Lauren Mills/IowaWatch

The Consumer Financial Protection Bureau, which began supervising the payday loan industry in January 2012, has begun rein in abuse, producing a report critical of the industry and requiring two payday businesses to provide refunds and pay million-dollar fines. The bureau also is drafting rules that could provide further protections for consumers.

The bureau, established by the Dodd Frank Act of 2010, began operating in July 2011. The bureau supervises consumer financial companies and can enforce and write rules to restrict unfair, deceptive or abusive practices. Consumers can send complaints about financial services to the bureau.

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Following a review of debt collection practices at ACE Cash Express, a payday loan company, the bureau announced a July 10 enforcement action requiring the company to pay $5 million in refunds and a $5 million penalty.

Between 2011 and 2012 ACE used illegal debt collection tactics including harassment and threatening lawsuits or additional fees to pressure borrowers to pay off overdue balances by taking out new loans, according to the bureau’s findings. Only the period between 2011 and 2012 was studied.

Consumers who were subject to these collection tactics and made payments to ACE between March 7, 2011, and September 12, 2012, are potentially eligible for refunds, a bureau spokesperson said in an email to IowaWatch.

As of July, ACE Cash Express had five active licensed storefronts in Iowa, records from the Iowa Division of Banking show. A 2006 complaint registered against a licensed ACE storefront in Mason City shows tactics similar to those criticized by the bureau, suggesting the tactics extended beyond the period studied by the bureau. In the complaint, a customer said the company told her employer, friends and neighbors about her debts and threatened criminal prosecution.

The fine against ACE was the bureau’s second action against a payday lender. In November, the bureau ordered Cash America to pay $19 million in refunds and fines after it was found to have:

Illegally overcharged more than 300 active-duty service members or their dependents. Under the Military Lending Act, loans to military members are capped at 36 percent interest rates;

Robo-signed court documents involved in Ohio collections litigations, which means the documents were either signed by the wrong person, a machine or someone who didn’t follow proper procedures;

Destroyed records relevant to the bureau’s onsite compliance examination.

Matthew Covington, an organizer with Iowa Citizens for Community Improvement, said members of his organization and its national affiliate, National People’s Action, met with the bureau’s director and staff to discuss suggestions for new rules for payday lenders currently under development by the bureau. Three rules the organizations suggested are:

A mandated option allowing consumers the option to spread a loan over multiple payday periods;

Denying payday lenders direct access to a consumers bank or credit union account;

And a tougher ability-to-pay standard, which would require payday lenders to consider a consumer’s monthly expenses in addition to their income when reviewing a loan application.

“They cannot cap interest rates, which is what we are pushing for at the state level. But this would go a long way to addressing some of the most predatory aspects of the industry,” said Covington, who has worked with cities on ordinances and has worked in the Iowa legislature in support of regulations.

During a press event for the bureau’s report on payday lending, Director Richard Cordray said that while research showed a demand for the small-dollar, short term loans provided by payday lenders, “loan products which routinely lead consumers into debt traps should have no place in their lives.”

Cordray also said the agency was “in the late stages of our considerations” of new rules to reform the payday loan market, according to comments published by the bureau.

Covington said the bureau’s rule-making process requires the drafted rule to be reviewed by a small business rule review committee, a three-month process, before becoming public. He said he hoped to see the public version of any proposed payday lending rules by early 2015.

“Lacking state or federal legislation, this is the best avenue for us to take,” Covington said.

He said getting an all three rules passed would be difficult, but said because the bureau is data-driven consumers who have had issues with payday loans could help by submitting complaints.

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