Debt Collection Practices Lead to $19 million CFPB Action Against Payday Lender

The Consumer Financial Protection Bureau (CFPB) Wednesday announced its first enforcement action against a payday lender. The order calls for the lender to refund consumers for robo-signing court documents in debt collection lawsuits and pay a fine for violations of the Military Lending Act. But the Bureau also found that the company impeded its investigation by destroying documents and data, leading to further penalties.

The CFPB said that Cash America International (NYSE: CSH), one of the largest payday lenders in the country, routinely robo-signed affidavits used in debt collection lawsuits through its ARM subsidiary Cashland Financial Services in Ohio. Their investigation found that 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.

The order also notes that 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.

The violations were uncovered in a routine examination of the business in July 2012. Immediately prior to the announced examination, the CFPB said that 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.

“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 Bureau noted that this is the 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.

In a call with reporters Wednesday, CFPB officials noted that the actions taken by Cash America that fell under the “impeding an investigation” clause did not rise to the threshold of necessitating criminal charges.

The settlement calls for a total of $14 million in refunds to some 14,000 customers who were subject to debt collection lawsuits in the state of Ohio from 2008 through January 2013. Prior to the announcement, as part of the order, Cash America dismissed pending collections lawsuits, terminated all post-judgment collections activities, cancelled all judgments obtained, and corrected information it furnished to credit bureaus.

Cash America must also pay a $5 million civil money penalty in connection with violations, including the impediment of the investigation. The company will develop and implement a comprehensive plan to improve its compliance with consumer financial protection laws, including the Military Lending Act.