The Second Circuit Court of Appeals upheld the conviction of Defendant Richard Moseley, Sr., who faced criminal charges in the Southern District of New York for an illegal payday lending scheme.
In 2018, a New York jury found that Moseley violated the Racketeer Influenced and Corrupt Organizations Act (RICO), the Truth in Lending Act (TILA), and federal wire fraud and identity theft laws by operating a payday lending business that lent money to New York borrowers at interest rates that exceeded the maximum legal interests rates allowed in those states, failing to meet TILA disclosure requirements, and issuing loans to borrowers without their consent and then falsely representing that the borrowers had consented to the loans.
Moseley was sentenced to 120 months in prison and ordered to forfeit $49 million.
Moseley appealed both his conviction and his sentence, arguing that the trial court erroneously instructed the jury to apply New York usury law, as opposed to the choice-of-law provisions identified in the loan agreements which set no rate caps, that the loan agreements disclosed the 鈥渢otal of payments鈥� borrowers would make as required under the TILA, and that evidence was insufficient to prove that these disclosures were inadequate.
The Second Circuit Court found Moseley鈥檚 arguments unpersuasive and .
From 2004 to 2014, Moseley ran a payday loan service using several businesses that were incorporated in Nevada, St. Kitts, Nevis, and New Zealand. Using the Internet to take loan applications, Moseley offered short-term, small-dollar, unsecured loans up to $500. He operated the business from a physical location in Kansas City, Missouri.
Instead of charging a traditional interest rate, Moseley charged his customers 鈥渇ees鈥� that essentially functioned as interest payments. Using the Internet and borrowers鈥� private bank information, Moseley would credit a borrower鈥檚 account with the amount of the loan principal. For each 鈥渓oan period鈥� Moseley would charge a $30 fee for each $100 of the borrower鈥檚 total loan amount. The fees were automatically debited from the borrower鈥檚 bank account and transferred to Moseley鈥檚 business at the end of the first loan period.
Unlike the debited fees, however, repayment of the principal would not occur automatically. Instead, the borrower needed to affirmatively act to pay off the principal by the end of the two-week term; otherwise, the loan would be 鈥渞efinanced鈥� and the loan term would be automatically extended, with an additional fee charged for each such extension.
While some borrowers did pay off their loans, many did not. This resulted in continuing fee collection in amounts that were far greater than the principal. In some cases, a borrower was charged the $30 fee 26 times over the course of a year, resulting in finance charges of $780 on a $100 loan, effectively functioning as a 780% interest rate. Generally, Moseley would not allow his staff to 鈥渮ero out鈥� an account until 40 or 45 separate finance charges had been paid.
The extremely high interest rate Moseley charged posed a legal problem, as the interest rate exceeded state caps. For example, New York law sets the civil usury rate at 16% for unlicensed lenders and treats all contracts with rates higher than 16% as void.
To avoid running afoul of state interest rate caps, Moseley incorporated his business entities in Nevada, New Zealand, and Nevis, none of which have usury laws. Moseley then edited the loan agreements that his customers signed online to include choice-of-law provisions stating that the laws of one of these three jurisdictions governed the transactions.
In addition to charging high interest rates, Moseley issued loans to borrowers without their consent then debit fees related to these unauthorized loans. A borrower entered personal information into a 鈥渓ead generator鈥� website maintained by a third party that was hired by Moseley鈥檚 business. Potential borrowers provided personal information online, including banking information. Mosely would then contact the potential borrower to obtain approval for the loan. If phone contact was made, the borrower could accept or decline the offer. But if the borrower did not answer the phone, Moseley鈥檚 employees would leave a message about the offer and the loan would be approved anyway, without the borrower鈥檚 consent.
One of Moseley鈥檚 employees estimated that the business had not made contact with approximately 70% of the eventual borrowers.
Finally, the financial disclosures contained in Moseley鈥檚 loan agreement documents did not comply with applicable consumer protection laws, including the mandate that the lender disclose to the borrower, when originating the loan, the 鈥渢otal of payments鈥� (i.e., the total amount the borrower is scheduled to pay to close out the loan and cover all related liabilities).
After a three-week trial in the Southern District Court of New York, Moseley was found guilty on all counts. He appealed, arguing that the trial court should have applied the choice-of-law provisions specified in the loan agreements, which set no caps on interest rates.
The appellate court found that the choice-of-law provisions in the loan agreements were unenforceable because choice-of-law provisions that specify jurisdictions without usury laws are unenforceable as against public policy. The court also found that because New York was the 鈥渃enter of gravity鈥� of the transactions at issue, and because borrowers had no way of knowing that Moseley鈥檚 business was located in Missouri, New York law should apply.
Moseley also argued that there was insufficient evidence to show that he 鈥渨illfully and knowingly鈥� gave 鈥渇alse or inaccurate information or fail[ed] to provide information which he [was] required to disclose.鈥� However, Moseley鈥檚 loan agreements did not indicate to the borrower that no payment of the principal was scheduled to occur, or that the recurring finance charges were scheduled to occur.
Applying Federal Sentencing Guidelines, Moseley鈥檚 offense level was increased by 22 points based on a loss valued at more than $25 million but less than $65 million. The result was a total offense level of 43. When combined with a criminal history category of I, the Guidelines produced a sentence of life in prison. The district court determined that the statutory maximum penalty was 83 years in prison which, for an adult, is effectively a life sentence. The court downwardly departed from the Guidelines and sentenced Moseley to 120 months in prison.
The appellate court found no error in the trial court鈥檚 sentence and affirmed the trial court鈥檚 decision.
As Moseley鈥檚 case illustrates, federal prosecutors aggressively pursue RICO cases and wire fraud cases, and the consequences of a guilty verdict can be severe.
If you believe you are under investigation or have been charged with a crime in federal court, you need an experienced federal criminal defense lawyer on your side.
Philadelphia criminal defense attorney Hope Lefeber has been defending people accused of crimes in federal court for more than 30 years. She began her career as an enforcement attorney with the United States Securities and Exchange Commission (SEC), where she saw first-hand how the government prosecutes federal criminal cases. Today, she uses that experience to defend people accused of crimes in federal court. Ms. Lefeber staunchly opposes prosecutorial over-reaching and is passionately committed to keeping the government out of people鈥檚 lives.
Ms. Lefeber is a highly respected criminal defense lawyer who has received numerous accolades, represented high-profile clients including executives at Fortune 500 company executives, lawyers, doctors, businessmen and women, healthcare professionals and other professionals, lectured on federal criminal law topics, and been asked to appear on TV as a legal expert.
If you have been charged with a crime in federal court, contact Hope Lefeber today to schedule a confidential consultation to discuss your case.
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