Banking and Finance Law Daily Payday lender fails to impress CFPB with reasons to dismiss Notice of Charges
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Monday, January 25, 2016

Payday lender fails to impress CFPB with reasons to dismiss Notice of Charges

By Katalina M. Bianco, J.D.

The Consumer Financial Protection Bureau has filed a brief detailing why the bureau opposes a motion to dismiss a Notice of Charges filed against online payday lender Integrity Advance, LLC and its CEO, James R. Carnes, for allegedly deceiving consumers about the cost of short-term loans. According to the CFPB, the payday lender and Carnes "fail in their efforts to evade liability for their wrongdoing by raising a series of meritless arguments."

Notice of Charges. The CFPB filed a Notice of Charges against Integrity in November 2015, alleging that the payday lender violated the Consumer Financial Protection Act’s UDAAP provisions, the Truth in Lending Act, and the Electronic Fund Transfer Act by failing to disclose the true costs of its loans, requiring repayment by pre-authorized electronic funds transfers, and continuing to debit borrower’s accounts after consumers canceled authorization.

Integrity fights back. Integrity and Carnes (Respondents) filed a motion to dismiss the Notice of Charges, claiming that the CFPB does not have authority or jurisdiction over Respondents because they are not "covered persons" under the CFPA. In their supporting brief, Respondents argue that they ceased offering or providing any consumer financial product or service before the bureau had a Senate-confirmed director, and after a director was confirmed, Respondents never engaged in any business within the bureau’s jurisdiction.

Respondents also argue that:

  • the CFPB’s claims are barred by either the CFPA’s three-year statute of limitations or by TILA’s and the EFTA’s one-year statute of limitations;
  • the Notice fails to state a claim under TILA and Regulation Z; and
  • the bureau is prohibited by the doctrine of retroactivity from bringing UDAAP charges for conduct that occurred before the July 21, 2011, transfer date.

Bureau response. In its opposition to the motion to dismiss, the CFPB responds negatively to each of Respondents’ claims. In answer to Respondents’ primary argument to dismiss, that of the CFPB’s jurisdiction and authority over them, the bureau states that there is no basis to their claim "in law or logic." When the CFPB began proceedings against Respondents, the bureau had a confirmed director and was vested with the powers granted to it by the Dodd-Frank Act. There is no authority for the claim that the CFPB only can enforce violations of law that occurred after the confirmation of the director. Further, the CFPA’s substantive prohibitions took effect on July 21, 2011, a time when Respondents admit that they were still conducting business.

As for the remaining arguments brought by Respondents, they are "equally meritless," the CFPB states. The statutes of limitations relied on by Respondents expressly apply only to actions that are brought in courts, not administrative proceedings.

Finally, Respondents’ argument that the Notice fails to state a TILA claim not only is without merit, the language of Integrity’s contracts and Respondents’ admissions in their Answer demonstrate that Integrity violated TILA’s disclosures provisions as a matter of law, according to the CFPB. The contracts disclosed annual percentage rates, finance charges, and payment totals on the assumption that the loans would be fully repaid in one payment, but unless a consumer contacted Integrity to change the terms of the loan, the loan was renewed. The automatic renewals changed the terms of the original contracts, but these changes were not disclosed to borrowers.

Companies: Integrity Advance, LLC

MainStory: TopStory CFPB ChecksElectronicTransfers DoddFrankAct EnforcementActions Loans TruthInLending UDAAP

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