a company so appropriately named," Cordray said in a joint FTC-CFPB announcement of the charges September 17. "Like the multi-headed serpent in Greek mythology, the Hydra Group is actually a conglomeration of about 20 businesses with various names. ...Although their payday lending operations are based in Missouri, many of the companies are incorporated offshore in New Zealand and the Commonwealth of Saint Kitts and Nevis. Their maze of businesses and shell companies seems designed to evade effective law enforcement and includes names like SSM Group, Hydra Financial Limited, and Piggycash Online Holdings." (Yes, really: Piggycash Online Holdings.) Both lawsuits charge that the companies deceived consumers about the cost of their loans. Instead of assessing a one-time finance fee for the loans (often $90 on a $300 loan — already an extraordinary rate), both defendants, the agencies say, made repeated withdrawals of $90 every two weeks from borrowers' bank accounts, without ever reducing the principal.
Readers of The Pitch will be familiar with that particular scheme. As we've noted in several articles, many businessmen and investors in town have become millionaires using this predatory model. But there is a new twist in this round of charges. The feds allege that both CWB Services and the Hydra Group debited money from the accounts of people who had never requested loans. How does that happen? Most people who apply for online payday loans are unaware that the application site at which they've entered their personal information — bank account number, Social Security number, address — is not operated by the company that will lend them the money. These sites are instead "lead generators," which then auction off their consumer data to the entities that do the lending.
Both lawsuits allege that the various business entities controlled by Coppinger and Moseley Sr. bought from lead generators the data of customers who were shopping for loans but had not authorized the issuance of a loan. The suits contain dozens of sworn declarations from consumers who say they were confused to discover unsolicited deposits into their bank accounts from Coppinger and Moseley Sr.'s various business entities. Those consumers have told investigators that they were then charged fees and interest on those unauthorized loans — and subsequently harassed by debt collectors. That aggressive practice is a possible explanation for how Coppinger's companies made $18 million in an 11-month period in 2013, as the FTC's analysis of CWB Services' various bank accounts indicates. Hydra Group's companies issued $97 million in loans and also profited roughly $18 million over a 15-month period, according to the CFPB.
Where all this money went, and how it commingled with the personal interests of the owners of these companies, also makes for interesting reading. According to the lawsuits, Coppinger transferred $19,000 from a CWB Services account at Missouri Bank to Indian Hills Country Club in less than one year; spent $14,000 at various Las Vegas casinos, courtesy of a CWB Services account; and transferred $53,000 from a CWB Services account into another Missouri Bank account, for a company called DWTC Enterprises LLC. DWTC is described in account-opening documents as "a holding account for the purpose of gathering deposits and paying expenses relating to the ownership of a suite at the new soccer complex for the team Sporting KC." Moseley Sr.'s attorney, John Aisenbrey, did not respond to a request for comment. Coppinger's attorney, Pat McInerney, says, "At this point, Mr. Coppinger and his related entities dispute the allegations in the FTC complaint."
Phil Greenfield, Rowland's attorney, says Rowland "denies all the charges leveled specifically at him and his companies." Greenfield adds: "Mr. Rowland and his affiliated entities only provided the money that was loaned. Moreover, Mr. Rowland voluntarily — and unrelated to the allegations in this matter — ceased business operations months prior to the FTC bringing this suit. So there was no basis for the FTC to seek an injunction limiting Mr. Rowland's business practices because he was not in business and had no intention of re-entering the business." Christopher Koegel, of the FTC, tells The Pitch, "When we see evidence that a group of companies are commingling assets, have common ownership and have common officers, we allege what's called a 'common enterprise.' That extends liability to everybody involved in the enterprise — monetary involvement, in particular. Here, Rowland was a signatory on related bank accounts and was an officer that helped incorporate these lending entities that represented themselves on loan agreements with consumers. We saw a lot of evidence that all these companies were functioning as one common enterprise in terms of unlawful practices harming consumers."
Given the highly complex nature of the online payday-lending industry, the more evidence there is, the more blame can be shifted. "Look for everyone involved to point upstream," is how one person with close ties to the local payday-lending industry has explained it to The Pitch — meaning that Coppinger and Moseley Sr. will likely argue that they didn't know they were buying unauthorized leads from the lead generators. One of those lead generators, eData Solutions, is mentioned in the FTC lawsuit as a source of those phony leads. As The Pitch noted in a previous article, eData Solutions was founded by Joel Tucker, brother of race-car driver and payday-lending pioneer Scott Tucker. Joel Tucker sold it to the Wyandotte Nation Indian tribe a few years ago, but it remains unclear how much control of the operations he gave up. The feds have acknowledged that Tucker is on their radar, a fact that probably does not bode well for him.
The feds' actions are also bad signs for the "loan portfolios" or "marketing companies" whose information or names turn up on the computers that the FTC or CFPB confiscated September 10. Sources say Coppinger's operation did "back office" work for several local funds and entities that preferred the appearance of staying a few steps removed from predatory online lending. The FTC and the CFPB haven't yet indicated how closely they intend to look at the investors who dumped money into these unsavory businesses and at the lawyers who assisted in drafting the loan agreements and setting up dubious offshore business filings. But it's clear that more will fall. There likely will be more federal lawsuits, and more finger-pointing and accusations and civil suits among the local payday players. These operations generated significant money for their operators and investors — money they'll fight to protect.
It's also money made on the backs of poor people. At their core, these enterprises are designed to drain the bank accounts of low-income American citizens. Maybe Ted Rowland didn't ask enough questions about Tim Coppinger's businesses. Maybe Tim Coppinger didn't ask enough questions of his lead vendors. Maybe. But now the government has taken their things and is asking them questions. It'll be interesting to hear their answers.
