Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP® Joel Ohman

UPDATED: Sep 21, 2011

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September 21, 2011 – One scam that many payday lenders use to target consumers is by illegally requiring employers to take money out of the borrower’s wages to pay back the loan. The Federal Trade Commission (FTC) seeks to end this activity by frequently charging these companies in court.

One such case occurred near the beginning of the month against South Dakota lender Padyday Financial, LLC, which operates Big Sky Cash and Lakota Cash. This company sells short-term, high interest, unsecured payday loans of between $300 and $2,525 throughout the U.S. It was charged with allegedly illegally garnishing consumer wages when they failed to pay the balance on a payday loan with the company.

Garnishing wages, according to the U.S. Department of Labor, is when “an employer is required to withhold the earnings of an individual for the payment of a debt in accordance with a court order or other legal or equitable procedure.” Private companies like payday loan stores need a court order, while government agencies do not.

The FTC’s case states that Payday Financial, LLC, sent documents that were similar to those used by federal agencies to ask employers to take these funds out of borrowers’ paychecks when they failed to repay their loans.

According to a press release from the FTC, “the complaint further alleges that the defendants have violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default, and have violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.”

This is not the first of such charges levied by the FTC. For example, in September of last year it accused Ecash and GeteCash and the defendants settled in the case.