Continuing its efforts against payday lenders, New York's Department of Financial Services (DFS) announced a consent decree with National Credit Adjustors (NCA) and Webcollex totaling $3 million.
The two debt buying companies, based in Kansas and Virginia, respectively, improperly purchased and collected on illegal payday loans over several years, the regulator said. Both companies operated with a business model to collect debts on behalf of other creditors—or purchase debts at a discount of the face value—and then collect on the full amount allegedly owed by the consumer.
Under New York law, the annual interest rate on loans is capped at 16 percent for civil usury and 25 percent for criminal usury. Many of the debts purchased by the companies had interest rates high above these rate limits, DFS said, particularly payday loans.
According to an investigation by the state regulator, NCA attempted to collect on 7,325 payday loan debts of New York consumers and between 2007 and 2014 managed to collect payments on 4,792 of those debts. In addition, NCA engaged in unlawful debt collection practices by repeatedly calling consumers at home and at work, threatening to call consumers' employers, and calling the family members of consumers in order to apply pressure to pay, DFS alleged.
Webcollex engaged in similar conduct on a smaller scale, the regulator said, attempting to collect on "hundreds" of payday loan debts of New Yorkers and collecting payments from 52 consumers.
To settle the charges of violating the federal Fair Debt Collection Practices Act, New York Debt Collection Procedures Law, and Section 601(2) of New York General Business Law, NCA agreed to discharge more than $2.26 million worth of payday loan debts of New York residents for loans taken out between 2007 and 2014 and provide more than $724,000 in refunds to more than 3,000 people. The company will also pay a penalty of $200,000 to the DFS.
For injunctive relief, the company promised to contact credit reporting bureaus and request that any negative information provided by NCA related to payday loan accounts for New Yorkers be removed and move to vacate any judgments obtained on payday loan accounts in the state, as well as release any pending garnishments, levies, liens, restraining notices, or attachments relating to any judgments on payday loan accounts for New York consumers.
Webcollex will discharge more than $52,000 from debt collected between 2012 and 2014 and pay more than $66,000 in refunds to 52 New Yorkers and a $25,000 penalty.
To read the consent order in In the Matter of: National Credit Adjustors, click here.
To read the consent order in In the Matter of: Webcollex, click here.
Why it matters
The settlement is the first time the DFS has provided consumer restitution in an action involving payday loans, the regulator said, sending a "clear message that New York State will not tolerate those who attempt to profit from illegal payday loan activity." Noting that payday lending is illegal in the state, Acting Superintendent of the DFS Maria Vullo said that debt collectors like NCA and Webcollex "who collect or attempt to collect outstanding payments from New Yorkers in violation of New York State and federal Fair Debt Collection Practices law will be held accountable." The DFS reinforced its anti-payday lending position by advising consumers to "steer clear" of such loans, with suggestions on steps to take to stop recurring bank account debits to a payday lender and encouraging consumers to file complaints with the agency about such loans. The settlement is a reminder that the Consumer Financial Protection Bureau is not the only agency focused on payday lending, and state regulators are active as well.