Regulators Take Action Against Online Lender For Deceiving Borrowers On Default Charges

Image courtesy of Steven Depolo

When a company’s name has the word “integrity” in it, you may assume it’s a wholesome, truthful operation forthcoming with information that its customers would find beneficial. That apparently wasn’t the case with Integrity Advance, as federal regulators accused the short-term online lender of deceiving borrowers about the true cost of its loans. 

The Consumer Financial Protection Bureau announced Wednesday that it had filed a Notice of Charges against Delaware-based Integrity Advance for failing to disclose the costs borrowers would pay under the default terms of its loan contracts.

According to the filing, from May 2008 through December 2012, Integrity Advance offered loans ranging from $100 to $1,000, and consumers typically applied for the loans by entering their personal information into a lead generator website.

Under the default terms for the company’s contracts, the loans would roll over four times – accruing additional fees – before the company applied any of the repayments to the principal amounts. However, the costs shown in the disclosures were based on the assumption that the loans would be repaid in full by the first payment.

The CFPB claims that Integrity Advance never informed customers of the total costs of their loans if those loans were rolled over even though the contracts were set up to roll over automatically.

As a result, consumers ended up paying finance charges more than double the original amount borrowed. For example, a borrower might pay $765 in finance charges for a typical $300 loan, that equates to $675 more than the $90 finance charge disclosed in the company’s contracts.

In addition to not fully disclosing terms of the loans, the CFPB accuses the company of violating federal laws by requiring consumers to agree to repay their loans via pre-authorized Automated Clearing House (ACH) payments.

The Electronic Fund Transfer Act says repayment of loans cannot be conditioned on consumers’ pre-authorization of recurring electronic fund transfers.

When borrowers canceled their authorization for ACH withdrawals, Integrity used another provision hidden in their contracts to remotely create checks in order to receive funds from consumers who believed they did not owe money to the company.

With the Notice of Charges, which initiates proceedings in an administrative forum, the CFPB seeks redress for harmed borrowers, as well as a civil penalty.

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