On June 8, Colorado AG Cynthia Coffman announced a settlement with various lenders to resolve allegations that they violated Colorado’s consumer credit protection laws by making, servicing, and collecting high-cost loans. According to AG Coffman, the lenders made unlawful personal loans to more than 5,000 Colorado consumers, some of which had annual interest rates exceeding 355%. The AG’s office asserted that, in “the most egregious cases, consumers paid over five times the amount they borrowed in unlawful fees and interest.” Pursuant to a consent judgment entered by the Denver District Court, the lenders must pay $7,384,005.12 in disgorgement and restitution. The settlement comes after the State of Colorado obtained a $565,000 consent judgment against various entities in January 2014 arising out of similar conduct, making this the second Colorado AG settlement in connection with high-cost loans.
On June 28, the CFPB released its monthly complaint report focusing on consumer loans, including vehicle loans and leases, installment loans, title loans, and pawn loans. According to the report, of the 906,400 consumer complaints across all products the CFPB has received as of June 1, 2016, approximately 38,500 were in the consumer loans category. Findings regarding consumer loan complaints highlighted in the report include: (i) just over half of consumer loan complaints pertain to vehicle loans, with installment loans following at 31 percent; (ii) consumers most often complain about issues related to servicing the loan, lease, or line of credit; and (iii) additional common consumer loan complaints include encountering problems when shopping for a loan, when taking out a loan, and when consumers are unable to repay a loan.
This month’s report includes a “sub product spotlight” to highlight complaints specific to auto lending, which make up 60 percent of the 38,500 consumer loan complaints the CFPB has received since July 21, 2011. Consumer loan complaints specific to auto lending include, but are not limited to: (i) payment processing issues, such as consumers not having their accounts debited timely and correctly; (ii) confusion over fees and interest rates; (iii) repossession of vehicles without notification; (iv) misleading advertising at “Buy Here Pay Here” dealerships; and (v) insufficient warranty coverage, with consumers alleging that they believed they were required to purchase warranties that did not end up covering basic repairs as they expected. Read more…
On December 11, the California Department of Business Oversight (DBO) announced an inquiry into the marketplace lending industry, requesting that 14 lenders complete an online survey to provide five-year trend data on their loan and investor funding programs. In addition, the survey requests that participating firms provide information on their business models and online platforms. Marketplace lenders market themselves as a faster, more accessible source of financing for consumers and small businesses. Due March 9, 2016, the survey responses are intended to assist the DBO assess the state’s licensing and regulatory regime of the industry by: (i) assessing the industry’s size in California and the number of consumers and businesses it affects; and (ii) understanding the various loan and investor funding programs used by marketplace lenders. In four years, the national online lending market reportedly grew from $1 billion in loans to $12 billion; analysts anticipate that by 2020, the total volume will be $122 billion.
On November 18, the California DBO announced that a California-based lender fulfilled its obligation to pay nearly $1 million of restitution to more than 7,000 California consumers and $1 million to the DBO in penalties to resolve allegations that the company used deceptive marketing practices to steer consumers into personal loans exceeding $2,500. California state law limits interest rates at about 30% for loans less than $2,500, but there is no such limit above that amount. According to the DBO, the lender advertised that it provided personal loans of “up to” $2,600, $5,000, or $10,000; in reality, the lender did not offer loans less than $2,600. The lender allegedly told consumers that they could “give back the amount they did not want in the form of a prepayment,” without disclosing that it could then charge borrowers unlimited interest rates since the loan was greater than $2,500. Per the February 5 settlement, in addition to the restitution and penalty fees, the lender must, among other things, ensure that its non-mortgage and non-auto loan ads disclose, in a “clear and conspicuous manner,” that the minimum loan amount is $2,600, that there is a state law interest rate cap on loans of less than $2,500, and that it is lower than the rate charged by the lender.
Maryland Court of Special Appeals Holds MCSBA Applies to Loan Broker Working with Federally Insured Out-of-State Banks
On October 27, the Maryland Court of Special Appeals held that a loan broker who originates loans in Maryland for a federally insured out-of-state bank and then repurchases those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA) and must be licensed accordingly. Md. Comm’r of Financial Reg. v. CashCall, No. 1477, 2015 WL 6472270 (Md. Ct. Spec. App. Oct. 27, 2015). The loan broker argued, citing Gomez v. Jackson Hewitt, Inc., 427 MD. 128 (2012), that it was not a “credit service business” within the meaning of the MCSBA because the MCSBA did not apply to the out-of-state federally insured bank that made the loans and because the loan broker did not receive a direct payment from the consumer. The Commissioner and the court disagreed. In affirming the Commissioner’s decision and in overturning the decision of the Circuit Court for Baltimore, the Court of Special Appeals reasoned that the MCSBA applied because (i) the loan broker was engaged in the very business the MCSBA was intended to apply to (i.e. it was exclusively engaged in assisting Maryland consumers to obtain small loans); and (ii) after repurchasing the loan, the loan broker had the right to receive direct payment from consumers. The Court of Special Appeals remanded the case to the Circuit Court for Baltimore.