The TV ads were enticing and convincing: With just a few clicks online, a $1,500 payday loan could be yours.
Short on cash during the Christmas holidays, Sacramentan Inez Hackett logged on and got an immediate loan, deposited straight into her bank account.
She also got months of withdrawals she never authorized. By the time Hackett complained last year, more than $800 in payments had been siphoned out of her bank account. The amount of her initial loan: $250.
Like Hackett, thousands of consumers nationwide are believed to have been fleeced by an organized group of payday loan websites, which in numerous cases tripled loan payments by fraudulently taking withdrawals from customers' bank accounts, according to federal investigators.
This week, the Federal Trade Commission filed suit against the parent company, AMG Services Inc., which ran about 15 payday loan websites, with names such as OneClickCash.com, 500FastCash.com and UnitedCashLoans.com.
Payday loans are short-term, high-fee, unsecured loans made in anticipation of a consumer's upcoming paycheck.
The FTC's complaint says AMG, in operation since at least 2002, was controlled by race car driver Scott Tucker and others, who took in more than $100 million in revenue.
"They've been vastly overcharging consumers for years. A large proportion of their revenues were scammed from consumers," said FTC attorney Jason Schall.
Hackett, who had her 15-year-old granddaughter help her sign up online after seeing talk show star Montel Williams touting the loans on TV, said the contract she signed electronically was for a total repayment of $325 on her $250 loan.
But the company she used, OneClickCash.com, quickly began taking multiple $75, $50 and $40 withdrawals over six months.
"I have no problem paying with I owed, but it got outrageous," said Hackett.
An attempt to reach OneClickCash.com for comment was unsuccessful.
The FTC said it's "optimistic" that consumers will be repaid for their losses.
A number of the companies, including OneClickCash, say they are owned by Indian tribes and therefore exempt from federal regulations. Most continue to operate as the FTC's suit unfolds.
The FTC received 7,500 complaints about AMG and its related firms but believes that's only a fraction of those who were defrauded.
According to the FTC, a typical scenario was to charge consumers a $90 finance fee on a $300 loan. But instead of withdrawing the loan payment and onetime fee on a specific date, the online loan sites typically withdrew partial payments from a customer's bank account on multiple days, assessing a finance charge each time. Under that system, which was not disclosed to borrowers, total payments on a $300 loan hit $975.
When consumers tried to pay off their loan by cash or check, they were declined or threatened with arrest or lawsuits, the FTC said.
"The bottom line on payday loans: Try to find an alternative," the FTC advises, such as from family or friends, or small, short-term loans from credit unions or local banks.
In some cases, cash advances from a credit card can be used, but interest rates can be extremely high.