Cash America Enforcement Press Call
WASHINGTON, DC (November 20, 2013) -- When I became the Director of the Consumer Financial Protection Bureau in January 2012, we began supervising nonbank firms in various consumer financial markets. Since then, we havebeen hard at work conducting examinations as a key tool to identify and correct violations of the law. Among the firms we have been examining are payday lenders – who had never before been supervised at the federal level.
Payday lenders have sprung up in many states over the past twenty years, beginning in storefront locations and now increasingly migrating to the Internet. Americans are borrowing billions of dollars this way. The loans are typically marketed as helping people bridge cash flow shortages between paychecks or benefits checks. They generally have three features: the loans are for small dollar amounts; borrowers must repay the loan quickly; and borrowers must give lenders access to repayment through a claim on their deposit accounts.
Our examination teams have been tracking key payday loan activities, from advertising and marketing to collection practices. Today, as a direct result of this oversight, we are taking action against Cash America, one of the largest payday lending companies in the United States with hundreds of retail locations across the country and online loan businesses in 32 states.
Today, we are ordering Cash America to complete the return of up to $14 million to borrowers in Ohio for five years of robo-signing practices related to debt collection lawsuits. The company will also have to pay a $5 million fine for this conduct, and for impeding our examination by, among other things, destroying documents. This order also requires Cash America to ensure that it is no longer charging servicemembers illegal interest rates on payday loans.
Cash America is a publicly traded financial services company headquartered in Fort Worth, Texas. It provides consumer financial products or services including payday loans, lines of credit, installment loans, and pawn loans. As with most of our exams, we directed Cash America to preserve certain documents and call recordings until we conducted our review. But when our staff went onsite we learned that, despite this instruction, Cash America had not told company employees to preserve these important records, so they were destroyed. In addition, managers had actively coached employees about what to say to Bureau examiners.
During the course of the examination, we also learned that Cash America’s debt collection subsidiary in Ohio, Cashland Financial Services, had been engaged in “robo-signing.” If you are not familiar with that term, it means preparing, executing, notarizing, and filing legal documents that do not comply with court rules. Key documents such as legal pleadings, account evidence, and military status affidavits stated that they had been personally reviewed by attorneys, but the company actually had cut down on costs by having legal assistants manually stamp attorney signatures even though no attorneys had ever reviewed them. This is the same kind of sloppiness and corner-cutting that has been exposed in the field of mortgage servicing. Even worse, compliance officers responsible for making sure such things do not happen knew about and condoned this conduct for about five years. We estimate these practices affected more than 14,000 consumers.
Finally, while onsite at Enova Financial, Cash America’s online payday loan subsidiary in Chicago, our examiners discovered that for almost a year Enova charged servicemembers rates that are illegal under the Military Lending Act. Enova had made hundreds of loans to servicemembers and their spouses that exceeded the 36 percent annual rate cap.
Today’s Consent Order requires Cash America to issue refunds that make customers whole, pay a $5 million fine, and stop illegally charging servicemembers. Cash America must also incur the cost to build better compliance management systems to ensure that consumer financial laws are followed, including the Military Lending Act.
After the Consumer Bureau uncovered these violations, Cash America began voluntarily paying back roughly $6 million to military borrowers and to consumers affected by its robo-signing practices. Today’s order requires Cash America to pay $8 million more to consumers, for a total of $14 million. Consumers who were subject to debt collection lawsuits in the state of Ohio from 2008 through January 2013 are eligible for this money.
In addition, Cash America worked with our examiners to cancel the debt collection judgments it had improperly obtained, removed those judgments from consumers’ credit reports, and halted any ongoing litigation affected by these practices. This cooperation after our examiners uncovered serious violations was helpful, but it certainly does not undo all the damage already done.
This is the Bureau’s first public enforcement action against a payday lender; our first public enforcement action for a company’s failure to comply fully with the Consumer Bureau’s supervisory examination authority; and our first enforcement action under the Military Lending Act. It also illustrates the Bureau’s determination to examine non-depository institutions, like payday lenders, and make sure they are following the law. If the Bureau had not gone onsite at Cash America, these problems might never have been uncovered.
This action should send several clear messages to everyone under the jurisdiction of the Consumer Bureau. First, robo-signing practices are illegal wherever they occur, and they need to stop – period. Second, violations of the Military Lending Act harm our servicemembers and will be vigorously policed. Third, the Bureau will detect and punish entities that withhold, destroy, or hide information relevant to our exams. Thank you.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.