CFPB Brings Action Against Online Lender for Deceiving Borrowers

The Consumer Financial Protection Bureau (CFPB) took action yesterday against an online lender, Integrity Advance, LLC, and its CEO, James R. Carnes, for deceiving consumers about the cost of short-term loans. The Bureau alleges that the company’s contracts did not disclose the costs consumers would pay under the default terms of the contracts. The Bureau also alleges that the company unfairly used remotely-created checks to debit consumers’ bank accounts, even after the consumer revoked authorization for automatic withdrawals.

Pursuant to the press release issued by the CFPB, the Bureau has filed an administrative lawsuit seeking redress for harmed consumers, as well as a civil money penalty and injunctive relief. The administrative action was initiated by a “Notice of Charges.” A Notice of Charges initiates proceedings in an administrative forum, and is similar to a complaint filed in federal court. Under this procedure, the case will be tried by an Administrative Law Judge from the Bureau’s Office of Administrative Adjudication, an independent adjudicatory office within the Bureau. The Administrative Law Judge will hold hearings and make a recommended decision regarding the charges, which may be appealed to the Director of the CFPB for a final decision.

The Notice of Charges has not yet been released to the public. The Bureau’s Rules of Practice for Adjudication Proceedings provide that the CFPB may publish the actual Notice of Charges ten days after the company is served. If allowed by the hearing officer, the charges will be available on the CFPB website after that date.

The CFPB alleges that Integrity Advance violated the Truth in Lending Act and the Electronic Fund Transfer Act, and that Integrity Advance and Carnes violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair and deceptive acts and practices.

The unlawful practices alleged by the CFPB include:

• Hiding the total cost of loans
• Requiring repayment by pre-authorized electronic funds transfers
• Continuing to debit borrowers’ accounts after consumers canceled the authorization

insideARM Perspective

Online and payday lenders are under intensive scrutiny from regulators across the country. Just to name a few public examples:

In August of last year insideARM wrote about two separate actions brought by the Federal Trade Commission and the CFPB against different payday lenders.

In January of this year insideARM reported on a 21 Million Dollar settlement with two online lenders in an action brought by the Federal Trade Commission.

Just 2 months ago the CFPB sued another payday lender and various related entities for allegedly illegally collecting loan amounts and fees that were void or that consumers had no obligations to repay.

Finally, at yesterday’s FTC Debt Dialogue in Atlanta, the state and federal regulators on both panels often mentioned online and payday lenders as “issues” for their agencies.  Expect more enforcement actions against these businesses in the future.