Page 2 of 3
As reported in the first part of this series, eData Solutions is a company founded in Kansas City that provides electronic services, including lead generation, to online-lending companies. In 2012, its founder, Joel Tucker, sold eData Solutions to the Wyandotte Nation, an American Indian tribe in Oklahoma. This is a common workaround in the payday-loan industry; tribes enjoy immunity from state prosecution.
The suit alleges that one of Kimball and Furseth's companies, Edgewater Marketing, abruptly stopped paying back installments on a note owed to eData Solutions. All told, eData Solutions is demanding roughly $11 million from various entities controlled by Kimball and Furseth.
An eData Solutions executive summary obtained by The Pitch shows that, in 2010, Kimball and Furseth's companies were eData Solutions' biggest customers, adding up to 29 percent of its business.
Pete Smith, attorney for eData Solutions, says, "They stopped paying, so we had to sue them. It's a pretty straightforward suit on a guarantee of a promissory note."
But the reason that Kimball and Furseth stopped paying is a little thornier. Here's how Kimball explains it in an e-mail to The Pitch.
"In August of this year, the current administration took unprecedented regulatory action against banks that provided ACH services to the micro lending industry," Kimball writes. "As a result, our company lost its ACH ability which has curtailed our ability to collect repayment of loans from our customers. This new dynamic also has directly impacted our ability to meet our financial obligations to our investors and business partners, such as eData. We look forward to an amicable resolution of the current litigation with eData."
Storefront payday-loan operations require borrowers to provide a postdated check. Online payday operations require access to borrowers' bank accounts to drop the funds in — and, later, to take out principal, fees and interest owed. These debits and credits are made as ACH transactions. As Benjamin M. Lawsky of the New York State Department of Financial Services puts it in a recent letter, "Access to the ACH system is the foot in the door that online payday lenders need to prey on vulnerable New Yorkers."
A few months back, the FDIC started auditing banks, with an eye toward cracking down on ACH transfers to online lenders. The U.S. Department of Justice has also been issuing subpoenas to banks and processors. And it's working: Most banks are now too scared of regulators to accept online lenders as customers.
Missouri Bank, for example, has collected a lot of nickels from ACH transfer fees over the years. It is a defendant in a current class-action RICO lawsuit brought against a handful of banks across the country. Because Missouri Bank and others processed ACH transfers on payday loans into states where they're illegal, they're charged with being complicit in that violation.
"We consider the lawsuit to be without merit, and we will vigorously defend against it," Missouri Bank writes to The Pitch, through a spokesman.
Regardless, Missouri Bank is sufficiently spooked and has exited the business. "We no longer have customers in the online lending business," the spokesman says in an e-mail. "We made a business decision this summer to ask internet lending companies to leave our bank because of the uncertainty and potential cost stemming from changing and uncertain regulatory requirements."
These actions are effectively strangling the entire industry. AMG Services, a payday operation in Overland Park embroiled in a Federal Trade Commission lawsuit for its business practices, announced in September its intention to lay off as many as 159 employees.