Payday loan giant ACE Cash Express reached a $10 million agreement with the Consumer Financial Protection Bureau to settle charges it used illegal debt collection tactics and pressure borrowers into taking out more loans by threatening lawsuits and criminal prosecution. The action, announced by the CFPB on Thursday, includes a $5 million penalty and a $5 million refund to consumers.

The CFPB found that ACE, based in Irving, Texas, used "unfair, deceptive and abusive practices" to collect consumer debts, both when collecting its own debt and when using third-party debt collectors. ACE collectors allegedly engaged in a number of aggressive and unlawful collections practices, including:

    •    Threatening to sue or criminally prosecute: ACE debt collectors led consumers to believe that they would be sued or subject to criminal prosecution if they did not make payments. Collectors would use legal jargon in calls to consumers, such as telling a consumer he could be subject to “immediate proceedings based on the law” even though ACE did not actually sue consumers or attempt to bring criminal charges against them for non-payment of debts.

    •    Threatening to charge extra fees and report consumers to credit reporting agencies: As a matter of corporate policy, ACE’s debt collectors, whether in-house or third-party, cannot charge collection fees and cannot report non-payment to credit reporting agencies. The collectors, however, told consumers all of these would occur or were possible.

    •    Harassing consumers with collection calls: Some ACE in-house and third-party collectors abused and harassed consumers by making an excessive number of collection calls. In some of these cases, ACE repeatedly called the consumers’ employers and relatives and shared the details of the debt.

ACE offers payday loans, check-cashing services, title loans, installment loans and other consumer financial products and services. The company offers the loans online and at many of its 1,500 retail storefronts. The storefronts are located in 36 states and the District of Columbia.

The CFPB found that ACE used the illegal debt collection tactics to create a false sense of urgency to lure overdue borrowers into payday debt traps. ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE. Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE. The CFPB found that ACE’s creation of the false sense of urgency to get delinquent borrowers to take out more payday loans is abusive.

ACE said in a separate press release that the CFPB's allegations related "exclusively to some of Ace's collection practices prior to March 2012." The CFPB began supervising payday lenders in January 2012.

The payday lender said it had hired Deloitte Financial Advisory Services to independently review a random sample of its collection calls in response to the CFPB's concerns.

"Deloitte's review indicated that more than 96% of ACE's calls during the review period met relevant collections standards," the company said in the release. "Over the last two years, ACE has cooperated fully with the CFPB, implementing recommended compliance changes and enhancements and responding to requests for documents and information."

ACE’s 2011 training manual has a graphic illustrating this cycle of debt. According to the graphic, consumers begin by applying to ACE for a loan, which ACE approves.

Next, if the consumer “exhausts the cash and does not have the ability to pay,” 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.

A study released in March 2014 found that four out of five payday loans are rolled over or renewed within 14 days. It also found that the majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed.

ACE in February partnered with the Camino Real Regional Mobility Authority in Texas to collect tolls for the newly opened César Chávez Border Highway toll road.

Motorists will have to establish an account to use the road or pay off toll charges at the payday loan company's stores, thus ACE is expected to benefit from the partnership by potentially getting thousands of customers into its stores, the company previously stated.

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