Illegal PayDay syndicate in New York busted
There’s an interesting and horrible New York Time story by Jessica Silver-Greenberg about a PayDay loan syndicate being run out of New York State. The syndicate consists of twelve companies owned by a single dude, Carey Vaughn Brown, with help from a corrupt lawyer and another corrupt COO. Manhattan District Attorneys are charging him and his helpers with usury under New York law.
The complexity of the operation was deliberate and intended to obscure the chain of events that would start with a New Yorker online looking for quick cash online and end with a predatory loan. They’d interface with a company called MyCashNow.com, which would immediately pass their application on to a bunch of other companies in different states or overseas.
Important context: in New York, the usury law caps interest rates at 25 percent annually, and these PayDay operations were charging between 350 and 650 percent annually. Also key, the usury laws apply to where the borrower is, not where the lender is, so even though some of the companies were located (at least on paper) in the West Indies, they were still breaking the law.
They don’t know exactly how big the operation was in New York, but one clue is that in 2012, one of the twelve companies had $50 million in proceeds from New York.
Here’s my question: how did MyCashNow.com advertise? Did it use Google ads, or Facebook ads, or something else, and if so, what were the attributes of the desperate New Yorkers that it looked for to do its predatory work?
One side of this is that vulnerable people were somehow targeted. The other side is that well-off people were not, which meant they didn’t see ads like this, which makes it harder for people like the Manhattan District Attorney to even know about shady operations like this.
mathbabe 
Where’s the discussion of why federal preemption of state usury laws doesn’t apply here? Seems like an important threshold point unless this is just a dog and pony show…
FoW
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Say more please!
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Federal law almost entirely preempts state usury laws. If you are engaged in “banking,” you generally get off. What you usually get these shady operations on is violation of the FTC Act s5 (15 USC 45a) or on the state equivalent, which are usually called “unfair and deceptive practices Act.” Or some variant thereof. Essentially, the shady financial criminals bought out Congress to protect themselves from lawmakers who were more accessible to the people — and therefore more consumer protecting — in state legislatures.
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I’m kind of wary of reporting on payday-loan stories that only give annual rates. Since the terms of the loans usually only span one or two pay periods, and are usually for pretty low amounts of money, doesn’t 650% annual interest ends up being something like $10.00
Obviously if you’re taking a payday loan, you’re almost by definition short of money and ten bucks may be a non-trivial amount of money out of your already stretched paycheck. But given the transactional cost of processing each loan must be several dollars, even with a 0% chance of default, it doesn’t seem like even a charitiable, non-profit payday loan outfit could go much lower.
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Well, this would be true if payday loans really were one-time things. But, I believe in practice the vast majority get rolled over repeatedly so compounding really does matter.
At the same time, Lisa Servon has noted that good payday lenders offer advantages over banks and may be as low-priced as is economically profitable. Having said that, these guys do not seem to fall into that category of payday lenders.
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Email spam is surprisingly effective. They will also have many lead generators they contract with who work on commission only who do the heavy lifting of getting the ‘customers’ to the loan provider.
As to how they make money? Sometimes they don’t even with the huge interest rates they charge. The payday loan stories focus on the amount lent or the interest rates as its more sensational, but they have to pay the lead generators, pay for the capital they use, pay for collections, etc. Many of these small syndicates like the one busted here go out of business all the time.
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“The other side is that well-off people were not, which meant they didn’t see ads like this, which makes it harder for people like the Manhattan District Attorney to even know about shady operations like this.”
If only in the criminal justice system, the people were represented by two separate yet equally important groups: the police, who investigate crime; and the district attorneys, who prosecute the offenders. Then people in the District Attorney’s office wouldn’t have to find out about crimes all by themselves.
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You make an interesting point, by the way, about getting accessory businesses. The FTC has been actually going after accessory businesses that help fraudsters when they can make the case. For example, fraudulent businesses have extraordinarily high charge-back rates for credit transactions. This often flags a business as problematic, and therefore fraudsters open lots of bank accounts under different shell names to hide the true rate and spread it out. But banks have had civil suits filed against them by the FTC for not policing their customers enough. Web hosts are a special case, but there are ways to get some of the collaborators.
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