Personal Loan Installment Lender Penalized $20 Million for Deceptive Sales Practices
In a Consent Order, the CFPB ordered a personal loan installment lender to pay $20 million in penalties for deceptive and abusive sales practices in connection with loan originations, renewals and product add-ons.
The CFPB found that the lender engaged in deceptive and unfair practices as to the marketing, sale, and financing of add-on products, such as credit life insurance, credit disability insurance, and identity theft protection. The CFPB said that the lender misled consumers into believing that they were required to purchase add-on products to secure loans and falsely represented that they could cancel these products within a specified "full refund period" without incurring any costs. This practice, the CFPB said, was a violation of the Consumer Financial Protection Act ("CFPA") (passed in 2010 as part of the Dodd-Frank Act).
The CFPB found that the lender charged consumers for add-on products they did not agree to purchase, failed to refund the full premium and accrued interest on these products, and charged non-refundable interest during the purported full-refund period. Further, the CFPB found that the lender interfered with consumers' understanding that add-on products were optional, leading to confusion and preventing them from making informed decisions.
Based on this conduct, the CFPB determined that the lender violated Section 1031 ("Prohibiting Unfair, Deceptive, or Abusive Acts or Practices") and Section 1036 ("Prohibited Acts") of the CFPA.
The Consent Order mandated that the lender (i) cease its unlawful activities and revise its policies to simplify the cancellation process for add-on products, (ii) include interest in refunds after cancellations, (iii) provide at least $10 million in consumer redress, and (iv) pay a civil money penalty of $10 million to be deposited into the CFPB’s victims relief fund. The CFPB also required the lender to implement extensive measures to ensure future compliance with the CFPA.