January 15, 2016

First-Party Debt Collection Results in UDAAP and EFTA Enforcement

2 min

A small-dollar lender entered into a consent order with the CFPB resolving allegations of unlawful first-party debt collection activity under UDAAP and violations of the Electronic Fund Transfer Act (EFTA). According to the CFPB, EZCORP collected debt from consumers at their homes and workplaces, made empty threats of legal action, misrepresented consumers' rights, and exposed consumers to bank fees through unlawful electronic withdrawals.

The CFPB alleged that in-home visits, calls to third parties, and calls to consumers at work to collect a debt constitute unfair acts or practices that violate the CFPA. In a similar fashion, alleged false threats of litigation (i.e., threatening legal action that EZCORP could not, or did not intend, to engage in) and misrepresenting aspects of the repayment and collections process constituted deceptive acts or practices that violate the CFPA.

The CFPB also alleged that EZCORP required consumers to authorize electronic transfers in order to get a loan, in violation of the EFTA prohibition on conditioning the extension of credit to consumers on the use of preauthorized electronic fund transfers.

Under the consent order, EZCORP must:

  • Pay $7.5 million to 93,000 customers who made payments after illegal in-person collection visits or who paid fees to EZCORP or their banks because of unauthorized or excessive electronic withdrawal attempts.
  • Stop collection of its remaining payday and installment debt. EZCORP must stop collection of tens of millions of dollars in defaulted payday and installment loans allegedly owed by roughly 130,000 consumers, and may not sell those debts to any third parties. It must also request that consumer reporting agencies amend, delete, or suppress any negative information related to those debts.
  • Halt certain debt collection practices. The consent order prohibits, among other practices, making in-person collection visits, calling consumers at their workplace without specific written permission from the consumer, or attempting electronic withdrawals after a previous attempt failed because of insufficient funds, without the consumer's permission.
  • EZCORP must also pay a $3 million civil money penalty.