On April 1, the Consumer Financial Protection Bureau issued a consent order against Cottonwood Financial, Ltd., a short-term, small dollar lender located in Texas. After reviewing the lender’s installment lending, payday lending, title lending, marketing, collections, and furnishing practices, the CFPB identified a number of violations, including those under the Fair Credit Reporting Act, 15 U.S.C. § 1681; Truth in Lending Act, 15 U.S.C. §§ 1601-1666j; Regulation V, 12 C.F.R. pt. 1022; and Regulation Z, 12 C.F.R. pt. 1026.
Specifically, the CFPB found that the lender engaged in unfair collection practices when it placed telephone calls to obtain payment to borrowers’ employers and other third parties listed as references on the borrowers’ applications. “In some instances, [the lender] called consumers’ workplaces multiple times a day, even after being told that the consumers were not allowed to receive calls at work and that future calls could endanger employment.”
Additionally, the CFPB found that the lender placed deceptive telemarketing calls and deceptive television marketing advertisements. The lender advertised that consumers could receive up to a 50% discount off of the finance charges associated with the loan. However, the lender failed to explain that the discount was applied to only the first payment due, that the discount would be paid as a rebate, and that the discount would be provided only if the first payment was received in full on or before the due date.
Finally, the lender provided no guidance to its employees regarding how to answer consumers’ questions about the loan’s interest rates and other costs of the loan. The failure to state the loan’s annual percentage rate when orally responding to consumers’ questions violated Regulation Z.
The consent order requires the lender to provide $286,675.64 in redress to more than 1,200 borrowers to whom the lender falsely promised 50% off all fees and to pay a civil money penalty of $1,100,000 to the CFPB’s Civil Penalty Fund.