Online payday lender Integrity Advance is being sued by the Consumer Financial Protection Bureau for allegedly deceiving consumers about its loan costs.
The CFPB charged Integrity Advance and its chief executive, James Carnes, for not fully disclosing that charges would continue to accrue after a borrower defaulted on a loan; and for automatically debiting borrowers’ bank accounts after they stopped authorizing withdrawals.
The CFPB said Wednesday that it filed the suit as an administrative law proceeding, which is a judicial process handled at the CFPB. The amount of redress and any civil money penalty will be determined by an administrative law judge and the CFPB director has final say.
The CFPB claims Delaware-based Integrity Advance offered loans of $100 to $1,000 between May 2008 and December 2012 to consumers who applied by entering their personal information into a lead generator website. Integrity had certain terms in its loan contracts that allowed a defaulted loan to roll over four times, accruing charges each time, before it applied any payment to the principle balance.
"However, the costs on the disclosures were based on the assumption that the loans would not roll over and would instead be repaid in full by the first payment," the CFPB said. "Integrity Advance never informed consumers of the total costs of their loans if those loans were rolled over, even though the contracts were set up to roll over automatically."
Because of this, some consumers ended up paying for charges that were more than double the amount they first borrowed, amounting to $765 in charges for a $300 loan, the CFPB said. Integrity Advance also was accused of illegally forcing consumers to agree to repay their loans through pre-authorized Automated Clearing House (ACH) payments. If a consumer canceled the authorization for ACH withdrawals, the lender would then use remotely created checks to continue debiting the account. "The provision was hidden in the loan agreement, and the company used it to take consumers’ funds when consumers believed they did not owe money to Integrity Advance," the CFPB said.
The CFPB sent a so-called “notice of charges” to Integrity Advance on Wednesday, setting in motion the administrative law proceeding. The CFPB will publicly post the notice of charges 10 days after the company is served, pending approval by a hearing officer.The CFPB alleges that Integrity Advance violated the Truth in Lending Act and the Electronic Fund Transfer Act, and that Integrity Advance and Carnes violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition against unfair and deceptive acts and practices.
In August, the CFPB sued payday lender NDG Enterprise, a web of commonly controlled companies, for allegedly illegally collecting loan amounts and fees that were void or that consumers had no obligations to repay. The lender allegedly falsely threatened consumers with lawsuits and prison.
The NDG Enterprise originates and collects payday loans over the Internet to consumers in all 50 states, including New York where those loans are void because they violate state usury caps and licensing requirements.
That complaint named NDG Financial Corp., Northway Financial Corp. Ltd., Northway Broker Ltd., E-Care Contact Centers Ltd., Blizzard Interactive Corp., Sagewood Holdings Ltd., New World Consolidated Lending Corp., New World Lenders Corp., Payroll Loans First Lenders Corp. and New World RRSP Lenders Corp. All of the defendants, except for Northway Financial and Northway Broker, are Canadian corporations.
In July, the operators of a separate payday lending scheme that allegedly bilked millions of dollars from consumers by trapping them into loans were banned from the consumer lending business under settlements with the Federal Trade Commission.
Those settlements stemmed from charges the FTC filed last year alleging that Timothy A. Coppinger, Frampton T. Rowland III and their companies targeted online payday loan applicants and, using information from lead generators and data brokers, deposited money into those applicants’ bank accounts without permission.