Judge Sides with F.T.C. in Payday Lending Case

A United States District Court judge has reinforced the Federal Trade Commission’s authority to go after payday lenders that claim their ties to Native American tribes make them immune to laws restricting high-cost loans.

The judge, Gloria M. Navarro of the Federal District Court in Nevada, said that the agency was within its rights to pursue its case against one such lender, AMG Services, which the commission accused of misleading borrowers desperate for cash.

The decision comes as federal and state authorities are increasingly cracking down on payday lenders, which issue short-term loans tied to a borrower’s paycheck.

Earlier this week, for example, the Illinois attorney general filed a lawsuit against All Credit Lenders, a short-term lender that the office accused of violating state usury laws that cap interest rates at 36 percent.

The payday loan industry has argued that it provides credit for people who would otherwise be shut out of the mainstream financial system, but some authorities worry that hidden fees and other costs can make interest rates skyrocket above 300 percent, trapping consumers in a long cycle of debt.

As a growing number of states have looked to rein in payday lenders with interest caps and other restrictions, lenders have found creative ways to skirt those rules and make loans to residents even in states where they are banned.

The companies affiliated with tribes have been a particularly tough challenge to regulators.

Regulators in at least 21 states have tried to go after lenders connected to tribes. New York State’s financial regulator, Benjamin M. Lawsky, for example, sent letters to 35 online lenders, including some with tribal affiliations, ordering them to “cease and desist” from offering loans that violate the state’s 25 percent interest rate cap.

In one example cited by the F.T.C., the defendants are said to have told one consumer that a $500 loan would cost him $650 to repay. But the company tried to charge him $1,925 to pay off the $500 loan, and threatened him with arrest when he balked at paying that amount, the F.T.C. said in its initial complaint in 2012.

In the case against AMG, Judge Navarro said that the Federal Trade Commission Act, a federal law preventing unfair or deceptive competition and commerce, “grants the F.T.C. authority to regulate arms of Indian tribes, their employees, and their contractors.”

The decision upholds an earlier opinion on the case from a magistrate judge last year.

“This ruling makes it crystal clear that the F.T.C.’s consumer protection laws apply to businesses that are affiliated with tribes,” Jessica Rich, the director of the agency’s bureau of consumer protection, said in a statement on Wednesday. “It’s a strong signal to deceptive payday lenders that their days of hiding behind a tribal affiliation are over.”

In its announcement, the commission called AMG Services’ ties to American Indian tribes in Oklahoma and Nebraska “tenuous.” The F.T.C. said that the company violated federal rules by “piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits.”

A representative for AMG could not be immediately reached for comment.

Last year, the agency reached a partial settlement with AMG that included barring the company from threatening to sue borrowers or have them arrested in order to collect on loans.