CFPB & Regulatory Developments

FTC Action Halts Payday Loan Scheme That Bilked Tens of Millions From Consumers By Trapping Them Into Supposed “Loans” They Never Authorized

September 17, 2014

At the Federal Trade Commission’s request, a U.S. district court in Missouri has temporarily halted an online payday lending scheme that allegedly bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed “loans” as a pretext to take money from their bank accounts.

The court imposed a temporary restraining order that appoints a receiver to take over the operation. The court order gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.

“These defendants bought consumers’ personal information, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet. The Federal Trade Commission will continue to use every enforcement tool to stop these unlawful and harmful practices.”

Over one eleven-month period between 2012 and 2013, the defendants issued $28 million in payday “loans” to consumers, and, in return, extracted more than $46.5 million from their bank accounts, the FTC alleged.

In its complaint, the FTC alleges that Timothy Coppinger, Frampton (Ted) Rowland III, and a web of companies they owned or operated, used personal financial information bought from third-party lead generators or data brokers to make unauthorized deposits of between $200 and $300 into consumers’ bank accounts. Often, the scheme targeted consumers who had previously submitted their personal financial information – including their bank account numbers –to a website that offered payday loans.

After depositing money into consumers’ accounts without their permission, the defendants withdrew bi-weekly reoccurring “finance charges” of up to $90, without any of the payments going toward reducing the loan’s principal, the FTC alleged. The defendants then contacted the consumers by phone and email, telling them that they had agreed to, and were obligated to pay for, the “loan” they never requested and misrepresented the true costs of the purported loans. In doing so, the agency alleged, they often provided consumers with fake applications, electronic transfer authorizations, or other loan documents purporting to show the consumers had authorized the loan.

In many instances, if consumers closed their bank accounts to make the unauthorized debits stop, the defendants sold the supposed “loan” to debt buyers who then harassed consumers for payment, the FTC contends.

This case, part of the FTC’s continuing crackdown on scams that target consumers from every community in financial distress, alleges that the defendants violated the FTC Act, the Truth in Lending Act (TILA), and the Electronic Funds Transfer Act (EFTA). The FTC is seeking a court order to permanently stop the defendants’ unlawful practices.

Consumers seeking more information on potential unfair and deceptive payday lending practices should see Online Payday Loans on the FTC’s website. The Commission also has new blog posts for consumers and businesses on payday lending services.

The Commission vote authorizing the staff to file the complaint was 5-0. It was filed under seal in the U.S. District Court for the Western District of Missouri, Western Division, on September 8, 2014 and the seal was lifted on September 12, 2014. On September 9, 2014 the court issued a temporary restraining order against the defendants, temporarily stopping their allegedly illegal conduct.

The complaint announced today was filed against: 1) CWB Services, LLC; 2) Orion Services, LLC; 3) Sand Point Capital, LLC; 4) Sandpoint, LLC; 5) Basseterre Capital, LLC (based in both Nevis and Delaware); 6) Namakan Capital, LLC; 7) Vandelier Group, LLC; 8) St. Armands Group, LLC; 9) Anasazi Group, LLC; 10) Anasazi Services, LLC; 11) Longboat Group, LLC, also doing business as (d/b/a) Cutter Group; 12) Oread Group, LLC, also d/b/a Mass Street Group; 13) Timothy A. Coppinger, individually and as a principal of one or more of the corporate defendants; and 14) Frampton T. Rowland, III, individually and as a principal of one or more of the corporate defendants.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

Bureau of Consumer Protection


Online lender CashCall must repay $1.5M to Iowans

Monday, October 06, 2014 2:49 PM Business Record

Iowa Superintendent of Banking Jim Schipper today revoked the Iowa license of a California-based online lender that had charged Iowans triple-digit interest rates, and he ordered the company to pay more than $1.5 million in restitution to Iowa residents.

The settlement with CashCall Inc., negotiated with the assistance of the Iowa attorney general, requires the company to stop lending to Iowans and to pay restitution for than 3,400 illegal loans it made to Iowa borrowers.

According to a 2013 amended statement of charges filed with the Iowa Superintendent of Banking, an examination conducted by the Banking Division showed that CashCall charged borrowers interest rates of up to 169 percent, far exceeding the maximum rate that Iowa law allows.  State law caps the annual interest rate at 36 percent, depending on the loan amount.

CashCall asserted that its lending activity, which originated through a company called Western Sky Financial LLC, is beyond Iowa’s jurisdictional reach. CashCall claimed that Western Sky independently originated the loans on the Cheyenne River Indian Reservation in South Dakota and is subject solely to the laws and jurisdiction of the Cheyenne River Sioux Tribe.

Approximately 20 states and the U.S. Treasury Department’s Consumer Financial Protection Bureau have pursued lawsuits or regulatory actions against CashCall, alleging unfair debt collection practices, and charging and collecting excessive interest rates. In a pending federal lawsuit filed in December 2013,  the CFPB alleged that CashCall collected money that consumers didn’t owe.

According to the Consumer Financial Protection Bureau, in September 2013 Western Sky stopped making loans and began to shut down its business after several states began investigations and court actions. However, CashCall and its collection agency continued to take monthly installment payments from consumers’ bank accounts or have otherwise sought to collect money from borrowers.

The company has provided the state with a list of borrowers who will receive restitution under the settlement.  Over the next few months, the state will send notices to affected Iowa borrowers.  Borrowers do not need to contact the Iowa Division of Banking or the attorney general’s office to make a restitution claim.


ARM Law Firm Files Motion to Dismiss CFPB’s FDCPA Enforcement Action

Patrick Lunsford InsideARM September 15, 2014

Debt collection law firm Frederick J. Hanna & Associates filed a motion Friday to dismiss an enforcement action initiated by the Consumer Financial Protection Bureau. The CFPB’s lawsuit accused the firm of filing too many collection lawsuits, which it said was a violation of the FDCPA.

In July, the CFPB accused the law firm and its three principal partners of operating “like a factory,” producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, mainly major credit card-issuing banks and debt buyers.

The CFPB said that communications, and even the debt collection lawsuits themselves, could not have come “from attorneys” due to the volume of lawsuits compared to the number of attorneys on staff. Hanna’s lawsuits, therefore, were the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys, a violation of the FDCPA and other provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Bureau’s enforcement action seeks unspecified compensation for victims, a civil fine, and an injunction against the company and its partners.

When the CFPB announced its lawsuit, the Hanna firm strongly denied the allegations and vowed to fight the lawsuit. The firm made good on that promise Friday with its 51-page motion filed in a U.S. district court in Georgia.

The central issue, according to Hanna, is the authority – or lack thereof – the CFPB has to regulate the practice of law. Since the CFPB’s allegations exclusively involve the firm’s actions in filing suits and supporting the suits with affidavits, the CFPB does not have the proper standing to regulate the actions.

Furthermore, the firm points out that that the “meaningful involvement” provision of the FDCPA has become a legal standard relating to collection letters, not to actual debt collection suits filed in court.

The CFPB has seen its authority to regulate certain businesses challenged recently. In early 2014, it won a ruling from a federal court that rejected a Constitutional challenge to the CFPB’s structure and right to exist. The CFPB had sued Morgan Drexen for actions it took in the debt relief industry. That particular case, and the court decision in January, was noted in Hanna’s motion filed Friday.

Hanna said that “Unlike the claims against Morgan Drexen, the Bureau’s claims in this case are based solely on conduct—filing lawsuits—that is unquestionably ‘the practice of law’ under any possible meaning of that phrase.”

Hanna is being represented by financial services defense firm Ballard Spahr and by co-counsel firm Balch & Binghan, which boasts a former Attorney General of Georgia as one of its partners.


Payday lender, fired executive exchanging blame for lender’s regulatory woes

by Ted Carter Mississippi Business Journal

Published: September 19,2014

Lawyers for payday lender All American Check Cashing and a fired executive of the Madison company are trading accusations of criminal activity.

All-American blames the former executive for the hot water it is in with state regulators; the out-of-work executive alleges the company fired him for not participating in illegal activities that included under-the-table payments to state legislators.

Hattiesburg lawyer Daniel Waide alleged in a July letter to All American Check Cashing’s attorney Dale Danks Jr. that the statewide payday lender tried to force former chief administrative officer/compliance officer Alan Crancer to take part in making illegal cash payments to Mississippi legislators in return for “favorable legislation.” Waide further claims All American asked Crancer to participate in making cash payments to owner Michael Gray to help Gray avoid paying taxes.

Waide has offered to drop further legal action in exchange for Crancer receiving two years of salary and medical insurance as severance.

Danks countered that Waide and Crancer “have conspired to actively engage in the criminal act of attempting to extort benefits, both monetary and otherwise, from my clients.”


CFPB Civil Investigative Demands


The CFPB has a number of weapons in its arsenal that it can use to exercise supervisory authority.  Over the last few years, and especially recently, its favorite has been Civil Investigative Demands (CIDs) issued through its Office of Enforcement.

The purpose of this post is to review the CFPB’s CID power and how companies can prepare for a CID.

What is a CID?

A CID is the primary fact-gathering tool of the CFPB, and CIDs can be issued to both banks and nonbank entities.  While the FTC has had the ability to issue CIDs for many years, the CFPB’s statutory mandate is more expansive.  Also, the manner in which the CFPB is using its CID power is particularly concerning for many in the industry.

The CFPB has the ability to request a significant amount of information regarding company practices.  Specifically, this includes documents, tangible items, written reports, answers to interrogatories and/or testimony.  Because of the broad list of items that can be requested, the CFPB uses its CID authority as the basis for determining whether to bring an enforcement action.

The CFPB generally uses its CID authority in two ways. The most common use occurs when the company receiving the CID is the target of an enforcement investigation.  Alternatively, the CFPB may issue a CID to a company if it believes that the company has information about another company under investigation. The CID need not indicate whether the company is the primary target, so every CID must be dealt with as if the company is under investigation.

Why are CIDs so disruptive to business?

The prospect of receiving a CID is particularly concerning because of the manner in which the CFPB is using this tool.

A CID is typically issued before a formal enforcement action, so the company may receive the CID with no prior notice.  This is compounded by the remarkably short timeframe in which a company must respond.  Typically, the CFPB requires an initial meeting, called a meet-and-confer, to discuss and attempt to resolve the CID within 10 days.  This means that if a company receives a CID on a Friday, it essentially has one week to prepare for the initial meeting with the CFPB.  It is extremely difficult to review and analyze enough information in such a short time period to be able to have a meaningful discussion with the CFPB. Extensions of these timeframes are disfavored, so the CFPB is unlikely to grant an extension.

Additionally, the scope of the CID may be very broad.  Federal law requires the CFPB to advise regarding the “nature of the conduct constituting the alleged violation that is under investigation and the provisions of law applicable to such violation”.  However, some companies that have received CIDs allege that the CFPB is using overly broad language in an effort to uncover as much information as possible.  For example, in the CID that AIG received in 2012, the notification of purpose was “[T]o determine whether mortgage lenders and private mortgage insurance providers or other unnamed persons have engaged in, or are engaging in, unlawful acts and practices in connection with residential mortgage loans…”  The CID will also specify the types of information that must be produced and a timeframe for producing the information.

Can a CID be challenged?

The law allows a company to challenge a CID, but winning the challenge is unlikely. Moreover, there are consequences to a challenge.

A company can petition the Director of the CFPB to modify or set aside a CID after engaging in the meet-and-confer process.  This poses three specific problems. First, the petition to modify or set aside must be filed within 20 days of receiving the CID, and the company must still go through the initial meet-and-confer process.  This means that a company has 10 days to analyze whether to comply or challenge the CID. This may not be long enough to truly consider the scope and potential impact of the CID. Second, the Director of the CFPB is the ultimate decision-maker, so he would have to second guess his enforcement staff to grant a petition to amend or modify.  Also, the appellate standard gives the CFPB enforcement staff significant discretion in issuing the initial CID.  Third, and most notably, while a CID is confidential, a petition to modify becomes public record unless the petitioner shows good reason why it should remain confidential.  So a company is forced to decide between keeping the information private from the general public or filing a petition to modify or set aside.  Not surprisingly, it appears that the CFPB has not yet granted a petition to modify or set aside.

It is worth noting that a CID is not self-executing, meaning that the CFPB would have to sue a company in federal court if the company refused to comply. That being said, we expect that most federal courts would not look favorably on a company that refuses to comply with a CID.

There is a silver lining.  While the CFPB is unlikely to agree to a petition to modify or amend, those who have been through the process have indicated that the CFPB is willing to compromise and negotiate over production schedules and the scope of information covered by the CID.  The key is to have a good reason, present a narrow request, and comply to the extent possible.

How can a consumer finance company prepare for and deal with a CID?

Preparation is the name of the game when it comes to dealing with a CID.  Because the initial response timeframes are so short, there is absolutely no time to waste in “getting your ducks in a row.” This means that if and when a CID arrives, the company must begin working on the response and collecting the information on day one.

The problem with being completely prepared is that there is no way to predict the scope of a CID; and, of course, the content will largely dictate the response.  However, a company should preemptively adopt CID response procedures which will establish the framework for dealing with a CID.


Banks can force arbitration in payday loan suit

From Westlaw Journal Bank & Lender Liability:

A group of regional banks can force a customer into arbitration to resolve her accusation they used an electronic debiting network to fraudulently collect payday loan payments, a Florida federal judge has ruled.

U.S. District Judge Robert N. Scola Jr. of the Southern District of Florida granted the defendants’ motion to compel arbitration, saying that the arbitration clauses of Patricia Gunson’s payday loan agreements barred her from filing suit to resolver her claims.

The defendants named in the suit are BMO Harris Bank, First Premier Bank, Missouri Bank & Trust, Four Oaks Bank & Trust Co. and Mutual of Omaha Bank.

According to Gunson’s suit, she took out several payday loans — short-term, high-interest loans — with different lenders between 2012 and 2014.

All the loan agreements permitted the defendants, the banks of the lenders, to initiate debits of Gunson’s bank account using the Automated Clearing House network, a national electronic debiting network.  The banks are known as the “originating depository financial institutions” for purposes of the transaction and they act as middlemen between the lender and borrower.

Gunson alleges the defendants knowingly participated in an illegal scheme with payday lenders by making debits from borrowers’ accounts using the ACH network on behalf of the lenders and by providing the lenders access to the network.

The lawsuit alleged the banks violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c); Florida Usury Law, Fla. Stat. § 687.01; Florida Deferred Presentment Act, Fla. Stat. § 560.401; and Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201.

The banks argued that Gunson agreed to arbitrate any dispute arising from the payday loans.  Gunson countered that the defendants were not signatories to the payday loan agreements.

Judge Scola granted the motion to compel arbitration.  He said that although the banks were not signatories to the agreements, they can compel arbitration under the doctrine of equitable estoppel.

Equitable estoppel can force a signer to an agreement containing an arbitration clause to participate in arbitration at the request of a non-signer if the signer’s claims make reference to the agreement or the signer’s allegations relate to the conduct of the non-signatory and the other signer.

Here, the claims relate to the payday loan agreements, and the lenders’ conduct is part of Gunson’s allegations, Judge Scola said.

The agreements included authorizations by Gunson to receive payment via electronic transfers and she expressly authorized a third party to perform the ACH debiting actions, the judge said.


Aggressive Campaign Targeting Payday Lenders Launched as CFPB Considers New Regulations And Encourage Consumer Financial Protection Bureau to Crack Down

by VW Staff September 24, 2014, 1:20 pm

WASHINGTON, DC – A new campaign launching today will aggressively target the payday and installment lending industry, calling attention to its predatory practices that line the pockets of lenders by trapping customers in a cycle of mounting debt.

The campaign, launched by Americans for Payday Lending Reform, a project of National People’s Action, will include a significant investment in digital advertising and a new online hub featuring a weekly series highlighting payday “predators of the week,” breaking news in the fight for reform, and other research related to the industry, its players, and practices.

As the Consumer Financial Protection Bureau (CFPB) considers how best to address rampant and longstanding issues with the payday lending industry, the campaign will highlight the need for tough new federal rules that protect consumers from systematic abuse and exploitation that are strong enough to keep payday lenders from avoiding accountability as they have done time and time again.

“The payday lending industry is the worst of the worst — using predatory practices to take advantage of their customers,” said Liz Ryan Murray, policy director at National People’s Action. “Creditors should help build wealth for working families, but payday lenders get rich by profiting off the most vulnerable. Our campaign will expose the ruthless greed and predatory nature of this industry.”

Across the country, 35 states authorize payday lending in some form. While some states and cities have worked to pass local laws capping interest rates, federal laws still largely allow payday lenders to prey on vulnerable communities and benefit from borrowers’ financial hardship.

Payday lenders have been known to use tactics like threats, harassment and intimidation in order to push customers to take out more loans. Earlier this summer, the Texas-based payday lender ACE Cash Express paid $10 million to settle allegations by the CFPB that it had bullied payday borrowers into a debt trap.

Background On Payday Lenders:

  • Each year, payday lenders make more than $10 billion in fees by trapping an estimated 12 million consumers in a cycle of debt and making it difficult for them escape.
  • Payday lenders use threats, harassment, and intimidation to get customers to take out more loans when they are having trouble paying back their previous loan.
  • Payday lenders use shady tactics to get around laws designed to protect consumers and promote industry accountability.
  • Payday lenders have paid fines for defrauding and harassing their customers.
  • There are now nearly as many payday lending storefronts in America as McDonald’s Corporation (NYSE:MCD) and Starbucks Corporation (NASDAQ:SBUX)… combined. And many of these locations are in close proximity to communities of color.

1st Predator: Ted “Watergate” Saunders Of Community Choice Financial

William E. Saunders Jr. has been the Chief Executive Officer of payday lender Community Choice Financial, Inc. since June 2008. Saunders has long fought to block regulation of the payday lending industry and recently equated a supposed federal crackdown on payday lenders with Watergate and called it “government overreach.” He also equated closing payday lending stores with closing hospitals.

“Twelve million hardworking Americans fall victim to the underhanded business practices of payday lenders every year.

It’s an industry that takes in more than $10 billion dollars in fees annually. Its CEOs get filthy rich by deliberately trapping customers in an endless cycle of debt.

Payday lenders have even been sued for defrauding and harassing their own customers.

These hard-working families need Washington to act. Visit to learn more and take action.



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