Today, the CFPB announced that it filed a lawsuit against four online payday lenders for allegedly collecting on debts that were not legally owed. According to the CFPB’s complaint, the lenders could not legally collect on the debts because the loans were void under state laws governing interest rate caps or the licensing of lenders.
The four online payday lenders are Golden Valley Lending, Inc., Silver Cloud Financial, Inc., Mountain Summit Financial, Inc., and Majestic Lake Financial, Inc. The companies are online installment loan lenders located in California. Since 2012, Golden Valley Lending and Silver Cloud financial have offered online loans with annual interest rates ranging from 440% to 950%. According to the Bureau’s press release, Mountain Summit Financial and Majestic Lake Financial did not start offering loans until more recently.
The CFPB’s investigation revealed that the lenders offered high-cost loans with interest rates that violated usury laws in some states where they did business. The lenders also allegedly engaged in business without satisfying applicable state licensing requirements. Those violations rendered the loans void, in whole or in part, in at least 17 states. Even though the loans were void, the lenders allegedly made deceptive demands and illegally took money from consumer bank accounts for the debts.
In addition, the CFPB alleges that the lenders’ websites did not properly disclose the annual percentage rates for the loans. According to the Bureau’s complaint, each of the lenders’ websites advertises the cost of installment loans and includes a rate of finance charge but does not disclose the APR. For example, the “FAQ” section of each of the websites answers the question, “How much does the consumer loan cost?” by stating “Our service fee is $30 per $100 loaned. This fee is charged every two week on your due dates, based upon the principal amount outstanding.”
Instead of providing the APR, the websites simply stated in fine print, “Complete disclosure of APR, fees, and payment terms are set forth in the loan agreement.”
The Bureau’s lawsuit alleges that the four lenders are in violation of Regulation Z and the Consumer Financial Protection Act. The CFPB’s specific allegations include the following:
- Making electronic withdrawals from consumers’ bank accounts or demanding payment for debts that consumers were under no legal obligation to pay.
- Deceiving consumers by pursuing consumers for payments even though the loans in question were void in whole or in part under state law and payments could not be collected.
- Failing to disclose the annual percentage rates that apply to the loans.
In its lawsuit, the CFPB requests monetary relief for consumers, civil money penalties, and injunctive relief, including a prohibition on collecting on void loans.
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