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Consumers send the CFPB hunting for deceptive payday lenders

Few mortgage complaints surface at recent field hearings

December 16, 2013

For years, mortgage lenders have been in the hot seat over allegations of shoddy originations and loan securitization practices that occurred several years ago.

But it seems in these trying financial times, the Consumer Financial Protection Bureau is finding more potential acts of fraud and deception among nonbank payday and online lenders.

Sitting in front of CFPB Director Richard Cordray last week during an agency field hearing in Dallas made it clear the regulator takes what consumers on the ground have to say about their lenders seriously.

So what did the Dallas consumers have to reveal to Cordray?  Very little about mortgages or mortgage lenders it seems, which suggests that issue has either run its course or is no longer the main point of contention for users of financial services.

Not one mortgage complaint surfaced as the director took diligent notes during the field hearing's consumer feedback session. About 98% of the consumers reporting complaints discussed issues with local payday lenders — some of whom are charging interest on $300 loans that rise well into the triple-digits.

Only one complaint related to homebuilders and their associated lenders surfaced during the Dallas hearing, but it involved practices from a few years back.

All of the complaining about payday lenders suggests that what is happening in the market is similar to what happened to the mortgage industry — namely, shadow lenders are abusing the public and the entire space is sharing the blame. Right now, payday lenders charging large amounts of interest are in regulator’s sights.

Coincidentally, on Monday, the CFPB sued online loan servicer CashCall, as well as its owner, subsidiary and affiliate, for abusive practices that allegedly harmed borrowers who took out short-term loans.  

The CFPB claims the lender issued loans in the $850-to-$10,000 range, tacking on upfront fees, lengthy repayment terms and annual interest that rose from 90% to 342% in some cases. In addition, consumers signed agreements that allowed automatic payments from their deposit accounts, the bureau claims. The loans in question were acquired by WS Funding and serviced by CashCall.

CashCall, its WS Funding subsidiary and affiliate Delbert Services Corp. — a collection agency — are all owned by J. Paul Reddam, the CFPB said. The companies are accused of engaging in unfair, deceptive and abusive acts and practices on the grounds that the high-cost loans violated licensing requirements or interest-rate caps in eight different states, including Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina.

"Under statutes in at least these eight states, any obligation to pay such loans was rendered void or otherwise nullified in whole or in part by law. Therefore, the defendants are collecting money that consumers do not owe," the CFPB wrote.

One of the firms working with CashCall and WS Funding was Western Sky Financial, an online lender in South Dakota, which claimed state laws did not apply because the business was located on an Indian reservation.

The CFPB pushed back against those claims in its public statement. “[T]his relationship with a tribe does not exempt Western Sky from having to comply with state laws when it makes loans over the Internet to consumers in various states,” the enforcement agency wrote.

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