WASHINGTON (Reuters) – The top U.S. consumer credit cop has decided not to prosecute a payday loan collector and is considering whether to drop charges against three payday lenders, five people with knowledge said. directly from the case.
The move shows how Mick Mulvaney, appointed acting head of the Consumer Financial Protection Bureau (CFPB) by US President Donald Trump, is putting his mark on an agency designed to stamp out predatory lending.
The payday loan cases are among a dozen that Richard Cordray, the former agency chief, cleared for litigation before stepping down in November. Cordray was the first to lead the agency created by Congress in 2010 after the financial crisis.
The four previously unreported cases sought to return more than $60 million to consumers, the people said. Three are part of the CFPB’s routine work to monitor storefront lenders. The fourth case concerns who has the right to receive payday loans offered on tribal lands.
Cordray was prepared to sue Kansas-based National Credit Adjusters (NCA), which primarily collects debt from online lenders operating on tribal lands.
These lenders charge three-digit interest rates prohibited in many states. The companies have argued that such loans are permitted when issued on tribal lands.
The CFPB under Cordray concluded that the NCA had no right to collect on these online loans, no matter where they were made.
Mulvaney dropped the case and the case is “dead”, NCA lawyer Sarah Auchterlonie told Reuters this week. She noted that the agency seemed to back down on issues involving tribal sovereignty.
“(Cordray) had a theory that was really there and I think everything about it is being taken down,” Auchterlonie said.
Consumers complained that the NCA threatened to jail them and prosecute their family members, according to the public CFPB database.
A CFPB investigation found the NCA wrongfully collected about $50 million, of which agency attorneys wanted to return about $45 million, sources said.
Payday loans often involve low-income borrowers taking out short-term cash loans at high rates. The industry collects about $9 billion in fees annually, according to Pew Charitable Trusts.
Proponents say the industry fills a need for customers who don’t have access to other banking products.
Mulvaney said that in general the CFPB will tackle egregious cases of consumer abuse.
“Good deals are carried. Bad cases are not,” he said at an event in Washington this month.
Some former CFPB lawyers have said they fear the agency’s mission will be eroded.
“The CFPB is supposed to create a level playing field for consumers,” said Joanna Pearl, a former law enforcement attorney. “I’m not sure Mulvaney sees it that way.”
Mulvaney is looking at three cases against lenders based in southern states where high-interest loans are allowed. He ultimately has to decide if he wants to sue the businesses, settle with a fine, or drop the business.
Lawyers working for Cordray had concluded that Security Finance, Cash Express LLC and Triton Management Group violated clients’ rights in an attempted collection, among other failings.
Spokespersons for the companies declined to comment. A CFPB spokesperson did not respond to a request for comment. None of the sources wished to be identified as they are not authorized to speak about the cases.
Security Finance offers loans at rates that often climb into the triple digits. Collection agents working for Security Finance harassed borrowers at home and at work, violating federal laws, and the company had faulty record keeping that could hurt borrowers’ credit scores, the CFPB found.
Customers complained that Cash Express used high-pressure collection tactics, according to the CFPB database. Cordray was prepared to sue the company on those grounds, sources said.
Cash Express also tricked customers into telling them they could fix their credit with a payday loan, even if the lender doesn’t report to the credit bureaus, the CFPB found.
The CFPB blamed Triton Management Group for aggressive collection in 2016 and the company changed some practices, the sources said. The CFPB was still ready to seek over $1 million in fines and restitution.
Reporting By Patrick Rucker; additional reporting by Pete Schroeder; Editing by Michelle Price and Meredith Mazzilli