On October 4, the FTC announced a $1.3 billion judgment against defendants responsible for operating an allegedly deceptive payday lending scheme. The judgment is the result of 2012 complaint in which the FTC alleged that the defendants engaged in deceptive acts or practices in violation of Section 5(a) of the FTC Act by making false and misleading representations about costs and payment of the loans. According to the FTC, the defendants claimed that they would charge consumers the loan amount and a one-time finance fee. However, the court found that the defendants “made multiple withdrawals from consumers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.” The $1.3 billion order is the largest litigated judgment the FTC has obtained to date.
On December 16, the CFPB announced that it had entered a stipulation and consent order assessing a $250,000 civil monetary penalty and other remediation against a financial-services company that offers payday loans and check-cashing services based on allegations that it misled consumers through deceptive online advertisements and collections letters and made unauthorized electronic transfers from consumers’ bank accounts. Among other things, the Bureau took particular issue with the fact that Bureau examiners had previously identified “significant compliance-management-system weaknesses that heightened the risk that violations w[ould] occur,” and that “[a]t the times the violations described in this order, the company had not adequately addressed these issues.”
According to the terms of the consent order, the company is required to: (i) end its deceptive practices and obtain authorization for any electronic-fund transfers; (ii) pay approximately $255,000 to redress harm caused to affected consumers; and (iii) pay a civil monetary penalty of $250,000. As explained by CFPB Director Richard Cordray, “consumers were making decisions based on false and deceptive information, and today’s action will give the company’s customers the redress they are owed.”
On September 15, the FTC issued a paper summarizing the insights garnered through its October 2015 “Follow the Lead” workshop on lead generation. As previously covered in InfoBytes, the workshop focused on lead generation issues in the mortgage and education lending space. The FTC paper “detail[s] the mechanics of online lead generation and potential benefits and concerns associated with lead generation for both businesses and consumers.” The paper provides a synopsis of payday lenders’ role in the lead generation industry by describing their use of the “ping tree,” an automated process that enables aggregators to sell consumers’ personal information to lenders or other aggregators. Although the paper acknowledges that lead generators provide potential benefits to consumer, including the ability to offer competitive prices in the mortgage lending space, it never-the-less identifies the following key areas of concern: (i) complexity and lack of transparency surrounding industry policies and processes; (ii) the use of potentially aggressive or deceptive marketing techniques; and (iii) the potential misuse and mishandling of consumers’ personal information in the payday lending space.
On September 6, the Community Financial Services Association of America (CFSA) released a 2,000-plus page document containing testimonials submitted to the CFPB regarding consumers’ positive experiences with the payday loan industry. A CFSA representative uncovered the allegedly “buried” stories through a Freedom of Information Act (FOIA) request filed December 31, 2015. According to the CFSA, of the newly discovered 12,546 consumer comments regarding to the payday loan industry, 12,308 “praised the industry and its products and services, or otherwise indicated positive experiences.” Among other things, the CFSA further noted that (i) since the CFPB implemented its consumer complaint portal in 2011, approximately 1.5% of all complaints received related to the payday loan industry; (ii) in an FTC 2015 summary of consumer complaints, the “FTC found that just 0.003% of more than three million complaints related to payday lending”; and (iii) at least two customer surveys reveal that payday loan borrowers are overwhelmingly satisfied with the product. Regarding the CFPB’s proposed rules to address the short-term lending industry, CFSA CEO Dennis Shaul commented, “[i]t is clear that millions of consumers are satisfied with the payday loan product and services, and do not want the federal government to take this valued credit option away from them.”
On June 21, North Carolina AG Roy Cooper, together with Commissioner of Banks Ray Grace, announced a $9,375,000 settlement with two online lenders to resolve allegations that they violated state usury laws. According to the complaint, the lenders offered North Carolina consumers personal loans of $850 to $10,000 and charged annual interest rates of approximately 89 to 342 percent, significantly exceeding the rates allowed under state law. In 2015, Special Superior Court Judge Gregory P. McGuire issued a preliminary injunction to ban the companies from making or collecting loans in North Carolina. In addition to permanently barring the companies from collecting on loans made to North Carolina borrowers, the consent judgment requires the companies to (i) cancel all loans owed by North Carolina consumers; (ii) have the credit bureaus remove negative information on consumers’ credit reports related to the loans; (iii) pay $9,025,000 in refunds to North Carolina consumers, with the remaining $350,000 of the settlement allocated to covering the costs of the investigation, lawsuit, and administering the settlement; and (iv) cease unlicensed lending in North Carolina. The settlement represents North Carolina’s first successful action to ban an online payday-type lender that used affiliation with an Indian tribe in an effort to evade state usury laws.