The Consumer Financial Protection Bureau (CFPB) today took its first enforcement action against a payday lender by ordering Cash America International, Inc. to refund consumers for robo-signing court documents in debt collection lawsuits.
The CFPB also found that Cash America – one of the largest short-term, small-dollar lenders in the country – 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 it will pay a $5 million fine for these violations and for destroying records in advance of the Bureau’s examination.
“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.”
Payday loans are often 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 that must be repaid in full in a short period of time.
Cash America is a publicly traded financial services company headquartered in Fort Worth, Texas that provides consumer financial products and services, including payday loans, lines of credit, installment loans, and pawn loans. With hundreds of retail locations across more than 20 states, it is one of the largest payday lending companies in the United States. Cash America’s Chicago-based subsidiary, Enova, offers online loans in 32 states under the brand name CashNetUSA.
Today’s action is the Bureau’s first public enforcement action against a payday lender; its first public action under the Military Lending Act; and the first public action for a company’s failure to comply fully with the CFPB’s supervisory examination authority.
Violations
After a routine CFPB examination of Cash America’s operations, the CFPB found multiple violations of consumer financial protection laws, including:
- Robo-signing: Robo-signing generally refers to a practice where important documents that require careful review and a signature from a knowledgeable individual are instead signed by someone else, a machine, or by someone who does not follow appropriate procedures. Robo-signing can result in inaccurate court affidavits and pleadings, which may cause consumers to pay false debts, incorrect debts, or legal costs and court fees. For nearly five years, Cash America’s debt collection subsidiary in Ohio, Cashland Financial Services, Inc., had been preparing, executing, and notarizing documents filed in its Ohio collections litigations without complying with state and court-required signature rules. The CFPB estimates that about 14,000 consumers paid money as a result of debt collection litigation which may have involved reliance on improper court filings. Specifically:
- Employees manually stamped attorney signatures on legal pleadings, military-status affidavits, and consumer account paperwork without prior review; and
- Legal assistants notarized documents without following proper procedures.
- Illegally overcharged servicemembers: Cash America violated the Military Lending Act, which restricts the rate on certain types of loans given to servicemembers to 36 percent. Cash America extended payday loans exceeding that rate to more than 300 active-duty servicemembers or dependents.
- Impeded the CFPB exam: During a routine examination of Cash America that began in July 2012, the company, among other things, carelessly destroyed records relevant to the Bureau’s onsite compliance examination. Specifically, Cash America’s online lending subsidiary, Enova Financial:
- Instructed employees to limit the information they provided to the CFPB about their sales and marketing pitches;
- Deleted recorded phone calls with consumers;
- Continued to shred documents after the CFPB told them to halt such activities; and
- Withheld a report related to robo-signing practices.
Enforcement Action
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:
- Refund consumers: Cash America has already voluntarily paid back roughly $6 million to military borrowers and victims of the robo-signing practices. Through today’s 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
- 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.
- Pay a $5 million fine: Cash America will pay a $5 million civil money penalty in connection with these serious violations. Cash America’s 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.
The CFPB has authority to oversee the payday loan market and began its supervision of payday lenders in January 2012. In addition, the CFPB has taken a number of steps to learn more about the marketplace for payday loans, and released a report on payday loans earlier this year. That report found that payday products can lead to a cycle of indebtedness for many consumers. In early November, the CFPB began accepting consumer complaints about payday loans. More information is available at: www.consumerfinance.gov/blog/you-can-submit-a-payday-loan-complaint/
The full text of the CFPB’s Consent Order is available at: http://files.consumerfinance.gov/f/201311_cfpb_cashamerica_consent-order.pdf
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
