DOJ Targets Payday Lender Using RICO

Credit Cards  •  DOJ  •  Enforcement  •  Enforcement Actions  •  Small Dollar Lending/Lenders

Thumbnail for 1318On June 22, 2015, the US Attorney’s office for the Eastern District of Pennsylvania filed an information charging Adrian Rubin of Jenkintown, PA, with: (1) one count of conspiracy to violate RICO, 18 U.S.C. § 1962(d); (2) one count of conspiracy to commit mail fraud and wire fraud, 18 U.S.C. § 371; (3) two counts of mail fraud, 18 U.S.C. § 1341; and (4) aiding and abetting mail fraud, 18 U.S.C. § 2.   According to the charging document, between 1998 and 2012, Rubin owned, controlled, financed, and/or worked for multiple businesses that issued short-term “payday” loans – each of which allegedly flouted state laws to turn a profit.  The allegations are nothing new, and the information details a history of lending models still under scrutiny today.

 

The RICO Allegations

The RICO allegations against Rubin consist principally, but not exclusively, of Rubin’s alleged participation in three major payday lending activities: (1) a “rent-a-bank” scheme to provide payday loans in violation of state law, (2) moving of lending operations to a state that is “usury friendly” to make loans in states that prohibit usury; and (3) a “rent-a-tribe” scheme to avoid usury laws.  The government alleges that Rubin and his co-conspirators derived income through collecting on unlawful debts, and that he and his co-conspirators (principally employed by Rubin or associated with his payday lending activities) continued to make unlawful payday loans—i.e. loans that were illegal in states that prohibited payday lending—from through 2012.

Alleged “Rent-a-bank” Scheme

According to prosecutors, Rubin’s alleged first payday lending operation began in 1998 and went on until approximately April 2003.  He and various co-conspirators allegedly wanted to capitalize on the fact that federally insured banks were not subject to state laws that prohibit usury.  To do so, Rubin created a company called CRA Services  (CRA), which partnered with County Bank of Rehoboth, Delaware (“County Bank”) to provide payday loans.  County Bank would appear to be the lender to borrowers and outsiders—its name would be used on all loan documents—and CRA would formally act as the servicer of the loan.  Prosecutors allege that County Bank, however, did not provide any of the funds to borrowers or incur any of the debt associated with the loans, though it received a portion of the profits CRA made each month.   This arrangement allegedly allowed CRA to make high interest loans while avoiding state usury laws to which CRA would otherwise have been subject.

Internet Payday Loans in “Usury Friendly” States

When CRA Services closed its doors in 2003, Rubin founded Global Pay Day Loan (Global), incorporated in Utah.  Prosecutors allege that Rubin chose Utah to incorporate his company because Utah’s laws allow companies to issue loans to customers across the country via the phone or internet.  In order to avoid regulatory issues, since Rubin had a criminal record, he allegedly used his father-in-law’s identity without permission to incorporate Global.  Rubin began operating Global out of Salt Lake City and Philadelphia.  Through Global, Rubin made payday loans across the country via different leads from the internet.  This venture ended in 2007,  following an investigation by the Utah Banking Commission.

Alleged “Rent-a-Tribe” Scheme

Prosecutors allege that after Rubin was no longer able to use Global to fund his operations,  he entered into an agreement with a recognized Native American Tribe similar to the one that he had previously entered into with County Bank, in order to continue his lending activities.  Specifically, agreements between FNS and the Tribe made clear that FNS would: (1) continue to provide all funds for the loans the Tribe ostensibly made (2) service the loans; and (3) incur the risk of default on the loans.  The Tribe allegedly lent its name and appearance as the owner and operator of the lending operation, so that FNS could use the Tribe’s sovereign immunity to skirt the state usury laws.  In exchange, the Tribe received a monthly payment.

Finally, the government also charged Rubin and his two with sons violations of 18 USC §371 for conspiracy to offer payday customers “credit cards” to improve their credit, with the promise that they would regularly report the credit card payments to the credit reporting agency TransUnion.  The cards the Rubins issued alllegedly provided little to no credit to the consumer, and further, the Rubins failed to report the consumer’s payments to TransUnion regularly, and eventually discontinued reporting altogether.  The consumer allegedly paid money for access to the card, which could only be used at a particular online market that had limited goods for sale.

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