Texas-based ACE Cash Express, a large payday lender with a franchise store in Hattiesburg, has been hit with $10 million in penalties from the fledgling Consumer Financial Protection Bureau.
ACE Cash Express, CFPB Director Richard Cordray charges, was “relentlessly overzealous” in pursuit of overdue borrowers. ACE Cash Express unlawfully called employers of tardy borrowers and threatened borrowers with lawsuits and criminal prosecutions
ACE Cash Express is the largest owner and operator of check cashing stores in the United States and the second largest payday lender.
ACE Cash Express and other payday lenders require borrowers to be employed, have a bank account and show proof of receiving regular paychecks. They must leave a post-dated personal bank check for the principal and fees as security.
Director Cordray said the intimidation used by ACE Cash Express was “part of a culture of coercion aimed at pressuring payday borrowers into debt traps.”
That trap, and the linear progression of how that should occur, was detailed in a graphic included in a company training manual. The CFPB cited the graphic as evidence of a coordinated strategy to trap borrowers in the cycle of compounding debt.
After applying sustained pressure, ACE would offer to relieve the pressure by encouraging the delinquent borrower to pay off existing loans by taking out yet another payday loan, Cordray said.
“Each time, ACE would collect another round of expensive fees, and the borrower would sink even deeper into debt,” he added. “This vicious cycle of debt drained hard-earned dollars from cash-strapped consumers who had few, if any, options available to fight back.”
In a company statement last week, ACE Cash Express said a review by hired firm Deloitte Financial Advisory Services “indicated” that more than 96 percent of ACE’s calls during the review period met collections standards. It noted, however, that it has since quit using outside collection agencies and has stepped up monitoring of its own collections calls.
ACE also denied making rollover loans. “A customer with a delinquent account is not allowed to take out another loan with ACE until the previous loan is paid off,” spokesman Eric Norrington insisted.
Addressing the Deloitte review, CFPB spokesman Sam Gilford said his agency found “methodological flaws that rendered findings suspect.”
Regardless, Gilford added, “The Bureau has a much lower threshold than ACE does for what constitutes an acceptable rate of consumer law violations.”
The action against ACE is actually a “settlement” by which the company agrees to pay the financial penalties without admitting wrongdoing, the agency says. “We’ve put them under an order so they don’t engage in these unlawful practices again,” said Lucy Morris, CFPB enforcement director, in a teleconference with reporters.
The order for ACE to repay $5 million to borrowers and $5 million in federal fines comes slightly more than a year after the CFPB levied over $14 million in penalties against large-scale payday lender Cash America.
The CFPB found that Cash America violated the Military Lending Act by illegally overcharging service members and their families. The penalties included an order for Cash America to pay up to $14 million in refunds to consumers. These violations and the destruction of records in advance of the Bureau’s examination brought a $5 million fine.
The CFPB, created under the Dodd Frank Wall Street Reform and Consumer Protection Act, has authority to oversee the payday loan market and is a clearinghouse for complaints on collections practices y the short-term lenders.
The agency has issued white papers the last two springs that detail disturbing trends in payday lending practices across America. The newest report, issued in late March, found that four out of five payday loan are rolled over or renewed within 14 days.
The study also found that three of out of five payday loans are made to borrowers whose fee expenses exceed the amount borrowed. This occurs through loan renewals, or rollovers, a designation the CFPB gives any low-dollar loans from the same lender to the same borrower within 14 days of each other.
Further, the study found, four out of five payday borrowers who renew end up borrowing the same amount or more. They do this at least once a year, according to the CFPB.
The conclusions CFPB reached in its investigation of ACE Cash Express are hardly a news bulletin for those who follow the payday lending sector, said Diane Standaert , legislative counsel for the Center for Responsible Lending, a North Carolina-based non-profit organization created to combat predatory lending.
“I think it means what we’ve known for a long time in that the core of the business model is keeping borrowers trapped in a cycle of debt,” Standaert said.