The CFPB announced earlier this week that it has initiated an administrative action against a Delaware-based online lender and its CEO for alleged violations of Truth in Lending Act, the Electronic Fund Transfer Act (EFTA), and the CFPA’s UDAAP prohibition. The announcement is unusual since it has not been the CFPB’s typical practice to announce an administrative action without the simultaneous announcement of a settlement. In the action, the CFPB seeks redress for harmed consumers, as well as a civil money penalty and injunctive relief.
In its press release, the CFPB stated that from May 2008 through December 2012, the lender offered short-term loans to borrowers around the country in amounts ranging from $100 to $1,000. To apply for the loans, borrowers typically entered their personal information into a lead generator website.
The unlawful practices alleged by the CFPB include:
- Hiding the total cost of loans by using disclosures that were based on a borrower’s repayment of a loan in a single payment, even though the loan agreement’s default terms called for multiple rollovers and additional finance charges.
- Requiring repayment by pre-authorized ACH payments. According to the CFPB, this practice violated the EFTA prohibition on conditioning a loan on the borrower’s repayment through recurring pre-authorized electronic fund transfers.
- Continuing to debit borrowers’ accounts after the borrowers had canceled his or her ACH authorization. According to the CFPB, the lender’s loan agreements included a “hidden” provision allowing it to use remotely created checks if a borrower successfully canceled an ACH authorization.