The Consumer Financial Protection Bureau took action Wednesday against EZCORP Inc., a small-dollar lender, for allegedly illegal debt collection practices.
The alleged tactics included visits to consumers at their homes and workplaces, false threats of legal action, lying about consumers’ rights and exposing consumers to bank fees through unlawful electronic withdrawals. The CFPB ordered EZCORP to refund $7.5 million to 93,000 consumers, pay $3 million in penalties and stop collecting remaining payday and installment loan debts owed by roughly 130,000 consumers.
It also bars EZCORP from future in-person debt collections.
EZCORP, based in Austin, Tex., and its related entities provided high-cost, short-term, unsecured loans - including payday and installment loans - in 15 states and from more than 500 storefronts. It did this under names including "EZMONEY Payday Loans," "EZ Loan Services," "EZ Payday Advance" and "EZPAWN Payday Loans."
In July, after the CFPB launched an investigation, EZCORP announced it would stop offering payday, installment and auto-title loans in the U.S.
Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions or individuals engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws. Under the consent order, EZCORP must:
- Refund $7.5 million to about 93,000 consumers who made payments after illegal in-person collection visits or who paid fees to EZCORP or their banks because of unauthorized or excessive electronic withdrawal attempts covered by this order.
- Stop the collection of an estimated tens of millions of dollars in defaulted payday and installment loans allegedly owed by about 130,000 consumers and may not sell those debts to any third parties. It also must request that consumer reporting agencies amend, delete, or suppress any negative information related to those debts.
- If EZCORP decides again to offer payday or installment loans, it cannot, among other practices, make in-person collection visits, call consumers at their workplace without specific written permission from the consumer, or attempt electronic withdrawals after a previous attempt failed because of insufficient funds without consumers’ permission.
- Pay a civil penalty of $3 million: EZCORP must pay a penalty of $3 million to the CFPB’s Civil Penalty Fund.
The CFPB alleges that EZCORP violated the Electronic Fund Transfer Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair and deceptive acts or practices. Specifically, the CFPB’s investigation found that EZCORP:
- Visited consumers’ homes and workplaces to collect debt in an unlawful way: Until at least October 2013, EZCORP made in-person collection visits that disclosed or risked disclosing consumers’ debt to third parties, and caused or risked causing adverse employment consequences to consumers such as disciplinary actions or firing.
- Illegally contacted third parties about consumers’ debts and called consumers at their workplaces despite being told to stop: Debt collectors called credit references, supervisors and landlords, and disclosed or risked disclosing debts to third parties, potentially jeopardizing consumers’ jobs or reputations. It also ignored consumers’ requests to stop calls to their workplaces.
- Deceived consumers with threats of legal action: In many instances, EZCORP threatened consumers with legal action. But in practice, EZCORP did not refer these accounts to any law firm or legal department and did not take legal action against consumers on those accounts.
- Lied about not conducting credit checks on loan applicants: From November 2011 to May 2012, EZCORP claimed in some advertisements it would not conduct a credit check on loan applicants. But EZCORP routinely ran credit checks on applicants targeted by those ads.
- Required debt repayment by pre-authorized checking account withdrawals: Until January 2013, EZCORP required many consumers to repay installment loans through electronic withdrawals from their bank accounts. By law, consumers’ loans cannot be conditioned on pre-authorizing repayment through electronic fund transfers.
- Exposed consumers to fees through electronic withdrawal attempts:EZCORP would often make three simultaneous attempts to electronically withdraw money from a consumer’s bank account for a loan payment: for 50%, 30% and 20% of the total due. The company also often made withdrawals earlier than promised. As a result, tens of thousands of consumers incurred fees from their banks, making it even harder to climb out of debt when behind on payment.
- Lied to consumers that they could not stop electronic withdrawals or collection calls or repay loans early: EZCORP told consumers the only way to stop electronic withdrawals or collection calls was to make a payment or set up a payment plan. In fact, EZCORP’s consumers could revoke their authorization for electronic withdrawals and demand that EZCORP’s debt collectors stop calling. Also, EZCORP falsely told consumers in Colorado that they could not pay off a loan at any point during the loan term, or could not do so without penalty. Consumers could in fact repay the loan early, which would save them money.
"People struggling to pay their bills should not also fear harassment, humiliation or negative employment consequences because of debt collectors," said CFPB Director Richard Cordray. "Borrowers should be treated with common decency. This action and [a bulletin issued Wednesday] are a reminder that we will not tolerate illegal debt collection practices.”