JUDGE RULES PAYDAY LENDER DECEIVED CONSUMERS AND INFLATED FEES

FROM:  U.S. FEDERAL TRADE COMMISSION 

U.S. District Judge Finds that Payday Lender AMG Services Deceived Consumers by Imposing Undisclosed Charges and Inflated Fees

The Federal Trade Commission has scored another legal victory in its crackdown against deceptive payday lenders with the latest finding from U.S. District Judge Gloria M. Navarro in the case against AMG Services.

Judge Navarro ruled last week that the defendants deceived consumers about the cost of their loans by imposing undisclosed charges and inflated fees.  In many cases, the defendants’ inflated fees left borrowers with supposed debts of more than triple the amount they had borrowed.  In one typical example, the defendants allegedly told one consumer that a $500 loan would cost him $650 to repay. But the defendants attempted to charge him $1,925 to pay off the $500 loan.  The defendants used deceptive loan documents in connection with at least five million consumer loans.

Adopting an earlier recommendation from Magistrate Judge Cam Ferenbach, Judge Navarro found that the defendants’ lending practices were deceptive because by failing to disclose charges and inflating fees, they hid from consumers the true cost of the payday loans they offered.

Last week’s decision follows another significant ruling in the FTC’s favor. In March, after the defendants claimed their affiliation with American Indian tribes shielded them from federal law enforcement, Judge Navarro ruled against them finding that the FTC Act grants the agency authority to regulate arms of Indian tribes, their employees, and their contractors.

In her latest decision, Judge Navarro noted that the key portions of defendants’ loan documents were “convoluted,” “buried,” “hidden,” and “scattered.”  And she further cited evidence indicating that the defendants’ “employees were instructed to conceal how the loan repayment plans worked in order to keep potential borrowers in the dark.”

“Like any other contract, payday lending contracts must disclose the true cost consumers will pay,” said Jessica Rich, Director of the agency’s Bureau of Consumer Protection. “This is especially important because many consumers who take out payday loans calculate the amount they can afford to pay down to the dollar.”  

The FTC has sued a number of payday lenders for engaging in unfair and deceptive practices targeting financially distressed consumers who are seeking short-term loans.

When the FTC sued the defendants behind AMG Services in 2012, it alleged that they violated the FTC Act by piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits. The defendants violated the Truth in Lending Act by giving inaccurate loan information to borrowers, and the Electronic Fund Transfer Act by requiring consumers to preauthorize electronic withdrawals from their bank accounts as a condition of obtaining credit, according to the FTC.  

The Federal Trade Commission reached a partial settlement on other issues last year with the principal AMG defendants. The order bars the settling defendants from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit.

Litigation in the case will continue to determine the liability of each defendant and the damages the court will impose.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them

IOWA COMPANY AND EXECS PLEAD GUILTY IN CASE INVOLVING ADULTERATED EGGS

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, June 3, 2014

Iowa Company and Top Executives Plead Guilty in Connection with Distribution of Adulterated Eggs

Company Also Pleads Guilty to Bribery of Public Official and Introduction of Misbranded Eggs

Quality Egg LLC (Quality Egg), Austin “Jack” DeCoster and Peter DeCoster pleaded guilty today in federal court in Sioux City, Iowa, in connection with the distribution of adulterated eggs in interstate commerce.   As part of their plea agreements, the company and the two individuals admitted the company’s shell eggs were adulterated in that they contained a poisonous and deleterious substance, Salmonella Enteriditis, that may have rendered the eggs injurious to health.

Assistant Attorney General Stuart F. Delery of the Justice Department’s Civil Division and U.S. Attorney Kevin W. Techau of the Northern District of Iowa made the announcement.

Quality Egg, an egg production company with operations in Wright County, Iowa, pleaded guilty to one count of bribery of a public official, one count of introducing a misbranded food into interstate commerce with intent to defraud, and one count of introducing adulterated food into interstate commerce.   Austin “Jack” DeCoster, 79, of Turner, Maine, and Peter DeCoster, 51, of Clarion, Iowa, each pled guilty to one count of introducing adulterated food into interstate commerce.

As part of its plea agreement, Quality Egg acknowledged that, on at least two occasions in 2010, its employees gave a cash bribe to an Inspector of the U.S. Department of Agriculture (USDA).   The USDA Inspector’s job responsibilities included inspecting shell eggs at one or more of Quality Egg’s production facilities in Iowa.   Quality Egg admitted its employees provided the bribe to the USDA Inspector (now deceased) in an attempt to corruptly influence the inspector to exercise his authority to release pallets of retained eggs for sale without re-processing the eggs as required by law and USDA standards.   The eggs had been retained or “red tagged” for failing to meet minimum USDA quality grade standards.

On Sept. 12, 2012, former Quality Egg employee Tony Wasmund, 63, pleaded guilty to one count of conspiracy to bribe a public official, sell restricted eggs with intent to defraud, introduce misbranded food into interstate commerce with intent to defraud and mislead.   Wasmund is scheduled to be sentenced before United States District Court Judge Mark W. Bennett of the Northern District of Iowa on Sept. 12, 2014.

Quality Egg also pleaded guilty to introducing misbranded eggs into interstate commerce with the intent to defraud.   As part of its plea agreement, Quality Egg admitted that, beginning no later than January 2006 and continuing through Aug. 12, 2010, its employees affixed labels to egg shipments that indicated false expiration dates with the intent to mislead state regulators and retail egg customers regarding the true age of the eggs.   Quality Egg acknowledged that there were a number of ways that the company mislabeled older eggs with newer processing and expiration dates prior to shipping the eggs to customers in California, Arizona and other states.   Sometimes Quality Egg personnel did not put any processing or corresponding expiration dates on the eggs when they were processed.   The eggs would be kept in storage for several days or up to several weeks.   Then, just prior to shipping the eggs, Quality Egg personnel labeled the eggs with processing dates that were false.

As part of its plea agreement to the charge of introducing adulterated eggs into interstate commerce, Quality Egg admitted that, between about the beginning of 2010 and in or about August 2010, the company sold shell eggs that were adulterated in that they contained a poisonous and deleterious substance, Salmonella Enteriditis.   The company acknowledged that it produced, processed, held, and packed the contaminated eggs in Iowa and sold and caused the distribution of the eggs to buyers in states other than Iowa.

Austin “Jack” DeCoster and Peter DeCoster each pleaded guilty to one count of introducing adulterated eggs into interstate commerce.

As part of his plea agreement, Austin “Jack” DeCoster admitted that he was the trustee of a trust that owned Quality Egg (also doing business as Wright County Egg, and Environ), and he exercised substantial control over the operations of Quality Egg and related entities and assets in Iowa.   Austin “Jack” DeCoster acknowledged that he was the person ultimately responsible for the operations of Quality Egg and the various egg facilities in Iowa associated with Quality Egg.  

Peter DeCoster, as part of his plea agreement, admitted that was the Chief Operating Officer of Quality Egg, and he exercised some control over the production and distribution of shell eggs by Quality Egg and related entities and assets in Iowa.   Peter DeCoster acknowledged he was one of the persons responsible for running the operations of Quality Egg and the various egg facilities in Iowa associated with Quality Egg.

Both Austin “Jack” DeCoster and Peter DeCoster admitted that between about the beginning of 2010 and in or about August 2010, Quality Egg introduced and caused to be introduced into interstate commerce shell eggs that were adulterated, in that they contained a poisonous and deleterious substance, Salmonella Enteriditis.

Sentencing will be set before Judge Mark W. Bennett after presentence reports are prepared.   Austin “Jack” DeCoster and Peter DeCoster remain free on bail pending sentencing.

On the bribery count, Quality Egg faces a sentence of probation for at least one and up to five years and a fine equal to the greater of three times the monetary equivalent of the thing of value given, offered, or promised as part of the offense, or $500,000.   Quality Egg also agreed to forfeit a money judgment of $10,000 representing proceeds of the bribery offense.

On the introducing misbranded eggs into interstate commerce with the intent to defraud count, Quality Egg faces a maximum sentence of probation for at least one and up to five years and a fine equal to the greater of twice the gross gain resulting from the offense, twice the gross loss resulting from the offense, or $500,000.

On the introducing adulterated eggs in interstate commerce count, Quality Egg faces a sentence of probation for up to five years and a fine equal to the greater of twice the gross gain resulting from the offense, twice the gross loss resulting from the offense, or $100,000.

Austin “Jack” DeCoster and Peter DeCoster each face a maximum sentence of up to one year imprisonment or a term of probation of not more than five years; a fine equal to the greater of twice the gross gain or the gross loss resulting from the offense, or $100,000; and a term of supervised release after any imprisonment for up to one year.

The case is being prosecuted by Trial Attorneys Lisa Hsiao and Christopher Parisi of the Consumer Protection Branch of the Justice Department’s Civil Division and Assistant U.S. Attorney Peter Deegan of the Northern District of Iowa.   They were assisted by Associate Chief Counsel Michael Varrone of the Food and Drug Division, Office of General Counsel, Department of Health and Human Services.   The case was investigated by the Food and Drug Administration’s Office of Criminal Investigations, the United States Department of Agriculture Office of Inspector General, and the FBI.