• CFPB Settles First Enforcement Action Against Payday Lender
  • November 28, 2013 | Authors: David N. Anthony; Howard A. Cooper; Paige S. Fitzgerald; John C. Lynch
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Virginia Beach Office
  • On November 20, 2013, the Consumer Finance Protection Bureau (“CFPB”) reached a $19 million settlement with Cash America International (“Cash America”) in its first enforcement action against a payday lender. The settlement calls for Cash America to refund $14 million to consumers and to pay a civil monetary penalty of $5 million. The CFPB began overseeing payday lenders in 2012, and since that time, has voiced an aggressive plan to pursue violations by these types of lenders.

    Throughout its investigation, the CFPB alleged that Cash America: (1) illegally overcharged military borrowers in violation of the Military Lending Act; (2) engaged in the practice of robo-signing affidavits in violation of the CFPB’s UDAAP standards; and (3) destroyed company records in advance of the arrival of CFPB examiners in violation of the mandate contained in the CFPB’s Exam Letter requiring that all company materials and information be preserved. The CFPB further alleged that managers at a subsidiary of Cash America improperly coached employees on how to answer the CFPB’s questions.

    In addition to the monetary penalty and consumer repayment called for by the settlement, Cash America has agreed to dismiss all pending collections lawsuits, terminate all of its post-judgment collection activities, cancel all judgments obtained, and correct all information Cash America had submitted to credit bureaus for the 14,000 affected Ohio consumers. Cash America has also committed to improving its internal compliance systems.

    CFPB director Richard Cordray stated, “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. 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.” Finally, Cordray sent a signal to those participating in robo-signing in all industries and stated, “Robo-signing practices are illegal wherever they occur, and they need to stop - period.”

    Practical Impact

    The Cash America settlement demonstrates the CFPB’s continued scrutiny of those involved in the payday lending industry, as it has publicly promised. Payday lenders should pay special attention to compliance with the laws to which they are subject or risk being hit with penalties such as those imposed upon Cash America. Moreover, any company facing a CFPB examination should advise its employees to preserve documents in accordance with the CFPB’s instructions, as failure to do so will result in significant penalties. Finally, any company that regularly prepares or oversees the preparation of affidavits as part of the collection of consumer debts should ensure procedures are in place so as to prevent claims of robo-signing.