Cash America fined $5 million by federal consumer watchdog
11/20/2013 4:33 PM
11/20/2013 4:34 PM
Fort Worth-based Cash America International, which in October disclosed that it was being investigated by the Consumer Financial Protection Bureau, has agreed to pay a $5 million civil penalty to settle charges it mishandled court documents and overcharged military personnel on loans.
The CFPB also said Cash America’s online lending unit impeded its investigation by destroying some phone recordings and shredding documents. Cash America is the nation’s largest operator of pawn shops and also makes consumer loans.
It’s the young agency’s first enforcement action against a maker of payday loans — short-term, high-rate advances to individuals. The CFPB was created in 2010 in the wake of the financial crisis and began supervising payday lenders in January 2012.
The agency said it launched its examination of Cash America in July 2012 and “found multiple violations of consumer financial protection laws.”
The first public disclosure of actions covered by the settlement came in December 2012, when Cash America announced that it would make refunds to about 14,000 Ohio customers sued for nonpayment of their loans. At the time, the company said the voluntary action, whose cost was estimated at $13.4 million, came after it learned that employees “did not prepare some court documents properly in many of its Ohio collections legal proceedings.”
The CFPB said the company has already paid out about $6 million in refunds to those borrowers and has agreed to set aside another $8 million to cover future claims.
In a statement Wednesday, CFPB Director Richard Cordray said that after preparing court documents, Cash America “actually had cut down on costs by having legal assistants manually stamp attorney signatures even though no attorneys had ever reviewed them.” Cordray said that amounted to the same kind of “robo-signing” that mortgage lenders engaged in when improperly foreclosing on homeowners in recent years.
In a prepared release, Cash America CEO Dan Feehan said the company “fully cooperated with the CFPB” during the exam and will “develop additional compliance programs as required by the CFPB.”
The agency also said that Cash America made payday loans at illegal rates to “more than 300 active-duty service members or dependents.” The Military Lending Act of 2007 capped the annual interest rate on loans to servicemembers at 36 percent and made other restrictions affecting renewals and other terms. Payday loans typically carry effective rates several times higher than that ceiling and are frequently rolled over.
In his statement, Feehan said the agency’s complaint involved “a limited number of loans extended to consumers who may have been members of the military.” He said the company refunded about $33,500 to those borrowers and took steps to prevent a re-occurrence.
The company declined further comment. Its shares (ticker: CSH) slid 92 cents, or 2.4 percent, to $37.37 in light trading Wednesday.
CFPB said that in addition to the refunds, the $5 million penalty was also based on actions by Enova Financial, Cash America’s online lending unit, that impeded the agency’s investigation. It said those actions included limiting information disclosed to investigators about marketing, deleting phone recordings and shredding documents.
“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,” Cordray said. “This cooperation after our examiners uncovered serious violations was helpful, but it certainly does not undo all the damage already done.”
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