The Federal Trade Commission’s recent settlement with online consumer lender Avant, LLC provides a reminder to fintech companies of the importance of ensuring regulatory compliance, while delivering innovative solutions to the financial services industry. On April 15, Avant agreed to settle a lawsuit by the FTC accusing the e-lender of “engag[ing] in a pattern of deceptive and unfair conduct regarding consumers’ payments and payment information.” The case is Federal Trade Commission v. Avant, LLC, Case No. 1:19-cv-02517 (N.D. Ill.). A copy of the Complaint can be found here and a copy of the Stipulated Final Order here.
As part of the settlement, Avant will pay $3.85 million as equitable monetary relief to a fund administered by the FTC. The fund will be used to redress consumer harm and any amount remaining will be deposited in the U.S. Treasury as disgorgement. Avant has agreed to work with the FTC to identify impacted consumers.
According to the FTC’s complaint, Avant has offered loans ranging from $1,000 to $35,000 to consumers online since 2013. Avant handles the entire loan origination process and all consumer interactions, including advertising, application processing, and loan servicing. However, according to the FTC, “[t]he loans are formally issued by an FDIC-insured bank.”
The FTC alleged Avant’s conduct violated the Federal Trade Commission Act, 15 U.S.C. § 53(b); the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. § 6105; and the Electronic Fund Transfer Act, 15 U.S.C. §§ 1693-1693r. Specifically, the FTC alleged that Avant:
- Deceived consumers about its acceptance of credit and debit cards – by rejecting credit and debit card payments, despite Avant’s website stating these payment methods would be accepted – and failed to timely apply paper payments, in some cases failing to credit consumers’ accounts for weeks after receipt, resulting in consumers being charged additional interest and late fees;
- Deceived consumers about the amount needed to pay off their loans;
- Collected or attempted to collect additional payments and late fees from consumers who had already paid their quoted payoff amount on or before the date due;
- Charged payments that consumers did not authorize, including drafting payments in excess of the amount authorized, duplicating payments without authorization, and charging at least one consumer as many as eleven times in a single day; and
- Accepted payments by remotely-created checks (which Avant is prohibited from doing in connection with telemarketing) and conditioned the extension of credit to consumers on their pre-authorization of recurring electronic fund transfers.
The FTC further alleged that internal documents show Avant was aware of and “acknowledged persistent, unaddressed problems with its payoff quotes and practice of taking additional payments after consumers pa[id] the quoted payoff amount.” The agency alleged Avant’s conduct resulted in damage to consumers’ credit due to false reports of defaults and deficiencies, and in additional late fees and interest being charged to consumers. In a press release, Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, stated, “We have alleged that Avant gave the run-around to consumers trying to repay their loans, because of systemic issues with the company’s loan servicing platform.”
In addition to the monetary settlement, Avant also agreed to prohibitions against further misrepresentations, either express or implied, regarding methods of payments accepted, payoff amounts, when payments will be credited and applied, and any material fact regarding payments, fees, or charges. Avant further agreed to apply payments within three business days of the date received; provide written record of payoff quotes and their good-through date within one business day of providing consumers with a quote; refrain from assessing, collecting, or attempting to collect any interest, late fees, or any other fees from consumers who remit the quoted payoff amount by the date identified in the quote; and report paid-in-full loans to consumer reporting agencies within 14 days following the month in which the quoted payoff amount is received.
Avant additionally agreed to refrain from charging consumers amounts that differ from the amount authorized by the consumer, from accepting remotely created payment orders as payment, and from conditioning the extension of credit on preauthorized electronic fund transfers. Avant will also be required to submit to continued compliance reporting and monitoring, as well as additional recordkeeping related to the Order.
The settlement serves as an important reminder to both traditional and online lenders on two primary points. First, lenders must take care to align advertised product offerings and features with operational capabilities – for example, by ensuring the business is equipped to process all advertised payment methods. Second, the settlement reminds lenders of the need for strong quality controls and loan servicing standards. As the FTC’s Smith explained, “Online lenders need to understand that loan servicing is just as important to consumers as loan marketing and origination, and [the FTC] will not hesitate to hold lenders liable for unfair or deceptive servicing practices.” These are particularly important lessons for fintech companies as they continue to innovate and offer new products and solutions for the financial services industry, but the Stipulated Order also serves as a valuable reminder to traditional lenders, even those with many years of industry experience.