October 28, 2013
Payday Lender Cash America Braces for Regulatory Crackdown
Enforcement Action Would Be First by Consumer Finance Watchdog Against a Payday Lender
Cash America International Inc., CSH -3.63% one of the country's largest providers of short-term credit, is bracing for a crackdown by the Consumer Financial Protection Bureau in what would be the agency's first enforcement action against a so-called payday lender.
The CFPB has told the Fort Worth, Texas-based payday lender and pawnshop owner it may file an enforcement proceeding against the company, Chief Executive Daniel Feehan said Thursday in a conference call with analysts.
The expected action stems from paperwork problems Cash America announced in December involving collections lawsuits filed against Ohio customers, Mr. Feehan said. It would also address "compliance issues" discovered during a 2012 CFPB examination of the company, and will require improved procedures, he said.
CFPB issued a warning earlier this year to the financial industry—including payday lenders---saying it would scrutinize alleged abuses in debt collection, such as falsely representing the size of a debt and failing to credit payments made by borrowers. The agency, created as part of the 2010 Dodd-Frank law, began supervising payday lenders in 2012 and has been closely studying ways to regulate the lending industry and other similar short-term loans.
CFPB Director Richard Cordray said in April "there is a clear demand for small-dollar credit products," though he called payday and other short-term loans "debt traps" because they encourage borrowers to take out one loan after another.
The payday lending industry has come under scrutiny from numerous fronts. The Justice Department has issued subpoenas to banks that process payments for online lenders and other merchants as part of a broad effort to stamp out illegal or deceptive scams.
New York Department of Financial Services Superintendent Benjamin Lawsky has also been working to crack down on short-term lenders that violate the state's cap on interest rates. Cash America doesn't operate in New York.
Cash America announced in December it discovered a "small number" of employees had filed improper paperwork in many collections proceedings in Ohio.
The company said it voluntarily chose to reimburse customers the funds it received through collections actions it filed in the state dating back to January 2008, and was moving to dismiss pending cases.
The company is negotiating an agreement with the CFPB to "resolve these issues," and expects any fines it must pay and business changes it must make won't have a material impact on its financial results, Mr. Feehan said.
A CFPB spokesman and a Cash America spokeswoman declined to comment.
The CFPB oversees the marketing and sale of numerous financial products, including mortgages, credit cards and auto loans. It also has authority over nonbank financial firms, such as payday lenders and debt collectors.
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