For the second time in as many years, the Consumer Financial Protection Bureau (CFPB) has fined a major payday lender. On July 10, Director Richard Cordray announced that one of the nation’s largest payday lenders, ACE Cash Express, will pay $10 million in restitution and penalties for directing its employees to "create a sense of urgency" when contacting delinquent borrowers. This abusive tactic was used to perpetuate the payday loan debt trap.
CFPB has ordered ACE Cash Express to provide consumers with $5 million in refunds and the same amount in penalties for its violations. The firm operates in 36 states and in the District of Columbia with 1,500 storefronts, 5,000 associates and online loans.
"We believe that ACE’s aggressive tactics were part of a culture of coercion aimed at pressuring payday borrowers into debt traps," said Cordray. "Our investigation uncovered a graphic in ACE’s training manual that lays out a step-by-step loan and collection process that can ensnare consumers in a cycle of debt. When borrowers could not pay back their loans, ACE would subject them to illegal debt collection threats and harassment."
Commenting on CFPB’s actions, Mike Calhoun, president of the Center for Responsible Lending, said, "This enforcement action also confirms what our research found long ago: payday lenders depend on keeping vulnerable consumers trapped in an endless cycle of debt of 300-400 percent interest loans. . . .It’s real, it’s abusive and it’s time to stop."
CRL research shows that payday loans drain $3.4 billion a year from consumers. Further, CRL has long held that the payday industry preys on customers who cannot repay their loans.
Now, with CFPB releasing an item from ACE Cash Express’ training manual, that contention is proven to be true. The ACE graphic shows how the business model intends to create a debt cycle that becomes increasingly difficult to break and urges its associates to be aggressive.
Across the country, the South has the highest concentration of payday loan stores and accounts for 60 percent of total payday lending fees. Missouri is the only state outside of the South with a comparable concentration of payday stores.
Last year, another large payday lender, the Fort Worth-based Cash America International, faced similar enforcement actions when CFPB ordered it to pay $5 million in fines for robo-signing court documents submitted in debt collection lawsuits. Cash America also paid $14 million to consumers through one of its more than 900 locations throughout the United States, Mexico and the United Kingdom.
On the same day that the CFPB’s enforcement action occurred, another key payday- related development occurred.
Missouri Gov. "Jay" Nixon vetoed a bill that purported to be payday reform. In part, Gov. Nixon’s veto letter states, "allowing payday lenders to charge 912.5 percent for a 14-day loan is not true reform. . . Supporters point to the prohibition of loan rollovers; but missing from the legislation is anything to address the unfortunately all-too-common situation where someone living paycheck-to-paycheck is offered multiple loans by multiple lenders at the same time or is encouraged to take out back-to-back loans from the same lender. . . .This bill cannot be called meaningful reform and does not receive my approval."
Speaking in support of Gov. Nixon’s veto, Pastor Lloyd Fields of Kansas City added, "The faith community applauds Governor Nixon’s moral leadership in holding lawmakers to a higher standard on payday lending reform. Missourians deserve nothing less."
On the following day, July 11, the Federal Trade Commission (FTC) fined a Florida-based payday loan ‘broker’ $6.2 million in ill-gotten gains. According to FTC, the firm falsely promised to help consumers get payday loans. After promising consumers to assist them in securing a loan in as little as an hour, consumers shared their personal financial data. However that information was instead used to take money from consumers’ bank accounts and without their consent.
Speaking on behalf of the FTC, Jessica Rich, director of FTC’s Bureau of Consumer Protection, said, "These defendants deceived consumers to get their sensitive financial data and used it to take their money. The FTC will continue putting a stop to these kinds of illegal practices."
Looking forward, CFPB’s Cordray also sees a need to remain watchful of payday developments.
"Debt collection tactics such as harassment and bullying take a profound toll on people – both financially and emotionally", said Cordray. "The Consumer Bureau bears an important responsibility to stand up for those who are being wronged in this process."