Why it matters

The Consumer Financial Protection Bureau (CFPB) filed a new complaint against several commonly owned payday lenders, alleging that the defendants engaged in unfair, deceptive, and abusive acts and practices in violation of the Dodd-Frank Wall Street and Consumer Protection Act. A "complex web of commonly controlled companies"—based in Canada and Malta—engaged in a host of unlawful practices, the Bureau said, including the collection of loan amounts and fees that were void (i.e., that consumers had no obligation to pay), making false representations about the nonpayment of debt (e.g., threatening lawsuits, arrests, or wage garnishment), and the use of unlawful wage-assignment clauses in loan agreements purporting to allow the defendants to take payments directly from employers' payroll accounts. The CFPB's complaint seeks restitution, refunds, and an injunction against future illegal acts. Of the Bureau's reach beyond the borders of the United States, CFPB Director Richard Cordray said in a statement that "[c]ompanies making loans within the U.S. have to comply with federal law, and the Consumer Bureau will work to ensure that American consumers receive the protections and fair treatment they deserve."

Detailed discussion

NDG Enterprise based its operations in Canada and Mexico but offered payday loans over the Internet to consumers in all 50 states. The ten corporations named as defendants in the CFPB's complaint engaged in numerous unlawful activities, the agency alleged, most notably the collection of money not owed by consumers, since at least July 2011.

The loans themselves typically lasted 14 days and ranged from $100 to $1,500, with finance charges of between $19.98 and $26.98 per $100 borrowed, the CFPB said. The high interest rates made the loans illegal pursuant to many state usury laws and the collection of payments therefore unlawful. The defendants also lacked the necessary licensure to offer loans, in violation of dozens of state laws.

Specifically, the New York federal court complaint charges the defendants with violating the Credit Practices Rule and the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair, deceptive, and abusive acts and practices in three ways.

First, the defendants deceived consumers about their debts. The NDG Enterprise defendants told consumers they were obligated to repay loan amounts and fees they did not actually owe under state law, the Bureau said.

Second, the defendants made false threats to consumers of arrest, imprisonment, lawsuits, or wage garnishment if they failed to pay their debt. The defendants lacked the legal authority to take such actions as well as the intent, the CFPB alleged.

Finally, the NDG entities made use of illegal wage-assignment clauses. According to the Bureau, the defendants placed irrevocable provisions in loan agreements that allowed them to directly withdraw payments from the employer payroll accounts of consumer borrowers.

To remedy the violations, the CFPB requested monetary damages and relief from the defendants, requesting that the court order NDG to refund money taken from consumers where the loans were void or no obligations existed requiring repayment. In addition, the complaint seeks an order prohibiting future violations of federal consumer laws and adherence to prohibitions on unfair, deceptive, and abusive acts and practices.

To read the complaint in CFPB v. NDG Financial Corp., click here.