By Patrick Rucker
WASHINGTON (Reuters) – The top cop for U.S. consumer finance has decided not to sue a payday loan collector and is weighing whether to drop cases against three payday lenders, said five people with direct knowledge of the matter.
The move shows how Mick Mulvaney, named interim head of the Consumer Financial Protection Bureau (CFPB) by U.S. President Donald Trump, is putting his mark on an agency conceived to stamp out abusive lending.
The payday loan cases are among about a dozen that Richard Cordray, the former agency chief, approved for litigation before he resigned in November. Cordray was the first to lead the agency that Congress created in 2010 after the financial crisis.
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The four previously unreported cases aimed to return more than $60 million to consumers, the people said. Three are part of routine CFPB work to police storefront lenders. The fourth case concerns who has a right to collect payday loans offered from tribal land.
Cordray was ready to sue Kansas-based National Credit Adjusters (NCA), which primarily collects debt for online lenders operating on tribal land.
Such lenders charge triple-digit interest rates prohibited in many states. The companies have argued such loans are permitted when they are originated on tribal land.
The CFPB under Cordray concluded that NCA had no right to collect on such online loans, no matter where they were made.
Mulvaney has dropped the matter and the case is “dead,” Sarah Auchterlonie, a lawyer for NCA, told Reuters this week. She noted the agency appeared to be backing off issues involving tribal sovereignty.
“(Cordray) had a theory that was really out there and I think everything related to it is being pulled back,” Auchterlonie said.
Consumers have complained that NCA threatened to have them jailed and sue family members, CFPB’s public database shows.
A CFPB investigation found NCA wrongly collected roughly $50 million, of which the agency’s lawyers wanted to return about $45 million, sources said.
Payday lending often involves 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.
Supporters say the industry fills a need for customers lacking access to other banking products.
Mulvaney has said that, in general, the CFPB will go after egregious cases of consumer abuses.
“Good cases are being brought. The bad cases are not,” he told an event in Washington this month.
Some former CFPB lawyers said they worry the agency’s mission is being eroded.
“The CFPB is supposed to create a level playing field for consumers,” said Joanna Pearl, former enforcement attorney. “I’m not sure Mulvaney sees it like that.”
PAYDAY LENDING
Mulvaney is reviewing three cases against lenders based in southern states where high-interest loans are permitted. He must eventually decide whether to sue the companies, settle with a fine or scrap the cases.
Lawyers working for Cordray had concluded that Security Finance, Cash Express LLC and Triton Management Group violated customer rights when attempting to collect, among other lapses.
Spokespeople for the companies declined to comment. A spokesman for the CFPB did not respond to a request for comment. None of the sources wished to be identified because they are not authorized to speak about the cases.
Security Finance offers loans at rates that often climb into triple-digits. Debt collectors working for Security Finance harassed borrowers at home and work, violating federal laws, and the company had faulty recordkeeping that could hurt borrowers’ credit scores, the CFPB concluded.
Customers complained Cash Express used high-pressure collection tactics, the CFPB database shows. Cordray was prepared to sue the company on those grounds, sources said.
Cash Express also misled customers by telling them they might repair their credit with a payday loan, even though the lender does not report to credit bureaus, the CFPB concluded.
The CFPB faulted Triton Management Group for aggressive collection in 2016 and the company changed some practices, the sources said. The CFPB still was ready to seek more than a million dollars in fines and restitution.
(Reporting By Patrick Rucker; additional reporting by Pete Schroeder; Editing by Michelle Price and Meredith Mazzilli)
