When customers fell behind on their small, short-term loans, Ace Cash Express threatened them with jail or pressured them into new loans with exorbitant fees to cover the debt.
Ace was so determined to extract money from clients that his training manual included a graphic of a step-by-step loan process that could trap delinquent borrowers in a cycle of debt, the Consumer Financial Protection Bureau said Thursday. .
These kinds of abusive debt collection practices are at the heart of the government’s watchdog $ 10 million settlement with Ace, one of the nation’s largest payday lenders. The Irving, Texas-based company accepted the deal but denies any wrongdoing.
Ace must pay $ 5 million to reimburse delinquent customers who were the subject of illegal collection practices from March 7, 2011 to September 12, 2012. Ace also must pay a civil fine of $ 5 million and end his tactics abusive, according to order.
Eligible borrowers will be contacted by a settlement administrator with instructions to submit a request for reimbursement of their payments to Ace, including fees and finance charges. CFPB officials said they couldn’t determine the exact number of customers harmed by Ace’s behavior, but put the figure in the tens of thousands.
“Ace was relentlessly overzealous in his pursuit of late consumers,” CFPB director Richard Cordray said on a conference call with reporters. “Ace collectors repeatedly called employers and consumers’ relatives and inappropriately shared details of the debt.”
The problems at Ace became evident when the office conducted one of its first payday lender reviews. The examiners found that the company’s internal and third-party debt collectors threatened to report delinquent borrowers to the credit bureaus or add charges to their debt, in violation of the law.
They also discovered a graphic in Ace’s training manual that illustrated that the company offered delinquent customers the option of refinancing or extending their loans. Then, when the borrower “doesn’t make a payment and the account goes into collection,” the cycle begins again, with the same customer applying for another payday loan.
A recent CFPB study found that over 80% of payday loans are renewed or followed by another loan within 14 days, based on a study of 12 million loans in 30 states. These borrowers are more likely to stay in debt for 11 months or more, accumulating more fees.
Ace, which has 1,500 retail stores in 36 states and the district, said it cooperated with the office’s investigation but disputes the findings.
“We settled this matter to focus on serving our customers and providing the products and services they rely on,” said Jay B. Shipowitz, Managing Director of Ace.
After the CFPB raised concerns, the company hired Deloitte Financial Advisory Services to review a sample of its collection calls. The consultant found that over 96 percent of Ace’s appeals during the review period complied with the law.
CFPB deputy director of implementation Lucy Morris said the Deloitte study had “significant flaws” but still showed “material violations”.
Ace insists he has policies in place to prevent troubled borrowers from taking out new loans. The company analyzed its data from March 2011 to February 2012 and found that almost 100% of customers with a loan in collection over 90 days had not taken out a new loan within two weeks of paying off their debt. existing.
Still, the company said it has implemented a new compliance monitoring program, severed ties with its old third-party collection agency and now requires all employees to take quarterly compliance training.
The growing prevalence of payday loans, especially after the financial crisis, has alarmed lawmakers and advocacy groups. Payday loans carry high interest rates and lump sum payments that can trap Americans in a cycle of debt, critics say. Industry groups argue that payday loans meet a need that is not met by traditional banks.