The Bureau of Consumer Financial Protection entered into a consent order with a payday lender over its debt collection practices related to collection of time-barred debts, threats to report information to the credit bureaus, and offsetting debts when consumers sought check-cashing services. The order arose under the BCFP’s general authority to go after unfair, deceptive, and abusive acts and practices, as opposed to the Fair Debt Collection Practices Act.
The consent order was based on three main debt collection-related practices by the payday lender. First, the payday lender regularly sent letters to consumers seeking to collect on debts which were time barred since the applicable statute of limitations to sue on the debt had passed. The letters asserted that the payday lender would take legal action if the debt was not paid in a certain amount of time, and often attached draft court documents which the payday lender claimed it would file. In fact, the payday lender almost never sued consumers to collect time-barred debts, such that threatening the consumers with lawsuits to induce them to pay time barred debts was deemed deceptive by the BCFP.
Second, the payday lender regularly asserted that it would report late payments, missed payments, and defaults to the credit reporting agencies (which would likely have a negative effect on the borrower’s credit) as a way to induce borrowers to repay their loans. In fact, the payday lender did not furnish this type of information to the credit reporting agencies, such that its threats to do so were deemed deceptive by the BCFP.
Third, the payday lender also operated a check-cashing service. When people brought in checks to cash, the lender would first determine whether that person owed any outstanding debts to the lender. If so, instead of giving the proceeds of the check to the consumer, the lender would keep some or all of the money to offset the consumer’s outstanding debt. The lender did not tell consumers that it was doing so until after the transaction was complete, since the consumers likely would leave without completing the transaction if told beforehand. While the lender generally included a disclosure in its loan originating documents that it might do this, these set-offs often occurred months or years after the consumer received the disclosure. The BCFP asserted that this practice perpetuated the consumer’s lack of understanding of the risks, costs, and conditions of the check-cashing transaction, and that consumer likely would not have selected this payday lender to cash their checks if they had been informed at the point of the check-cashing transaction of the offset. Further, the lender’s practice was dependent on consumers lacking the understanding that the lender would use check proceeds to satisfy the consumers’ debts from unrelated transactions. The BCFP found that this practice took unreasonable advantage of the consumers’ lack of understanding that the lender would withhold proceeds from the checks the consumers sought to cash, and denied consumers the ability to make informed decisions, and to weigh the risks, costs, and conditions of the service when deciding whether to cash their checks with this lender. Accordingly, the BCFP determined that this was an abusive practice.
As a remedy, the BCFP ordered the payday lender to cease these practices, to pay more than $32,000 as restitution to consumers, to pay a $200,000 civil penalty to the BCFP, and to institute various compliance, recordkeeping, and reporting procedures.
For a copy of the consent order, click here.