Payday lender Cash America International will pay up to $19 million to settle allegations that it robo-signed court documents in collection lawsuits, overcharged members of the military and took steps to impede an examination by the Consumer Financial Protection Bureau.
The CFPB's enforcement action is its first against a payday lender.
The CFPB found that Cash America one of the largest short-term, small-dollar lenders in the U.S. violated the Military Lending Act by illegally overcharging servicemembers and their families.
Cash America will pay up to $14 million in refunds to consumers and a $5 million fine for destroying records in advance of the CFPBs examination.
Short-term payday loans often are described as a way for consumers to bridge a cash flow shortage between paychecks or the receipt of other income. They can offer quick access to credit, especially for consumers who may not qualify for other credit. Many payday loans are for small-dollar amounts.
According to the Center for Responsible Lending, payday loans cost U.S. families an estimated $3.4 billion in fees annually. With more states aware of the problem, many are doing away with predatory payday lending or restricting the number of loans a borrower can withdraw in a year.
States that do not permit payday loans include Connecticut, Georgia, Maine, Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Vermont and West Virginia.
Cash America, based in Fort Worth, Texas, is traded on the New York Stock Exchange and operates more than 900 locations in the U.S. and Mexico. The company also runs a large online lending operation.
According to the CFPB, Cash America's debt collection subsidiary in Ohio, Cashland Financial Services, filed court documents in collection lawsuits without complying with the required signature rules. An estimated 14,000 consumers were affected.
The CFPB also alleges that Cash America violated the Military Lending Act, which caps interest rates on certain short-term loans to servicemembers at 36%. More than 300 servicemembers and their dependents were affected, according to the consumer agency.
Finally, the CFPB alleges that Cash America "carelessly destroyed records" during a routine examination by the consumer bureau that began in July 2012.
The company's online lending arm, Enova Financial, continued to shred documents after the CFPB told it to stop, and it deleted recorded phone calls with consumers, among other misconduct, according to the CFPB.
This action brings justice to the Cash America customers who were affected by illegal robo-signing, and shows that we will vigilantly protect the consumer rights that servicemembers have earned, said CFPB Director Richard Cordray. We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records, and instructing employees to mislead examiners is unacceptable.
The action is also the CFPBs first public action under the Military Lending Act. The company allegedly illegally overcharged servicemembers by restricting the rate on certain types of loans given to servicemembers to 36%. Cash America extended payday loans exceeding that rate to more than 300 active-duty servicemembers or dependents.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions for violations of federal consumer financial protection laws.
To ensure that all impacted consumers are repaid and that consumers are no longer subject to these illegal practices, Cash America has committed to:
Dismiss pending collections lawsuits: Within months of the CFPB discovering the robo-signing, Cash America dismissed pending collections lawsuits, terminated all post-judgment collections activities, cancelled all judgments obtained, and corrected information it furnished to credit bureaus for the nearly 14,000 wrongful cases filed in Ohio.
Refund consumers: Cash America has already voluntarily paid back roughly $6 million to military borrowers and victims of the robo-signing practices. Through todays CFPB order, they have committed to offer an additional $8 million to consumers, for a total refund of up to $14 million. Consumers who were subject to debt collection lawsuits in the state of Ohio from 2008 through January 2013 are eligible.
More information is available at: www.consumerfinance.gov/blog/our-first-enforcement-action-against-a-payday-lender.
Pay a $5 million fine: Cash America will pay a $5 million civil money penalty in connection with these serious violations. Cash Americas preemptive refunds to consumers and other actions after the Bureau discovered the conduct were considered when determining the civil money penalty amount.
Improve internal compliance systems: Cash America will develop and implement a comprehensive plan to improve its compliance with consumer financial protection laws, including the Military Lending Act.