CFPB Announces Proposed Settlement to November 2017 Lawsuit

The Consumer Financial Protection Bureau (CFPB) announced a proposed final consent order with a company and six subsidiaries to resolve a lawsuit filed by the CFPB in November 2017. The CFPB alleged that the company and its subsidiaries engaged in unfair, deceptive and abusive acts and practices in violation of the Consumer Financial Protection Act in connection with the illegal collection of loans that were void in whole or in part under state laws governing interest rate caps, the licensing of lenders or both.

The CFPB’s first amended complaint, filed in the U.S. District Court for the District of Montana in 2018, alleged that the company and its subsidiaries operated as a common enterprise that affiliated with tribal lenders in the offering and collection of online installment loans and online lines of credit to consumers nationwide. The company, the CFPB alleged, made deceptive demands and illegally took money from consumers’ bank accounts for debts that consumers did not actually owe because the loans were either partially or completely void under the law of 17 states. The Bureau also alleged that the company provided substantial assistance to two debt collection companies that were also engaged in the illegal collection of loans.

The loans in question were made by companies owned by Native American tribes; the relevant states are Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio and South Dakota.

After the lawsuit was filed, the company filed for Chapter 11 bankruptcy relief. If entered by the court, the proposed stipulated final consent order, among other things, would prohibit the company and its subsidiaries  from providing services to a lender that constitute “extending credit to, servicing credit extended to, or collecting on credit extended to” a consumer who resides in a one of the 17 states where the loan made by the lender would violate the state’s usury law or the lender is not properly licensed in the state.  

It also prohibits the parties from providing services directly to a lender, or to a third party for the lender’s use, in connection with the lender’s activities “in extending credit to, servicing credit extended to, or collecting on credit extended to” a consumer who resides in one of the 17 states where the loan made by the lender would violate the state’s usury law or the lender is not properly licensed in the state and the company knows, or is reckless in not knowing, that the lender is making such a loan. Note that these prohibitions do not apply to loans “originated or issued” by federally- or state-chartered depository institutions or another entity if federal law preempts the application of state law to the loan. The proposed order would also impose a $1 civil money penalty for each of the seven entities (a total of $7). 

The CFPB’s proposed consent order is a component of the global resolution of the company’s bankruptcy proceeding in the Bankruptcy Court for the Northern District of Texas, which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action. Consumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.

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