On May 11, 2016, the CFPB sued All American Check Cashing, Mid-State Finance and their President and owner Michael E. Gray. It alleged that the Defendants engaged in abusive, deceptive, and unfair conduct in making certain payday loans, failing to refund overpayments on those loans, and cashing consumers’ checks.

The CFPB’s claims are mundane. The most interesting thing about the Complaint is the claim that isn’t there. Defendants allegedly made two-week payday loans to consumers who were paid monthly. They also rolled-over the loans by allowing consumers to take out a new loan to pay off an old one. The Complaint discusses how this practice is prohibited under state law even though it is not germane to the CFPB’s claims (which we discuss below). In its war against tribal lenders, the CFPB has taken the position that certain violations of state law themselves constitute violations of Dodd-Frank’s UDAAP prohibition. Yet the CFPB did not raise a UDAAP claim here based on Defendants’ alleged violation of state law.

This is most likely because of a possible nuance to the CFPB’s position that has not been widely discussed until recently. Jeff Ehrlich, CFPB Deputy Enforcement Director recently discussed this nuance at the PLI Consumer Financial Services Institute in Chicago chaired by Alan Kaplinsky. There, he said that the CFPB only considers state-law violations that render the loans void to constitute violations of Dodd-Frank’s UDAAP prohibitions. The Complaint in the All American Check Cashing case is an example of the CFPB adhering to this policy. Given that the CFPB took a more expansive view of UDAAP in the Cash Call case, it has been unclear how far the CFPB would take its prosecution of state-law violations. This case is one example of the CFPB staying its own hand and adhering to the narrower enforcement of UDAAP that Mr. Ehrlich announced last week.

In the All American Complaint, the CFPB cites an email sent by one of Defendants’ managers. The email contained a cartoon depicting one man pointing a gun at another who was saying “I get paid once a month.” The man with the gun said, “Take the money or die.” This, the CFPB claims, shows how Defendants pressured consumers into taking payday loans they didn’t want. We don’t know whether the email was prepared by a rogue employee who was out of line with company policy. But it nevertheless highlights how important it is for every employee of every company in the CFPB’s jurisdiction to write emails as if CFPB enforcement staff were reading them.

The Complaint also shows how the CFPB uses the testimony of consumers and former employees in its investigations. Several times in the Complaint, the CFPB cites to statements made by consumers and former employees who highlighted alleged problems with Defendants’ business practices. We see this all the time in the many CFPB investigations we handle. That underscores why it is very important for companies within the CFPB’s jurisdiction to be mindful of how they treat consumers and employees. They may be the ones the CFPB relies on for evidence against the subjects of its investigations.

The claims are nothing special and unlikely to significantly impact the state of the law. Although we will keep an eye on how certain defenses that may be available to Defendants play out, as they may be of some interest:

• The CFPB claims that Defendants abused consumers by actively working to prohibit them from learning how much its check cashing products cost. If that happened, it is certainly a problem. Although, the CFPB acknowledged that Defendants posted signs in its stores disclosing the fees. It will be interesting to see how this impacts the CFPB’s claims. It seems impossible to hide a fact that is posted in plain sight.
• The CFPB also claims that Defendants deceived consumers, telling them that they could not take their checks elsewhere for cashing without difficulty after they started the process with Defendants. The CFPB claims this was deceptive while at the same time acknowledging that it was true in some cases.
• Defendants also allegedly deceived consumers by telling them that Defendants’ payday and check cashing services were cheaper than competitors when this was not so according to the CFPB. Whether this is the CFPB making a mountain out of the mole hill of ordinary advertising puffery is yet to be seen.
• The CFPB claims that Defendants engaged in unfair conduct when it kept consumers’ overpayments on their payday loans and even zeroed-out negative account balances so the overpayments were erased from the system. This last claim, if it is true, will be toughest for Defendants to defend.

Most companies settle claims like this with the CFPB, resulting in a CFPB-drafted consent order and a one-sided view of the facts.  Even though this case involves fairly routine claims, it may nevertheless give the world a rare glimpse into both sides of the issues.