Intercept Corporation, a privately held corporation headquartered in Fargo, ND, has pleaded guilty in Philadelphia federal court to operating an illegal money transmittal business tied to payday loans that led to recentconvictions.
Intercept was a third party payment processor which processed electronic funds transfers for its clients through the Automated Clearing House (“ACH”) system, an electronic payments network that processed financial transactions without using paper checks.
Among Intercept’s clients were numerous business entities offering high-interest-rate “payday loans.”
Payday loans are effectively illegal in more than a dozen states, including Pennsylvania, and are highly regulated in many other states, such as Delaware.
Among the payday loan companies that employed Intercept were payday companies owned, operated, controlled, and financed by Charles M. Hallinan (recently convicted of illegal payday lending by a federal jury in the Eastern District of Pennsylvania), Scott Tucker (recently convicted of illegal payday lending by a federal jury in the Southern District of New York) and Adrian Rubin (who pleaded guilty to illegal payday lending in the Eastern District of Pennsylvania).
Delaware attorney Wheeler Neff was also convicted in a case related to Hallinan’s enterprises.
No later than May 2008, Intercept was made specifically aware that one of Intercept’s payday lending clients made a payday loan in violation of Connecticut law. Subsequently, in June 2009, Intercept was again notified that one of its payday lending clients made an illegal payday loan, but this time, the loan was in violation of California law. In 2012, Intercept was instructed by its bank to stop processing payments for payday lending companies for loans made to borrowers in states where such loans were prohibited or restricted.
And in August 2012, a payday lending client specifically notified Intercept’s leadership that payday loans were being made in states that outlawed payday lending, including in Pennsylvania.
Yet Intercept continued working with payday lending operations for its clients in states that outlawed and/or regulated payday loans until at least August 2013, prosecutors stated.
In total, Intercept processed hundreds of millions of dollars of payments for its payday lending company clients, and earned millions of dollars in profits, as a result of assisting payday lenders in making illegal loans and collecting unlawful debt, according to prosecutors.
Intercept must pay a forfeiture to the United States in the amount of all funds involved in or traceable to the charged offense (and no less than $500,000), a potential corporate fine of up to $500,000, and a $400 corporate assessment.
The use of ACH transfers has drained accounts of many payday loan users with interest rates running into the hundreds. One case in Delaware led to a Chancery Court decision that went against the payday lender.
Later, legislators approved curbs on payday loans in Delaware that led to the departure of some lenders.
The Pennsylvania case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service, and the U.S. Postal Inspection Service.