Skip to content
Link copied to clipboard

Amid Kane’s troubles, Pa. boosts consumer enforcement

Uber, the rent-a-ride service, is not the only Silicon Valley-backed upstart company accused of ignoring the law to win customers and disrupt its state-approved rivals.

Uber, the rent-a-ride service, is not the only Silicon Valley-backed upstart company accused of ignoring the law to win customers and disrupt its state-approved rivals.

On Jan. 15, federal Judge J. Curtis Joyner signed a 77-page memo upholding the Pennsylvania Attorney General Bureau of Consumer Protection's right to challenge "Rent-a-Bank" and "Rent-a-Tribe" schemes used by Fort Worth-based Think Finance Inc. and its affiliates under state law.

The state says Think Finance paid the former First Bank of Delaware to act as a front so it could dodge the state's ban on unregulated companies' making high-fee, high-interest loans here.

When First Bank stopped doing "payday-lending," Think Finance paid three Native American tribes out West "to provide cover" for continuing the loans, the state says.

So the bureau, last July, sued Think Finance, alleging that those arrangements violated the state Corrupt Organizations Act and other laws.

Think Finance, whose owners include the seminal venture capital firm Sequoia Capital and its partners, says the suit is without merit and hired a national legal team to argue that federal law allowing the loans ought to prevent Pennsylvania from suing.

Its lawyers included James R. McGuire, partner in the San Francisco law firm Morrison & Foerster, Ira Neil Richards of Schnader Harrison Segal & Lewis in Philadelphia, and Walter Cohen, the former Pennsylvania public advocate, welfare secretary and acting attorney general, now part of the Obermayer Rebmann Maxwell & Hippel law firm.

But Joyner let the state's case move toward trial. "He established that we have a strong viable case against huge financial and legal interests," said the consumer protection bureau's director, Basil L. Merenda.

Private lawyers. The state's legal team included special counsel Irv Ackelsberg, a veteran Philadelphia poverty lawyer who won concessions from a string of national mortgage lenders in predatory-lending cases during the savings-and-loan crisis of the early 1990s.

"When I was attorney general, attorneys general didn't hire private lawyers to bring suits like this," Cohen said. He said that such lawyers, who may have a personal interest in the financial results of the litigation, need to be carefully chosen and "closely supervised" by state lawyers.

There's a lot at stake here, and not just for the borrowers: A spin-off of Think Finance, Elevated Credit Inc., headed by former Think Finance boss Ken Rees, has filed for an initial public stock offering (IPO).

In its Securities and Exchange Commission filing, Elevated Credit acknowledges that Pennsylvania also sued CEO Rees as part of the Think Finance case, accusing him of loan racketeering.

As with Think Finance, Elevated Credit's investors are led by Sequoia Capital; its law firm is also Morrison & Foerster.

'Big improvement.' The Think Finance case is one sign of increased activity at Consumer Protection.

Beyond the headlines surrounding embattled Pennsylvania Attorney General Kathleen Kane, "there is no morale problem here" at the 78-member Bureau of Consumer Protection, director Merenda maintains.

Last year his office started more than 130 cases, up from 75 last year, when he took over, and 35 for 2013.

"There has been a big improvement in the Consumer Protection Division," affirms Michael Bannon, veteran chief who heads Bucks County's Department of Consumer Protection.

Bannon cited undercover stings the bureau ran in Levittown and Doylestown last year, after his office forwarded residents' complaints about unregistered, uninsured home-improvement contractors. The state says it busted 10 illegal contractors. As word got out, "contractors ran to register. That's the first time this has happened," Bannon said.

Bannon says Merenda's office has been making regular appearances at monthly meetings long attended by county and federal consumer enforcement officers in the region. "Before Basil, we had sporadic visits from the Attorney General's Office. We didn't know what they were doing or working on," Bannon said. "Since Basil has come, the representation at the meeting has been great. We've been able to bring things to them."

"Absolutely the AG is doing a lot more," agreed Evelyn Yancoskie, director of consumer affairs in Delaware County.

"The Think Finance lawsuit is a great example of Consumer Protection doing effective enforcement," said Kerry Smith, staff attorney at Community Legal Services of Philadelphia. "They really seem to be interested in what happens to low-income people."

JoeD@phillynews.com

(215)854-5194@PhillyJoeD

www.inquirer.com/phillydeals