Irving-based ACE Cash Express, one of the nation’s largest payday lenders, has agreed to refund borrowers $5 million and pay the U.S. government another $5 million in fines for using illegal collection tactics such as threatening criminal action against customers who fell behind on payments and informing their employers of the debt.
“ACE used false threats, intimidation and harassing calls to bully payday borrowers into a cycle of debt,” said Richard Cordray, director of the Consumer Financial Protection Bureau, which negotiated the settlement. “This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back.”
In addition, ACE on Thursday said it had disciplined employees prior to March 2012 over the way collections were handled, and others involved were no longer at the company. The CFPB began examining the practices three months later.
The federal watchdog agency, working with the Texas Office of Consumer Credit Commissioner, said it found that ACE used the deceptive and abusive practices to collect consumer debts directly and through collection agencies.
Moreover, collectors tried to get borrowers further into debt by taking new loans to pay off old ones, leaving the consumer with a bigger loan, the bureau asserted. As evidence, the bureau included a graphic illustration from a 2011 ACE training manual on how to mire a customer in debt.
The Texas payday lender had collectors who threatened to sue delinquent borrowers, or used legal-sounding jargon to indicate possible criminal action could be taken — even though it never did, it said. One firm it hired was called National Attorney Collection Services Inc., whose employees referred to themselves as “National Attorney” in communications with consumers.
The collectors also threatened to charge fees and report nonpayment to credit reporting agencies, although ACE corporate policy did not permit such actions.
Not only did ACE’s in-house and outside collectors directly harass consumers, they also made repeated calls to the customers’ employers and relatives, unlawfully sharing details of the debt, the bureau added.
In a statement, ACE said it cooperated fully with the CFPB, was paying out the $10 million to “settle” the bureau’s complaints and has “voluntarily” taken steps to improve legal compliance. The consent order states that ACE admitted no wrongdoing.
In particular, it was immediately ceasing all use of third-party collectors, increasing its monitoring of collection calls, making “significant” changes to its collections department with additional management oversight, requiring quarterly compliance training of staff and hiring full-time legal compliance analysts.
ACE insisted that “more than 96 percent” of its collection calls met legal standards during a review period prior to March 2012. The review was conducted by an independent consulting firm it hired, Deloitte Financial Advisory Services.
“We settled this matter in order to focus on serving our customers and providing the products and services they count on,” ACE’s chief executive officer, Jay B. Shipowitz, said in a prepared statement. “We are proud of our company, the value we deliver to our customers, our nearly 5,000 associates and the more than 40 million customer visits over the past 12 months.” ACE operates in 36 states and the District of Columbia.
Asked about the training manual, ACE said it cannot confirm that it was ever used, but knows for certain that it was not part of training after October 2011.
Samuel Gilford, a spokesman for the CFPB, said ACE’s training handbook, Foundations of Collections New Hire Training Manual, was used by the company from September 2010 to September 2011.
When a consumer “exhausts the cash and does not have the ability to pay,” an illustration in the manual says, ACE “contacts the customer for payment or offers the option to refinance or extend the loan.” Then, when the consumer “does not make a payment and the account enters collections,” the cycle starts all over again — with the formerly overdue borrower applying for another payday loan, the bureau quoted the manual as saying.
Although the company news release spoke only of accepting “recommendations” and taking “voluntary” moves, the July 3 consent order signed by Shipowitz and board director Paul S. Levy requires ACE to change a long laundry list of collection procedures, aside from paying the refunds and the civil penalty.
Consumers who were harmed by illegal debt collection will be contacted by a third-party settlement administrator, who will pay out $5 million in refunds, the CFPB said.
The CFPB, created in 2010 in the aftermath of the financial crisis, began supervising the payday industry in June 2012. In March, it issued a study that found that the majority of all payday loans are made to borrowers who renew loans so often that they end up paying more in fees than what they originally borrowed.
In November, Fort Worth-based Cash America International agreed to pay a $5 million civil penalty after the bureau alleged it had mishandled court documents in Ohio and overcharged military personnel on loans. At the time, Cash America had refunded $6 million to borrowers and agreed to set aside a further $8 million for possible future claims.
The online lending unit of Cash America impeded the CFPB’s investigation by destroying some phone records and shredding documents, the bureau said.
The most recent settlement was praised by the Center for Responsible Lending, an advocacy group long opposed to payday lending, which it claims takes in $3.4 billion a year. It said the bureau’s action confirms that such lenders “depend on keeping vulnerable consumers trapped in an endless cycle of debt of 300 to 400 percent interest loans.”
“The employee training manual provided by ACE is an explicit picture of the debt trap which research and consumers’ experiences have shown time and time again,” the group added. “It’s real, it’s abusive, and it’s time to stop.”
The U.S. Hispanic Chamber of Commerce, in a Thursday news release that a spokesman said was based on talking points supplied by ACE, a corporate partner, praised the payday lender for being compliant, transparent and proactive in its efforts to right the collection process.