Archives for December 2015

David Mertz

Yesterday, the CFPB announced a consent decree with EZCORP , an Austin, Texas-based payday lender.  The consent decree included $7.5 million in redress to consumers, $3 million in fines, and the effective extinguishment of 130,000 payday loans.  In July of this year, EZCORP announced that they were exiting the consumer lending marketplace.

The consent decree alleged a number of UDAAP violations against EZCORP, including:

• Made in person “at home” debt collection attempts which “caused or had the potential to cause” unlawful third party disclosure, and often did so at inconvenient times.
• Made in person “at work” debt collection attempts which caused – or had the potential to cause – harm to the consumer’s reputation and/or work status.
• Called consumers at work when the consumer had notified EZCORP to stop contacting them at work or it was against the employer’s policy to contact them at work.  They also called references and landlords seeking to locate the consumer, disclosing – or risked disclosing – the call was an attempt to collect a debt.
• Threatened legal action against the consumer for non-payment, though they had neither the intent nor history of legal collection.
• Advertised to consumers that they extended loans without pulling credit reports, yet they often pulled credit reports without consumer consent.
• Frequently required as a condition of getting the loan that the consumer make payments via electronic withdrawals.  Under EFTA Reg E, requiring the consumer to make payments via electronic transfer cannot be a condition for offering a loan.
• If the consumer’s electronic payment request was returned as NSF, EZCORP would break the payment up into three parts (50% of the payment due, 30% of the payment due, and 20% or the payment due) and then send all three electronic payment requests simultaneously.  Consumers would sometimes have all three returned and incur NSF fees at the bank and from EZCORP.
• Informed consumers that they could stop the auto-payments at any time but then failed to honor those requests and often indicated the only way to get current was to use electronic payment.
• Informed consumers they could not pay off the debt early.
• Informed consumers about the dates and times that an auto-payment would be processed and regularly did not follow those disclosures to clients.
• When consumers requested that EZCORP stop making collection calls either verbally or in writing, the collection calls continued.

Penalties for these infractions included:

• $7.5 million fine
• $3 million pool to provide redress to consumers for NSF fees for electronic payments practices
• Barred from at-home and at-office collection efforts
• 130,000 accounts – what appears to be the entire EZCORP consumer lending portfolio – is no longer collectable.  No collection activity.  No payments accepted.  EZCORP must “amend, delete, or suppress any negative information relating to such debts.”

At the same time as the CFPB announced this consent decree, they issued guidance on at-home and at-office collection.  The announcement, included as part of the press release for the consent decree with EZCORP, warns industry members of the potential landmines for the consumer – and the collector – that exist in this practice.  While no specific practices were identified that would cause an infraction, “Lenders and debt collectors risk engaging in unfair or deceptive acts and practices that violate the Dodd-Frank Act and the Fair Debt Collection Practices Act when going to consumers’ homes and workplaces to collect debt.”

Here’s my perspective on this…

EZCORP is a creditor. Since the release of the debt collection ANPR issued by the CFPB there has been much discussion around the application of FDCPA debt collection restrictions/requirements for creditors.  FDCPA stalwart topics such as third party disclosure, contacting consumers at work, contacting a consumer’s employer, contacting third parties, when the consumer can be contacted, cease and desist notices, and threatening to take actions the collector has no intent to take, are all included the consent decree.

In past consent decrees, the way one could determine whether there were violations was use of the phrase “known or should have known.”  In this consent decree, new language is being introduced, including “caused or had the potential to cause” and “disclosing or risking disclosing.” This was applied to all communications, whether by phone or in person.  It appears then that the CFPB is using a “known or should have known” standard to apply to collection practices, and “caused or the potential to cause” and “disclosing or risking disclosing” standards to apply when communicating with third parties in relation to a consumer’s debt.

In addition, there appear to be four main takeaways regarding debt collection practices:

1. Do what you say and say what you do
2. Review your electronic payment submission practices to ensure that the consumer does not incur additional fees after the first NSF, unless the consumer has authorized the resubmission
3. Don’t split a payment into pieces and then resubmit multiple pieces simultaneously
4. The CFPB considers at-home and at-work collections to be fraught with peril for the consumer, and the standard which will be used in evaluating potential violation is “caused or the potential to cause”

And then there are those penalties.  First, no at-home and no at-work collections.  Second, in recent CFPB and FTC consent decrees, when there has been a balance in the redress pool after all redress has been made, the balance was split between the regulating agency and the firm.  In this case, any remaining redress pool balance is to be forwarded to the CFPB.

Last, and most significant, the full portfolio of payday loans was extinguished.  130,000 loans with a current balance in the tens of millions wiped out with a strike of a pen.  No collection efforts.  No payments accepted.  Remove the tradelines.  It’s as if the loans never existed.