Lender and owner to pay $12.5 million in civil money penalties in CFPB administrative action

Courts ALJ Civil Money Penalties Payday Lending EFTA CFPB TILA UDAAP

On August 4, an Administrative Law Judge (ALJ) recommended that a Delaware-based online payday lender and its CEO be held liable for violations of TILA, CFPA, and the EFTA and pay restitution of $38 million and $12.5 million in civil penalties in a CFPB administrative action. As previously covered by InfoBytes, in November 2015, the Bureau filed an administrative suit against the lender and its CEO alleging violations of TILA and the EFTA, and for engaging in unfair or deceptive acts or practices. Specifically, the CFPB argued that, from May 2008 through December 2012, the online lender (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. In 2016, an ALJ agreed with the Bureau’s contentions, and the defendants appealed the decision. In May 2019, CFPB Director Kraninger remanded the case to a new ALJ.

After a new hearing, the ALJ concluded that the lender violated (i) TILA (and the CFPA by virtue of its TILA violation) by failing to clearly and conspicuously disclose consumers’ legal obligations; and (ii) the EFTA (and the CFPA by virtue of its EFTA violation) by “conditioning extensions of credit on repayment by preauthorized electronic fund transfers.” Moreover, the ALJ concluded that the lender and the lender’s owner engaged in deceptive acts or practices by misleading consumers into “believing that their APR, Finance Charges, and Total of Payments were much lower than they actually were.” Lastly, the ALJ concluded the lender and its owner engaged in unfair acts or practices by (i) failing to clearly disclose automatic rollover costs; (ii) misleading consumers about their repayment obligations; and (iii) obtaining authorization for remote checks in a “confusing manner” and using the remote checks to “withdraw money from consumers’ bank accounts after consumers attempted to block electronic access to their bank accounts.” The ALJ recommends that both the lender and its owner pay over $38 million in restitution, and orders the lender to pay $7.5 million in civil money penalties and the owner to pay $5 million in civil money penalties.