The Consumer Financial Protection Bureau on June 2 announced a settlement with a Tennessee-based company and its subsidiaries that provide short-term loans (payday or auto-title) for the lenders’ conduct at all stages of their operations, including providing “deceptive finance charge disclosures … failing to refund overpayments … and engaging in unfair debt collection practices.” These activities are claimed to be actionable as violations of the Truth in Lending Act and the Consumer Financial Protection Act.
The settlement includes a $3.5 million restitution judgment that reflects the total finance charge that exceeded the TILA disclosure box as compared with the disclosure box in the Mississippi auto-pledge agreements.
But the lenders are not required to pay the entire restitution judgment because they demonstrated an inability to pay it. Instead, the judgment will be suspended provided the lenders pay $2 million for restitution and $1 as a civil monetary penalty. At the CFPB’s discretion the restitution funds may not be distributed to affected consumers and instead deposited into the U.S. Treasury as disgorgement.
The monetary provisions are not connected to the alleged debt collection violations, but the lenders are enjoined from engaging in future collection activities including:
- “placing a collection call to any person about an account after that person has notified Respondents, orally or in writing, that the person wishes Respondents to cease further contact with the person;”
- “placing a collection call to a consumer’s workplace if the consumer has asked Respondents not to, or if Respondents know, or has reason to know, that such calls are prohibited by the employer;” and
- “Except as permitted by state law, in connection with collecting or attempting to collect a delinquent debt, disclosing the existence of such a debt to any employer, coworker, or third-party reference, unless the consumer, after default, provided his or her documented, voluntary affirmative, and specific permission on an opt-in basis for the third-party communication.”
Short-term lending, in general, is a lending sector that has been severely scrutinized by federal agencies. Last year, the CFPB published the Final Rule related to payday and title loans.
Ironically, in March the CFPB joined the other federal financial regulatory agencies in making a joint statement in response to COVID-19 whereby the agencies encourage the making of “responsible small-dollar loans to consumers and small businesses.” A look at the May 2020 interagency guidelines regarding small dollar loans defines what loans would be considered responsible; the rhetoric demonstrates that the agencies do not see payday lenders as “responsible.”
