I am the General Counsel of a small bank in the Midwest.
Bank lawyers typically focus on the civil liability provisions of TILA. However, I think we have a blind spot when it comes to criminal liability.
I am catching up on criminal liability with respect to TILA violations. I hope you can start me off in the right direction.
How can criminal liability arise in violations of TILA?
ANSWER
It may be worthwhile to consider criminal liability in viewing violations of the Truth in Lending Act (TILA).
TILA § 112 specifies:
“Whoever willfully and knowingly (1) gives false or inaccurate information or fails to provide information which he is required to disclose under the provisions of [TILA] or any regulation issued thereunder, (2) uses any chart or table authorized by the Consumer Financial Protection Bureau (CFPB) under section 1606 of this title in such a manner as to consistently understate the annual percentage rate determined under section 1606(a)(1)(A) of [TILA], or (3) otherwise fails to comply with any requirement imposed [by TILA], shall be fined not more than $5,000 or imprisoned not more than one year, or both.” (My emphasis.)
It is worth noting that this TILA provision rarely sees the light of day, but it is available. A case comes to mind where the U.S. Court of Appeals for the 2nd Circuit affirmed its use against a payday lender. The case is United States v. Moseley. Let’s use this case as a learning tool toward understanding the application of criminal liability to a TILA violation. [United States v. Moseley, 2020 U.S. App. (2nd Cir. Nov. 3, 2020)]
For about ten years, Moseley ran a payday loan business, using several domestic and foreign loan entities, including entities in Nevada, the Federation of St. Kitts and Nevis (“Nevis”), and New Zealand, where no usury statutes existed. Moseley and his employees administered the enterprise solely from offices located in Kansas City, Missouri.
In 2014, the CFPB shut the business down on the basis of the illegalities that became the subject of Moseley’s prosecution.
Moseley’s business had offered small-dollar, short-term, unsecured loans in amounts up to $500. The business charged “fees” that functioned as interest payments. Using the Internet, Moseley’s business directly credited the borrower’s bank account with the loan principal by using the borrower’s private banking information.
For each “loan period,” Moseley charged a $30 fee for each $100 of the borrower’s total loan amount. The business automatically deducted these fees from the borrower’s bank account and credited them to Moseley’s entity at the end of the first loan period.
Unlike the debited fees, repayment would not automatically occur. Unless the borrower affirmatively acted to pay off the principal by the end of the 2-week loan term, the loan would be “refinanced,” (sic) and the term automatically extended.
Unlike the debited fees, repayment would not automatically occur. Unless the borrower affirmatively acted to pay off the principal by the end of the 2-week loan term, the loan would be “refinanced,” (sic) and the term automatically extended.
For each extension, an additional equal fee would be debited against the borrower’s account and credited to Moseley’s business. Consequently, absent an affirmative act by the borrower to pay off the principal, Moseley would continue debiting the account each 2-week period, and the result could, and on occasion did lead to total finance charges of $780 on the original $100 loan, in effect an approximate yearly interest rate of 780%, none of which would be credited toward repayment of principal.
As if that wasn’t bad enough, Moseley took his scheme further by actually implementing a separate scheme that almost certainly reduced his chances for acquittal. A potential borrower searching for short-term cash would enter personal information online in a “lead generator” website maintained by a third party hired by Moseley’s business. The “lead generator” website was one in which a potential customer could express an interest in a loan but was not provided loan terms and was not actually agreeing to receive a loan. Upon receiving an expression of interest, the lead generator would forward the prospective borrower’s information to Moseley’s business.
I think you can guess where this scheme was going!
Moseley would then have his employees attempt to contact the potential borrower by phone and try to obtain borrower approval for making a loan. If phone contact was made, the employee would explain the loan’s terms to the borrower, who could then accept or decline a loan offer. If the potential borrower did not answer the phone, the employee would leave a voicemail message about the offer, and the loan would be approved and made anyway, even absent the borrower’s consent.
How was that possible?
It was possible because individuals provided banking information at the get-go, in their inquiry to the lead generator, without having established a business relationship or entered into an agreement. Moseley’s business would then deposit the loan principal into the borrower’s account and begin deducting fees as described above.
In testimony at trial, one of Moseley’s employees estimated that the business never made direct contract with about 70 percent of eventual borrowers. Although all borrowers eventually received loan documents by email, the e-signatures on those documents were falsified.
As if that wasn’t bad enough, Moseley took his scheme further by actually implementing a separate scheme that almost certainly reduced his chances for acquittal. A potential borrower searching for short-term cash would enter personal information online in a “lead generator” website maintained by a third party hired by Moseley’s business. The “lead generator” website was one in which a potential customer could express an interest in a loan but was not provided loan terms and was not actually agreeing to receive a loan. Upon receiving an expression of interest, the lead generator would forward the prospective borrower’s information to Moseley’s business.
I think you can guess where this scheme was going!
Moseley would then have his employees attempt to contact the potential borrower by phone and try to obtain borrower approval for making a loan. If phone contact was made, the employee would explain the loan’s terms to the borrower, who could then accept or decline a loan offer. If the potential borrower did not answer the phone, the employee would leave a voicemail message about the offer, and the loan would be approved and made anyway, even absent the borrower’s consent.
How was that possible?
It was possible because individuals provided banking information at the get-go, in their inquiry to the lead generator, without having established a business relationship or entered into an agreement. Moseley’s business would then deposit the loan principal into the borrower’s account and begin deducting fees as described above.
In testimony at trial, one of Moseley’s employees estimated that the business never made direct contract with about 70 percent of eventual borrowers. Although all borrowers eventually received loan documents by email, the e-signatures on those documents were falsified.
Also at trial, Moseley tried to show that borrowers “e-signed” the agreements when they inquired about loans. The government introduced substantial evidence to the contrary, from which, according to the court, the jury could have concluded that those borrowers whom Moseley’s staff did not contact by phone had no notice of loan terms and had no opportunity to accept or reject those terms before the related credits and debits began.
In an attempt to avoid state criminal usury caps, Moseley incorporated entities offshore and edited the online loan agreements to include a “choice of law” provision specifying that the law of one of the three jurisdictions (Nevada, Nevis, or New Zealand) governed the transaction. A "choice of law" or "governing law" provision in a contract allows the parties to agree that a particular state's laws will be used to interpret the agreement, even if they live in (or the agreement is signed in) a different state.
The disclosures in Moseley’s loan documentation included a box labeled “Total of Payments,” described as the “amount you will have paid after you have made the scheduled payment.” The figure displayed in this box was the sum of the loan principal and a single “fee.” The Total of Payments disclosure did not indicate that no repayment of the principal was actually “scheduled” to occur, nor did it indicate that indefinitely recurring finance charges were “scheduled” to occur. Rather, text in fine print below the disclosure box advised that the single payment of loan principal and a single finance charge whose sum it displayed would become “scheduled” only if the borrower signed a specified separate form and “fax[ed] it back to our office at least three business days before your loan is due.” As a result, the Total of Payments disclosure was inaccurate for any borrower who did not affirmatively and timely act by sending a facsimile to pay off the loan principal.
Here's where we enter the realm of criminal liability. A jury convicted Moseley of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and TILA § 112. The district court sentenced Moseley primarily to 120 months in prison and ordered him to forfeit $49 million.
The 2nd Circuit affirmed. After affirming the RICO conviction, the 2nd Circuit agreed that the jury also had sufficient basis to find that Moseley “willfully and knowingly…[gave] false or inaccurate information or fail[ed] to provide information which he [was] required to disclose [by TILA].”
The Total of Payments disclosure included just one finance charge in addition to the loan principal amount, notwithstanding Moseley’s knowledge and intention that, unless the borrower acted, the total he or she would pay would amount to much more than a single finance charge, and that the Total of Payments had no upper limit at all (except that Moseley’s business generally and arbitrarily viewed a loan as repaid after 40 or 45 charges).
TILA-compliant disclosures must reveal the total of payments under the payment schedule set at the time of loan disbursement, not under an illusory payment schedule achievable only after the borrower undertakes steps described in the fine print.
I would also suggest that the jury rationally could have found that it was inaccurate and misleading for Moseley’s Total of Payments to show disclosure of just the loan principal plus one finance charge, especially in view of the fact that no such payment was actually scheduled. The court noted that the fact that the total of payments amount could be difficult to predict, and would vary from borrower to borrower, did not exempt Moseley from the obligation to disclose the potentially limitless “scheduled” amount.
In an attempt to avoid state criminal usury caps, Moseley incorporated entities offshore and edited the online loan agreements to include a “choice of law” provision specifying that the law of one of the three jurisdictions (Nevada, Nevis, or New Zealand) governed the transaction. A "choice of law" or "governing law" provision in a contract allows the parties to agree that a particular state's laws will be used to interpret the agreement, even if they live in (or the agreement is signed in) a different state.
The disclosures in Moseley’s loan documentation included a box labeled “Total of Payments,” described as the “amount you will have paid after you have made the scheduled payment.” The figure displayed in this box was the sum of the loan principal and a single “fee.” The Total of Payments disclosure did not indicate that no repayment of the principal was actually “scheduled” to occur, nor did it indicate that indefinitely recurring finance charges were “scheduled” to occur. Rather, text in fine print below the disclosure box advised that the single payment of loan principal and a single finance charge whose sum it displayed would become “scheduled” only if the borrower signed a specified separate form and “fax[ed] it back to our office at least three business days before your loan is due.” As a result, the Total of Payments disclosure was inaccurate for any borrower who did not affirmatively and timely act by sending a facsimile to pay off the loan principal.
Here's where we enter the realm of criminal liability. A jury convicted Moseley of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and TILA § 112. The district court sentenced Moseley primarily to 120 months in prison and ordered him to forfeit $49 million.
The 2nd Circuit affirmed. After affirming the RICO conviction, the 2nd Circuit agreed that the jury also had sufficient basis to find that Moseley “willfully and knowingly…[gave] false or inaccurate information or fail[ed] to provide information which he [was] required to disclose [by TILA].”
The Total of Payments disclosure included just one finance charge in addition to the loan principal amount, notwithstanding Moseley’s knowledge and intention that, unless the borrower acted, the total he or she would pay would amount to much more than a single finance charge, and that the Total of Payments had no upper limit at all (except that Moseley’s business generally and arbitrarily viewed a loan as repaid after 40 or 45 charges).
TILA-compliant disclosures must reveal the total of payments under the payment schedule set at the time of loan disbursement, not under an illusory payment schedule achievable only after the borrower undertakes steps described in the fine print.
I would also suggest that the jury rationally could have found that it was inaccurate and misleading for Moseley’s Total of Payments to show disclosure of just the loan principal plus one finance charge, especially in view of the fact that no such payment was actually scheduled. The court noted that the fact that the total of payments amount could be difficult to predict, and would vary from borrower to borrower, did not exempt Moseley from the obligation to disclose the potentially limitless “scheduled” amount.
Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group
