The Consumer Financial Protection Bureau (CFPB) entered into a Consent Order with a lending platform that services and facilitates the origination of consumer loans through a merchant network. The platform agreed to provide up to $9 million of refunds and loan cancellations for affected consumers and pay a $2.5 million civil penalty. The platform also agreed to implement compliance changes to its merchant oversight and complaint management policies and procedures that provide guidance for Fintechs more generally.
The CFPB alleged that the platform engaged in unfair acts and practices in violation of the Consumer Financial Protection Act by processing and servicing unauthorized loans and structuring its loan origination and servicing program in a manner that enabled the unauthorized conduct. More specifically, the CFPB alleged that the platform’s merchants, which were required to apply to participate in the platform’s financing program, submitted, and the platform approved, thousands of applications on consumers’ behalf without the consumers’ knowledge or consent.
According to the CFPB, the platform received over 6,000 consumer complaints alleging unauthorized loans between 2014 and 2019, and some consumers reported becoming aware of the loans for the first time when they noticed that the loans appeared on their credit reports, received billing statements, or were subject to collection activity. The CFPB further alleged that, after receiving consumer complaints about the allegedly unauthorized loans, the platform was inconsistent in its remediation. As a result, at least some consumers allegedly did not receive refunds or write-offs of the allegedly unauthorized loans.
In addition to consumer restitution and redress, the platform is required to implement a consumer complaint management program that is designed to “efficiently and accurately intake, investigate, document, resolve and track consumer complaints”; analyze consumer complaints on a routine basis for the purpose of identifying trends, emerging issues, and merchants that may be involved; and periodically revise and update its policies and procedures based on those consumer complaint trends. The platform is also required to establish a compliance committee that is responsible for monitoring and coordinating the platform’s compliance with the consent order, including creation of a board-approved compliance plan.
The consent order flags the challenges of managing lending platforms that leverage third-party merchants; however, it also lays out several guardrails with respect to managing risk:
The consent order reflects expected heightened regulatory scrutiny of Fintechs, but also may present a framework for how Fintechs can mitigate risk.