CFPB: More Enforcement, RFI and Servicemember Report

Financial Services Law

The Consumer Financial Protection Bureau (CFPB or Bureau) has been busy under Director Kathy Kraninger, taking enforcement actions against an online lender, an online loan broker and a group of international payday lenders.

In addition, the Bureau issued a request for information (RFI) on consumer credit card use and published its annual report on servicemember complaints.

What happened

The CFPB announced three enforcement matters:
Online Lender: The CFPB settled with a Chicago-based online lender that extends unsecured payday and installment loans, as well as lines of credit.

According to the Bureau, the online lender engaged in unfair acts or practices in violation of the Consumer Financial Protection Act (CFPA) by debiting consumers’ bank accounts without effective authorizations. Although consumers authorized the online lender to deduct payments from certain accounts, the company allegedly debited different accounts for which it did not have authorization.

The CFPB further claims that the online lender used consumer bank account information obtained from loan applications purchased from lead generators to overwrite the consumer bank account information it had in its system. The company then, says the CFPB, electronically debited payments on the outstanding loans of several thousand consumers from new bank accounts that were not covered by the existing authorizations.

The company stopped overwriting existing bank account information in June 2014 but continued to debit, or attempt to debit, previously overwritten bank accounts for 265 consumers at least 6,425 times, the CFPB said. This resulted in “millions of dollars” of unauthorized debits for the online lender, according to the Bureau.

During the same time period, the online lender allegedly failed to honor loan extensions it granted to consumers. Instead, it offered a same-day expedited funding option called “Flash Cash” to those who had previously repaid two or more loans with the company and had a debit card on file. Due to various errors by the online lender—duplicate records and erroneous loan processing, for example—308 consumers never received the loan extension for which they obtained approval. But the company allegedly still debited consumers’ bank accounts for full loan payments instead of the fee for the extension that was promised, leaving some consumers unexpectedly facing low or negative balances, as well as overdraft and non-sufficient fund fees.

Under the consent order, the online lender is prohibited from making or initiating electronic fund transfers without valid authorization and must pay a $3.2 million civil money penalty and change its practices.

Broker Targeting Veterans: The CFPB, in partnership with the Office of the Arkansas Attorney General and the South Carolina Department of Consumer Affairs, settled with an online loan broker who, the CFPB asserted, operated a website connecting veterans with lenders, offering high-interest loans in exchange for the assignment of some or all of their military pension payments.

The broker allegedly misrepresented to consumers that the contracts he facilitated were valid and enforceable, when in fact, the contracts were void because veterans’ pension payments are unassignable under federal law. Further, he misrepresented to consumers that the product was a purchase of payments and not a high-interest credit offer, deceived them about when they would receive their funds and failed to disclose the applicable interest rate on the credit offer.

To settle the charges of violations of the CFPA, the broker was permanently banned from brokering, offering or arranging agreements between veterans and third parties under which the veteran purports to sell a future right to an income stream from the veteran’s pension. Because the broker demonstrated an inability to pay any penalties, the agencies extracted a symbolic $1 civil money penalty. The broker must also help the CFPB identify and locate each veteran harmed, as well as determine the amount of loss.

Payday Lending: The third enforcement action resolved a lawsuit filed by the Bureau in 2015 against eight corporate entities and three officers based in Canada and Malta engaged in payday lending. The CFPB alleged that the defendants duped consumers into believing that their loans were valid and required repayment in states where the loans violated state licensing or usury laws.

Other violations of the CFPA included misrepresentations that the loan agreements were not subject to United States law (state or federal) and that nonpayment of debt would result in lawsuits, arrests, imprisonment or wage garnishment; they also included the conditioning of loan agreements upon irrevocable wage assignment clauses, a practice that was also a violation of the Credit Practices Act, the Bureau said.

Under the terms of the proposed consent order, currently awaiting approval by a New York federal judge, the defendants are barred from advertising, marketing, promoting, offering, originating, servicing or collecting any consumer loan issued to any consumer residing in the U.S., including assisting others and receiving remuneration for providing service to assist others in this conduct.

The order also prohibits the defendants from disclosing, using or benefiting from customer information associated with their existing loans to consumers and collecting on any of their existing loans to U.S. consumers, including efforts to assign, sell or transfer such loans, or take action that would allow anyone to collect on the loans.

New Request for Information: In other CFPB news, the Bureau issued a new RFI in satisfaction of its biennial obligation under the Credit Card Accountability Responsibility and Disclosure Act to review the consumer credit card market.

The CFPB suggested several topics for interested parties to provide feedback on, including the terms of credit card agreements and the practices of credit card issuers; the effectiveness of disclosures of terms, fees and other expenses of credit card plans; the adequacy of protections against unfair or deceptive acts or practices relating to credit card plans; and the cost and availability of consumer credit cards.

Safety and soundness of credit card issuers, the use of risk-based pricing for consumer credit cards, and product innovation in the consumer credit card market rounded out the list of issues provided by the Bureau.

Comments will be accepted until May 1, 2019.

Servicemember complaints: The CFPB’s controversial decision to suspend military lending examinations did not affect the Bureau’s activities, in general, with respect to servicemembers.

The CFPB’s Office of Servicemember Affairs (OSA) released its annual report discussing complaints filed by servicemembers, veterans and their families. Between April 1, 2017, and August 31, 2018, the OSA received 48,800 complaints, with the largest number falling in the category of credit reporting (with 37 percent of the total complaints).

The list of most popular complaints also included debt collection (highlighting that some debt collectors have been contacting servicemembers’ chains of command to attempt to collect a payment), mortgage debt (with issues related to loan modifications, collections and servicing transfers), credit cards, auto lending, student lending (including challenges in making payments and enrolling in payment plans) and payday loans.

To read the consent order concerning the online lender, click here.

To read the consent order concerning the loan broker, click here.

To read the consent order concerning the payday lenders, click here.

To read the RFI, click here.

To read the report, click here.

Why it matters

New Director Kathy Kraninger continues to take a more pragmatic approach to leadership of the Bureau, walking a careful path to avoid the scrutiny of the Democratic-led House of Representatives by taking action in the case of businesses that, based on CFPB allegations, were engaged in troubling activities, while not embracing the more aggressively consumer-friendly approach of the CFPB under former Director Richard Cordray. Also, the enforcement action involving alleged lack of authorization to debit different bank accounts should be of interest to merchants with auto pay arrangements, who may utilize “updater” services to obtain updated card numbers, and should consider disclosing such use as part of the authorization.