California lender pays $ 800,000 to settle predatory loan claims

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A California lender is repaying consumers about $ 800,000 to settle allegations it steered borrowers into high-interest loans and engaged in other illegal practices, state officials said Tuesday.

California check-cashing stores also agreed to pay $ 105,000 in penalties and other fees in a consent order with the Department of State Affairs Oversight, which clamped down on salary and others. expensive consumer loans that critics claim to be predatory. The company did not admit guilt in the consent order.

For memory :

5:50 p.m. January 22, 2019A previous version of this article indicated that the California Department of Business Oversight announced its consent order with California Check Cashing Stores on Monday. The announcement was made on Tuesday.

The department, which oversees financial service providers and products, has taken similar action against four other companies since late 2017 as part of an effort to enforce state limits on interest rates for payday loans and other small loans.

In Tuesday’s action, the settlement involves alleged violations over administering payday loans, which are capped at $ 300, and directing borrowers to consumer loans over $ 2,500 to avoid the caps. rate.

California law limits loan interest of up to $ 2,499 to between 20% and 30%, but there is no limit for loans of $ 2,500 and over.

“Directing consumers to more expensive loans to bypass legal interest rate caps is abusive,” said Jan Lynn Owen, commissioner of the Department of Business Oversight.

“Consumers deserve protection and access to credit markets that are fair, transparent and compliant with the law,” she said.

The action comes as the newly installed head of the Consumer Financial Protection Bureau reportedly intends to loosen new federal rules on payday loans that were offered during the Obama era but have not yet taken effect.

The proposed federal rules would provide a base of basic protections for borrowers nationwide, but states would be free to make them more stringent, including by enacting interest rate caps, which the federal office is prohibited from doing. of consumption to do.

Richard Cordray, the former head of the bureau that proposed the rules in 2017, said the decision by California regulators is another example of why the industry needs to be tightly regulated.

“The enforcement measures they are putting in place show that some people are really unaware of what the requirements are supposed to be,” said Cordray, appointed by President Obama as the office’s first manager.

California Check Cashing Stores has approximately 118 branches statewide and is owned by privately-held Community Choice Financial Inc. of Ohio.

“We did not agree with the conclusions of this case, but we accepted the settlement so that we could move beyond this and resume serving our customers in California,” said Patrick Crowley, spokesperson. by Community Choice Financial.

In addition to check cashing services, California stores offer payday loans, auto title loans and prepaid debit cards, with the company touting its website that it can help people “get money fast, in stores or online.”

State examiners said they discovered that, from 2012 to 2017, California check-cashing stores overcharged customers’ interest and fees by directing them to loans of $ 2,500 or more to avoid bankruptcy. interest rate caps.

The settlement also resolves allegations that the company made “false and misleading statements in its advertising” by stating in brochures that it had made loans “up to $ 5,000” but had a minimum of “$ 2,501”.

The consent order requires California Check Cashing Stores to repay approximately $ 100,000 related to 1,200 consumer loans.

Most of the repayments – around $ 700,000 – go to borrowers involved in 3,000 payday loans.

These loans are typically cash advances on a worker’s salary for two to four weeks and come with a fixed fee or an interest rate that doesn’t seem particularly high – $ 45 for the maximum loan of $ 300. But the cost can quickly add up if the loan is not repaid, and the effective annual interest rate can reach 300% or more.

The settlement resolves allegations that California Check Cashing Stores collected fees twice, allowed borrowers to take out a new loan before repaying the old one, and deposited certain customers’ checks before the date specified in the loan agreement without their. written authorization. Typically, payday loans are repaid on the date the borrower receives another paycheck.

The consent order requires the business to check its records for loans that need to be repaid, submit a report to the state within 30 days, and send repayments within 90 days. Current customers will receive a credit for the refund amount; those whose balance is less than the repayment amount or who have repaid the loan will receive a check.

State officials said customers should contact the company if they think they need a refund.

The state agency has concluded agreements since the end of 2017 with four other companies – Advance America, cash registration, fast cash funding and Speedy Cash – on various practices that the agency said were aimed at unduly pushing loans above the $ 2,500 threshold.

The state has taken aggressive action to curb payday lenders as efforts to more tightly regulate the industry came to a halt after President Trump was elected. The president has sought to expand his deregulation program at CFPB since Cordray stepped down in late 2017 to pursue what turned out to be an unsuccessful offer. for the governor of Ohio.

New federal rules developed under Cordray require payday lenders to pre-determine the ability of potential borrowers to repay payday loans and other short-term loans of 45 days or less.

Current White House chief of staff Mick Mulvaney, who replaced acting Cordray, asked a federal judge in November to postpone the August 2019 effective date for most of the rules due to potential changes he wanted to make.

Last month, Kathy Kraninger, Mulvaney’s former assistant at the White House, took over as permanent director of the office after being confirmed by the Senate.

The American Banker news site reported last week that Kraninger must remove the repayment capacity provisions, a move that would certainly attract opposition from the new Democratic House majority.

A CFPB spokesperson did not respond to a request for comment.

Cordray said it would be a mistake to get rid of the new underwriting requirements and predicted that such a decision would also be challenged in court.

“We thought that people shouldn’t be put into a loan in the first place unless the lender could provide a reasonable estimate that they could pay it back,” he said. “I thought these rules were important. They are not the ultimate solution, because states can do more. ”

California lawmakers last year considered but did not approve several measures, including bills that would have capped interest rates on larger loans, limited the number of payday loans to a single borrower could both contract and required lead generators to be licensed as loan brokers.

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