On November 20, 2013, the newly formed Consumer Financial Protection Bureau (“CFPB”) announced that it had fined payday lender Cash America International (“Cash America”) $5 million and entered into a consent order that compels Cash America pay an additional $14 million in refunds for overcharging customers (including military service members) and robo-signing documents in debt-collection lawsuits. Additionally, the CFPB found that Cash America deliberately obstructed its investigation into Cash America’s business practices. This was the CFPB’s first administrative proceeding, and the first against a payday lender, but it promises not to be the last. In fact, on its website the CFPB released the following warning:
The CFPB has authority to oversee the payday loan market and began its supervision of payday lenders in January 2012. In addition, the CFPB has taken a number of steps to learn more about the marketplace for payday loans, and released a report on payday loans earlier this year. That report found that payday products can lead to a cycle of indebtedness for many consumers. In early November, the CFPB began accepting consumer complaints about payday loans.
Problems with Payday Lenders
The CFPB alleged, among other things, that Cash America illegally overcharged members of the military in violation of the Military Lending Act, which restricts the rate on certain types of loans given to military members. The CFPB alleged that Cash America overcharged more than 300 active-duty service members or their dependents in violation of federal law.
In addition, the CFPB alleged that Cash America illegally “robo-signed” documents, a practice where important documents that require careful review and a signature from a knowledgeable individual are instead signed by someone else, a machine, or by someone who does not follow appropriate procedures. The CFPB claimed that for nearly five years, Cash America’s debt collection subsidiary, Cashland Financial Services, Inc., commonly engaged in this practice in the State of Ohio. This particular portion of the CFPB complaint demonstrates that the bureau takes very seriously the obligation of debt collectors and their counsel to carefully review and follow federal law and procedures.
Payday Lender Interferes with Investigation
Equally troubling to the CFPB was the conduct of Cash America (and its subsidiary) during the CFPB investigation. According to the CFPB, Cash America destroyed documents, instructed employees to limit the information provided to the CFPB, deleted recorded telephone calls with consumers, continued shredding documents after being advised to stop the practice, and withheld a report related to Cash America’s robo-signing practices. In a press release, the director of the CFPB stated, “[w]e are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records and instructing employees to mislead examiners is unacceptable.”
We have previously noted that state regulatory agencies have been increasingly scrutinizing the business practices of payday lenders. (See, New York State Reaches Settlement with Payday Lenders, New York State Shutting Down Payday Lenders). It is now clear that federal regulators, and in particular the CFPB, are watching payday lenders. Therefore, it is critical that payday lenders seek competent counsel in order to prevent becoming a named defendant in a state or federal regulatory action.