Judge lets Pennsylvania AG’s “Corrupt Organizations Act” suit against Victory Park Capital for tribal lending scheme move forward

The Pennsylvania Attorney General’s Office in 2014 filed suit against venture capital-backed Think Finance alleging the firm had utilized illegal tribal lending and “rent-a-bank” schemes to circumvent Pennsylvania usury laws.

In mid 2017, the Pennsylvania AG added Chicago-based private equity firm Victory Park Capital as a defendant, alleging that Victory Park Capital had been an active participant in Think Finance’s tribal lending scheme. In an April 2017 memo, the Pennsylvania AG’s office alleged that:

Discovery has revealed, as the proposed [Second Amended Complaint] alleges, that Victory Park was no mere investor; it was actually involved in the development and operation of Think Finance’s ‘tribal’ lending structure.[i]

Earlier this week, US District Court Judge J. Curtis Joyner denied in part (and granted in part) Victory Park Capital’s motion to dismiss, allowing the Pennsylvania AG’s case against Victory Park Capital to proceed. The Judge’s memorandum opinion (available here) suggests he believes that Victory Park Capital was no mere passive investor in Think Finance’s tribal lending scheme, but an active participant.

Some excerpts from the Judge’s opinion:

As discussed below, the Office of the Attorney General (OAG) has shown that [Victory Park Capital] actively participated in the design, implementation, and direction of a scheme that targeted customers located in Pennsylvania with the payday loans that are the subject of this litigation.

Moreover, Think Finance’s answers to interrogators establish that the scheme issued about $133 million in loans to 97,000 Pennsylvania consumers, which resulted in an additional $127 million in interest and fees.

The OAG has shown that the movants [Victory Park Capital] were early participants and helped develop the “rent-a-tribe” scheme.

In addition, the OAG presented a 2011 Think Finance PowerPoint entitled “Great Plains Lending Meeting,” which details the scheme’s planned structure. According to the PowerPoint, the Think Finance entities would sell leads, license the brand, and provide technology and risk management support to a tribal entity – yet to be identified – who would be the face of loan originations. The loans would then be purchased by “GPL Servicing (VPC Purchasing Entity),” a reference to GPLS. With the money collected on those loans, GPLS would pay a fixed return to the “VPC (Hedge Fund),” VPCA, and send the remaining “net income as [a] monthly admin fee” to “TF Admin Services,” a Think Finance affiliate. The Victory Park Defendants and GPLS formalized this structure with the Think Finance Defendants through a series of service agreements and guarantees. This evidence supports the conclusion that the movants were active in the design and establishment of the “rent-a-tribe” scheme, which as noted above, was purposefully directed at Pennsylvania residents.

Lastly, evidence shows that the movants [Victory Park Capital] were active participants with actual control over the scheme. Not only did Victory Park fund the scheme through GPLS, but it later illustrated its control over the scheme when it forced a temporary halt to the purchase of all participation interests. When regulatory pressure increased against the “rent-a-tribe” scheme, VPCA established a new policy that restricted the tribes to “fund repeat customers but not new customers.” Later, when Think Finance wanted to increase the scheme’s volume of lending, it was Think Finance who sought VPCA’s permission to loosen these restrictions. This level of engagement takes the movants from passive investors to collaborators in a scheme that targeted Pennsylvania residents.

The OAG provides plenty of allegations about VPCA’s conduct in the “rent-a-tribe” scheme that, if proven true, would render VPCA liable under the Corrupt Organizations Act (COA).

[i] Memorandum in support of Commonwealth of Pennyslvania’s motion for leave to file second amended complaint, Commonwealth of Pennsylvania v. Think Finance et al., 14-cv-7139, US District Court for the Eastern District of Pennsylvania, Apr 7, 2017.