Banking and Finance Law Daily Payday-loan business operator’s convictions under TILA, RICO upheld
News
Wednesday, November 4, 2020

Payday-loan business operator’s convictions under TILA, RICO upheld

By Nicole D. Prysby, J.D.

The choice-of-law provisions in the loan agreements were unenforceable regarding New York’s public policy against usury, and the disclosure of just one finance charge was misleading.

The U.S. Court of Appeals for the Second Circuit upheld the convictions of the owner of a payday loan business, who was found guilty of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Truth in Lending Act (TILA). The district court did not err in disregarding the choice-of-law provisions in the loan agreements; New York’s public policy interest in prohibiting excessive interest rates overcomes the stated choice-of-law provisions. The government’s reliance on RICO’s "unlawful debt" provision did not violate the fair warning guarantee of the Due Process Clause, because the "unlawful debt" provisions are straightforward and the unenforceability in New York of the contractual choice-of-law provisions was foreseeable, because such a provision clearly violates New York public policy. Moreover, there was ample evidence in the record providing a rational basis for a jury to find that the business owner was aware of the unlawful nature of his loans. The TILA conviction was upheld based on evidence that, on the typical loan document, the "total of payments" disclosure included just one finance charge in addition to the loan principal amount. Because TILA disclosures must reveal the total payments set at the time of the loan, a jury could rationally have found that the defendant’s "total of payments" disclosure of just the loan principal plus one finance charge—despite the fact that no such payment was actually scheduled—was inaccurate and misleading (U.S. v. Moseley, Nov. 3, 2020, Carney, S.).

Background. Defendant Richard Moseley, Sr., was convicted when a jury found that he violated the RICO Act and the TILA. Moseley’s payday-loan business lent money to borrowers in New York and other states at interest rates exceeding—by many multiples—the maximum legal interest rates allowed in those states in its loan documents. The business failed to meet TILA disclosure requirements, and it issued loans to borrowers without their consent. The district court sentenced Moseley to 120 months in prison and ordered Moseley to forfeit $49 million. Moseley appealed.

Convictions upheld. With regard to the RICO conviction, Moseley contended that the district court erred in disregarding the contractual choice-of-law provision; the prosecution violated his due process right to fair warning by charging him under RICO; and the evidence was insufficient to establish that he had the requisite guilty mental state. The court rejected all three contentions. The loan agreements specified that the agreements were to be governed by the laws of the jurisdictions of Nevada, Nevis, and New Zealand, none of which has usury laws, but New York’s public policy interest in prohibiting excessive interest rates overcomes the stated choice of law provisions. New York’s felony usury offense is particularly persuasive in demonstrating that the New York legislature considers usury to be a matter of serious public concern. The court rejected Moseley’s argument that the usury laws of Missouri (where the business was headquartered) should apply. The contacts with Missouri were thin as compared to the loans and payments that affected borrowers in New York, and borrowers had no way of knowing that the business was based in Missouri.

The government’s reliance on RICO’s "unlawful debt" provision did not violate the fair warning guarantee of the Due Process Clause. The "unlawful debt" provisions of RICO are straightforward and the unenforceability in New York of the Nevada, Nevis, and New Zealand contractual choice-of-law provisions was foreseeable, because such a provision clearly violates New York public policy. Accordingly, there was no basis to conclude that Moseley was somehow lulled into a false sense of security or had no reason even to suspect that his conduct might be within RICO’s scope.

There was ample record evidence that provided a rational basis for a jury to find that Moseley was aware of the unlawful nature of his loans. He admitted that he knew he was lending at rates more than twice the rate allowed in New York. He received numerous complaints from state attorneys general informing him that he was lending in violation of state laws, after which he stopped making loans through those of his lending entities that had come under scrutiny by state attorneys general, while continuing to lend through those that were not under scrutiny.

With regard to his TILA conviction, Moseley argued that his loan agreements disclosed the "total of payments" borrowers would make, as TILA requires, and that the evidence was insufficient to show that these disclosures were inaccurate. But the record contained evidence that on the typical Moseley loan document, the "total of payments" disclosure included just one finance charge in addition to the loan principal amount. Because TILA disclosures must reveal the total of payments set at the time of the loan, a jury could rationally have found that Moseley’s "total of payments" disclosure of just the loan principal plus one finance charge—despite the fact that no such payment was actually scheduled—was inaccurate and misleading.

The court also rejected Moseley’s challenges to the admissibility of evidence of borrower complaints, and to the district court’s calculation for purposes of sentencing that overall Moseley caused borrowers nationwide a loss of $49 million.

The case is No. 18-2003.

Attorneys: David Matthew Abramowicz, Office of the U.S. Attorney, for the United States. Amy Adelson (Law Offices of Amy Adelson LLC) for Richard Moseley, Sr.

MainStory: TopStory ConnecticutNews CrimesOffenses InterestUsury Loans MissouriNews NewYorkNews StateBankingLaws TruthInLending VermontNews

Back to Top

Interested in submitting an article?

Submit your information to us today!

Learn More

Banking and Finance Law Daily: Breaking legal news at your fingertips

Sign up today for your free trial to this daily reporting service created by attorneys, for attorneys. Stay up to date on banking and finance legal matters with same-day coverage of breaking news, court decisions, legislation, and regulatory activity with easy access through email or mobile app.