Earlier this month, the Consumer Financial Protection Bureau was dealt a setback in federal court in California.
The bureau was seeking penalties and restitution from a lender for violations of law. The court agreed with the CFPB in levelling a $10 million fine but denied the bureau’s bid to assess $287 million in restitution and penalties.
In September of 2016, CashCall, Inc., was found to have violated the law by offering high-interest payday loans online in 16 states where payday loans are barred. Though the loans were offered through firms based on the Cheyenne River Sioux Tribe reservation, the court agreed with the CFPB that CashCall was the “true lender” in the transactions.
The court enforced the fine for violating the Consumer Financial Protection Act by seeking to collect on loans that were void or partially nullified because they violated either state caps on interest rates or state licensing requirements for lenders. The lender on the reservation had claimed its tribal links exempted it from those laws.
However, the CFPB sought an additional $287 million from CashCall. “Today we are taking action against CashCall for collecting money it had no right to take from consumers,” said Richard Cordray, director of the bureau at the time.
The bureau claimed CashCall had engaged in “unfair, deceptive, and abusive acts and practices” in its initial complaint, citing the fact that most CashCall office were shuttered when the CFPB and several states began investigations, and yet the lender continued to take payments from consumers. It was the first CFPB enforcement action against an online lender.
The court last week found that the CFPB hadn’t shown that CashCall and its associates should pay restitution for the lending, concluding in findings of fact and conclusions of law that the agency hadn’t put forth any evidence to show the lenders had decided to embark on an unlawful scheme to defraud borrowers. For one thing, the judge said, all the borrowers had gotten the loan proceeds, and therefore, the benefit of their bargain.
“Defendants plainly and clearly disclosed the material terms of the loans to consumers — including fees and interest rates — before the loan[s] were funded,” the judge wrote. “Accordingly, the court cannot conclude that defendants acted in bad faith, resorted to trickery or deception, or have been guilty of fraud in connection with the origination of the loans that are issue in this case.”