Shortly before the Consumer Financial Protection Bureau (CFPB) issued its payday loan rule, the New York Department of Financial Services (DFS) announced a consent order with a payday loan servicer and debt collector totaling almost $12 million in loan forgiveness.
A Missouri-based payday debt collector and related payday loan servicer collected and serviced a portfolio of payday loans for a fee of approximately 30 percent of the amount collected on behalf of lenders and a monthly flat fee as well as a fee per inbound call received from consumers, respectively.
After receiving complaints from New York consumers that the entities harassed and pressured them to pay their payday loan debts, the DFS took a closer look at the companies.
The investigation found that over a three-year period from 2011 to 2014, the payday debt collector attempted to collect on 20,263 payday loan debts of at least 16,642 New Yorkers and was successful in collecting on 2,119 of those accounts, according to the consent order in the case. Since 2009, the servicer took care of 26,116 payday loan accounts of consumers in the state, the DFS said.
New York law caps interest rates at 25 percent for nonbank lenders, and any loan charging a rate in excess of 25 percent per year constitutes criminal usury. Despite this law—and guidance issued by the DFS in 2013 reminding lenders that usurious loans are void and unenforceable, making attempts to collect on them unlawful—the payday debt collector continued to collect on the illegal loans and the servicer continued to service them, the DFS alleged, in violation of the Fair Debt Collection Practices Act, New York General Business Law and the New York Debt Collection Procedures Law.
Pursuant to the consent order with the DFS, the payday debt collector will fully release and discharge all outstanding indebtedness of all payday loan accounts in New York, totaling at least $11,813,745 in outstanding debt. The company must also move to vacate any judgments obtained on such accounts and direct the release of any pending garnishments, levies, liens, restraining notices or attachments related to such judgments.
Future violations of state law are prohibited under the order. The payday loan servicer agreed to close any New York accounts and halt communications with consumers in the state.
The DFS imposed on the two companies a civil penalty of $45,000 and responsibility for up to $15,000 for the costs of mailings to consumers and other administrative expenses, noting that the companies represented they were unable to make payment of any monies beyond these amounts “due to diminished financial condition.”
To read the DFS consent order, click here.
Why it matters
“Payday lending is illegal in New York, and DFS will not tolerate predatory actors in our communities,” DFS Superintendent Maria T. Vullo said in a statement about the action. “DFS will continue to take aggressive action to protect New Yorkers and send a clear message to those who attempt to profit from illegal payday loan activity.”