Payday Lender Charged with Impeding CFPB Exam

The Consumer Financial Protection Bureau’s first-ever enforcement action against a payday lender, imposed Wednesday on industry heavyweight Cash America International, was intended to send a signal to a broad swath of financial firms.

A key part of that message: don’t hide what you’ve been doing from the CFPB. Cash America agreed to pay up to $19 million, including a $5 million fine, for alleged violations that included impeding the consumer bureau’s examination process.

“The Bureau will detect and punish entities that withhold, destroy, or hide information relevant to our exams,” CFPB Director Richard Cordray said in a conference call with reporters.

The consent order hits one of the payday industry’s biggest companies. Fort Worth, Texas-based Cash America is traded on the New York Stock Exchange (CSH), operates more than 900 locations in the United States and Mexico, and runs a large online lending operation.

But none of the company’s alleged violations were specific to payday lending. (Although the CFPB was given the authority to write rules for the industry, it has yet to do so.)

The bureau alleged that Cash America’s debt collection subsidiary, Cashland Financial Services, illegally robo-signed court documents in Ohio between 2008 and 2013, affecting about 14,000 consumers.

The CFPB also charged that the company’s online lending arm, which operates in 32 states under the name CashNetUSA, violated a federal law that imposes a 36% interest rate cap on certain short-term loans to members of the military. More than 300 service members and their dependents were affected, according to the consumer agency.

Cash America neither admitted nor denied wrongdoing, but the company did say that it is taking steps to comply with the consent order’s requirements.

“Now that we have completed the initial CFPB review process and entered into this settlement,” Cash America Chief Executive Officer Daniel Feehan said in a news release, “we will continue to focus on serving our customers while working to develop additional compliance programs as required by the CFPB.”

Charges involving robo-signing and illegal military lending have previously been brought against other firms, but the allegations that Cash America impeded the CFPB’s exam were new.

Specifically, the CFPB alleged that Cash America’s online lending arm instructed employees to limit the information they provided to examiners about their sales and marketing spiels; removed sales-focused materials from the cubicles of call-center employees; deleted recordings of phone calls with consumers; failed to cease routine document shredding after CFPB instructed them to stop; and withheld a report related to the company’s robo-signing practices.

When CFPB officials were pressed Wednesday by reporters about those allegations, they said that the consent order involves only civil violations, not criminal ones. They dodged a question about whether Cash America impeded the CFPB’s examiners on purpose, but said that such actions do not have to be intentional in order to constitute a civil violation.

In its news release, Cash America acknowledged that it failed to preserve certain records and information, and failed to provide certain records and information to CFPB in a timely manner. But CEO Feehan stated, “We fully cooperated with the CFPB in connection with its examination of our business.”

Last year Cash America reported net income of $107 million, so the $5 million fine amounts to less than 5% of the company’s 2012 profits.

When asked whether the fine should have been bigger, given the seriousness of the charges, CFPB Deputy Director Steve Antonakes noted that the allegations of impeding examiners were limited to Cash America’s online lending arm.

“We do believe the actions here were limited to one portion of the business,” he said. “These weren’t systemic issues.”

Under the agreement announced Wednesday, Cash America will refund up to about $8 million to consumers, in addition to about $6 million that has already been paid back. Almost all of the money is to go to Ohioans who were affected by the alleged robo-signing, while roughly $35,000 will be refunded to members of the military across the country.

Cash America had been expecting the consent order. The firm informed analysts last month that the CFPB had notified it of a potential enforcement action.

Lauren Saunders, an attorney with the National Consumer Law Center, said Wednesday’s enforcement action sends a message that the CFPB will not tolerate abusive debt collection tactics.

“Payday lending is an inherently unaffordable, predatory form of lending that frequently leads to some of the worst, most abusive debt collection practices,” she said in an email.