The CFPB recently filed a complain against a Texas-based payday lender in Texas federal court alleging the lender engaged in unfair, deceptive and abusive practices by withholding free payment plan options from eligible borrowers and initiating unauthorized debit card withdrawals from consumers in violation of the Consumer Financial Protection Act of 2010 (CFPA).
According to the CFPB lawsuit, the national trade association requires the lender to offer free payment plans that allow borrowers to pay their outstanding balance in four equal installments over the course of four payment periods without owing additional fees or interest. However, instead of informing borrowers of their right to these repayment options, the lender induced borrowers to reborrow from the lender by refinancing their loans. Since 2014, this practice has resulted in borrowers paying more than $240 million in refinancing fees despite being eligible for the free payment plan.
In addition to the lender’s failure to alert borrowers to the availability of these payment plans, the lender also attempted to collect the loan payment by making unauthorized withdrawals from consumers’ debit accounts. Once discovered, the lender claimed to have refunded all money collected through unauthorized withdrawals since January 1, 2018. However, the lender was unable to prove to Bureau examiners that none of the $1.3 million withdrawals Unauthorized loans were repaid to any of the 3,000 affected borrowers.
This complaint follows a 2014 consent order against the same lender regarding alleged practices that also violated the CFPA when the lender induced consumers unable to pay their current loans to obtain new loans, including additional fees. As a result of the consent order, the lender was ordered to pay $5 million to affected consumers, as well as $5 million in penalties.
The CFPB is seeking permanent injunction against the lender, civil money penalties, attorneys’ fees, and any compensation necessary to repair harm to consumers.