How "payday" lenders pull off crippling rates

Online payday lending company 500 FASTCASH charged an annual interest rate of 476 percent.

OVERLAND PARK, Kan. - For Americans struggling in this economy, an advance on a paycheck can be a lifeline. These advances - also known as payday loans - have become a fast-growing business online, with nearly $11 billion lent out last year.

The money often comes with crippling interest rates, as CBS News chief investigative correspondent Armen Keteyian found for this report in partnership with the Center for Public Integrity.

Center for Public Integrity's report

Ramon Zayas was suffering from prostate cancer and facing mounting bills.

"I had to pay the electric bill, or have the lights turned off," Zayas said.

So he and his wife got a $250 payday loan from an online lender 500 FASTCASH. It charged an annual interest rate of 476 percent. Zayas thought he was paying off the loan, but confusing fees, and the high interest eventually pushed the cost to $125 a month - on a $250 loan. Like a lot of people, he couldn't keep up with the soaring costs.

"I borrowed $250, I thought I was going to pay $325," Zayas said. "I actually paid $700, but it would have been $1,100 had I not gone to the bank and put a stop to this."

Because of cases like this, 17 states have effectively banned payday lending. But Ramon Zayas' lender is shielded from state laws because 500 FastCash is owned by an Indian tribe. Today, an estimated 30 online payday lenders partner with American Indian tribes.

"If you can become affiliated with a tribe, and be able to avert local and state laws, in my opinion, apparently loan sharking is legal in this country," said Rick Brinkley.

Brinkley runs the Better Business Bureau in Eastern Oklahoma. He's recieved 2,000 complaints and says it's unclear who is behind some of these operations.

"The letters coming back from the payday loan companies don't even have signatures on them," Keteyian asked.

"They just say 'compliance office,'" Brinkley replied.

"What does that tell you?"

"It tells us that they don't want us to know who they are."

Learn about payday lenders in your state

CBS News wanted to find out who profits from these companies. So we went to the address for three online payday lenders owned by the Miami Nation of Oklahoma.

Turns out, this tribe's payday lending operation is run by a company called AMG Services which we found in Overland Park, Kan.

But employees here wouldn't even say who owns the company. "I'm not at liberty to divulge that information," the employee said.

The CBS News/Center for Public Integrity investigation found that the Colorado and West Virginia attorneys general have pursued these lending operations. In court papers they claim Scott Alan Tucker is a key player. Tucker spent a year in federal prison in 1991 for fraudulent business loans.

Today, the 49-old-year-old Tucker enjoys a high-octane lifestyle. He races a fleet of expensive cars, and flies on a $14 million corporate jet. An $8 million home in Aspen is listed in his wife's name and the property taxes, we discovered, were paid by AMG Services.

Tucker declined our requests for an interview but we caught up with him at a race in California. He didn't answer our question about his connection to AMG Services.

Statement from Scott Tucker

Letter from Chief Tom Gamble of the Miami Tribe

After that, the Miami Tribe sent us a letter saying Tucker is "an employee" of AMG Services and bound by a contract not to discuss tribal business. The tribe said in a statement that it follows Federal and Tribal law, and that all complaints are handled "appropriately and without any harassment."

Meanwhile, Ramon Zayas and his wife had to close their bank account and say they continued to be harrassed for months.

"They can do whatever they want to poor people like me," Zayas said.

While lenders can dodge state laws they are not immune from federal law. Just two weeks ago the Federal Trade Commission took the first legal action against an online payday lender tied to a different Indian tribe.