On November 18, the Consumer Financial Protection Bureau filed an administrative action against online lender Integrity Advance, LLC, and its CEO, James R. Carnes, for deceiving consumers about the cost of short-term loans.
According to a press release, 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 UDAAP provisions of the Consumer Protection Act. The conduct at issue took place from May 2008 through December 2012, when Delaware-based Integrity Advance originated and serviced loans ranging from $100 to $1,000.
The Electronic Fund Transfer Act provides that repayment of loans cannot be conditioned on consumers’ pre-authorization of recurring electronic fund transfers. Yet, the Bureau alleges, Integrity Advance required the consumers to agree to repay their loans via pre-authorized Automated Clearing House (ACH) payments. Additionally, the company continued to debit consumers’ accounts after the borrowers canceled the authorization.
The Bureau also charged Integrity Advance with misleading consumers about the total cost of the loans. Consumers were given contracts with disclosures based on repaying the loan in a single payment. Under the default terms of Integrity Advance’s contracts, however, the loans would roll over four times before the company applied any of the payments to the principal amounts. Each rollover incurred charges so that consumers would end up paying finance charges more than double the amount originally borrowed. For instance, a typical $300 loan would generate $765 in finance charges under the default terms.
The Notice of Charges filed on November 18 serves to initiate proceedings in an administrative forum. The CFPB seeks redress for harmed consumers, as well as a civil money penalty and injunctive relief. The case will be tried by an Administrative Law Judge from the Bureau’s Office of Administrative Adjudication. The Notice of Charges is not currently available to the public, as the Bureau’s Rules of Practice for Adjudication Proceedings provide that the CFPB may publish a Notice of Charges ten days after a company is served.