A small-dollar lender has been slammed with a top-dollar penalty by federal regulators who say that the company’s debt collection practices violated the law.
Until recently, Texas-based lender EZCORP provided high-cost, short-term, unsecured payday and installment loans through 500 storefront locations in 15 states, operating under names like “EZMONEY Payday Loans,” “EZ Loan Services,” “EZ Payday Advance,” and “EZPAWN Payday Loans.”
The company ceased offering these loans in July 2015, but today the Consumer Financial Protection Bureau announced that EZCORP must pay $7.5 million in refunds to 93,000 customers, on top of a $3 million penalty, for its alleged use of illegal debt collection practices.
According to the CFPB consent order [PDF], after providing customers with short-term loans, EZCORP collected debt through illegal visits to consumers at their homes and workplaces, made empty threats of legal action, lied about consumers’ rights, and exposed consumers to bank fees through unlawful electronic withdrawals
The CFPB alleges that since at least 2013, EZCORP made in-person collection visits to debtors’ homes or workplaces, and calls to credit references, that disclosed or risked disclosing consumers’ debt to third parties. Additionally, regulators claim this action could have led to adverse consequences for employment like disciplinary actions or firing.
In many cases, EZCORP allegedly threatened consumers with legal action if they didn’t pay their debts. However, the CFPB found that in practice, the company did not refer these accounts to any law firm or legal department and did not take legal action against consumers on those accounts.
From Nov. 2011 to May 2012, EZCORP reportedly deceived borrowers with advertisements that claimed they would not be subject to a credit check. In reality, the company routinely ran checks on applicants targeted by those ads.
Until Jan. 2013, regulators claim EZCORP violated the Electronic Fund Transfer Act by requiring borrowers to repay installment loans through electronic withdrawals from their bank accounts.
Through this practice, the company would routinely make three simultaneous attempts to electronically withdraw money from a borrower’s bank account for a loan payment, the consent order states. As a result, tens of thousands of consumers incurred fees from their banks, making it even harder to climb out of debt when behind on payment.
When customers contacted EZCORP about the withdrawals the company told them the only way to stop the transfers was to make a payment or set up a payment plan. In reality, consumers could revoke their authorization for electronic withdrawals and demand that EZCORP’s debt collectors stop calling.
Under the CFPB’s proposed consent order resolving its action against EZCORP, the lender must refund $7.5 million to about 93,000 customers who made payments based on the company’s illegal practices.
Additionally, the company must stop collection on about 130,000 payday and installment loan accounts currently in default. Debts in these accounts total tens of millions of dollars, the CFPB estimates.
The company must also request that consumer reporting agencies amend, delete, or suppress any negative information related to those debts.
Finally, EZCORP is ordered to pay a $3 million penalty to the CFPB’s Civil Penalty Fund.
In addition to announcing action against the Texas-based lender, the CFPB issues a warning bulletin [PDF] to all organizations in the financial industry about the illegal use of in-person collection attempts. If companies are found to use such practices, they could also end up on the receiving end of a hefty fine.