Using celebrities to endorse lending products — prepaid cards, reverse mortgages and payday loans, to name a few — is a popular method for marketers to gain the trust of potential borrowers.
But sometimes consumer protections take a back seat to the celebrity hype. Case in point: Lender MoneyMutual and its endorser, former day-time talk show host Montel Williams, were taken to task by New York’s banking regulator Tuesday. The loans promoted by Williams on TV and online carry sky-high interest rates — some exceeding 1,000 percent— were peddled to New York residents struggling to get by, the regulator said.
Benjamin Lawsky, superintendent of New York’s Division of Financial Services, said MoneyMutual, a division of marketing company SellingSource, has agreed to pay a $2.1 million penalty and cease its payday loan lead generation activities in the state of New York, where such loans are illegal.
Williams endorsed the MoneyMutual network of illegal payday lenders as “the only source you can trust for finding a short term loan quickly and easily.” Williams has agreed to withdraw his endorsement for payday loans to New York consumers, Lawsky said.
“The company (MoneyMutual) made special efforts to target the more than 55 percent of their customers who were ‘repeat clients’ – including so-called ‘Gold’ customers who took out a new loan to pay off a previous loan,” Lawsky said. “We are pleased that they have agreed to resolve this matter and stop marketing these illegal, usurious loans to New York consumers. Our investigation into the lead generation industry continues.”
Payday lending is illegal in New York under both civil and criminal usury statutes. In some cases, lenders attempt to skirt New York’s prohibition on payday lending by offering loans over the Internet, according to Lawsky. Overall, MoneyMutual sold “leads” with the personal information of approximately 800,000 New York consumers.
Payday loans have been targeted by federal and state authorities because they typically offer small amounts of money at high interest rates. They are normally repaid when the borrower receives his or her next paycheck. MoneyMutual advertises loans on its website at interest rates of 261 percent to 1,304 percent, Lawsky said.
Williams’ spokesman Jonathan Franks said DFS “has made no finding of a violation of law by Mr. Williams.” Franks added: Williams “is not blind to the problems of the industry,” but “we stand by his overall endorsement of Money Mutual.”
Lawsky said the MoneyMutual agreement is the first successful enforcement action against a payday loan “lead generation” company. These firms do not typically make payday loans directly, but instead set up websites marketing those illegal loans.