Payday Lender Must Cough Up $10 Million

DALLAS (CN) - Payday lending giant ACE Cash Express will pay $10 million in refunds and fines for using illegal collection tactics such as false threats of civil lawsuits and criminal prosecutions against borrowers, federal regulators said.

The Consumer Financial Protection Bureau announced an enforcement action Thursday against the Irving, Texas-based company "for pushing payday borrowers into a cycle of debt."

Payday lenders offer short-term loans at high interest rates to customers in need of cash between paychecks.

ACE was ordered to pay $5 million in refunds to borrowers and $5 million in penalties to the federal government.

"This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back," Consumer Financial Protection Bureau director Richard Cordray said in a statement.

"The CFPB was created to stand up for consumers and today we are taking action to put an end to this illegal, predatory behavior."

The CFPB said that ACE harassed borrowers with collection calls, threatened to charge extra fees, falsely threatened to report borrowers to credit reporting agencies and threatened to sue or criminally prosecute borrowers.

"The Bureau found that ACE used these illegal debt collection tactics to create a false sense of urgency to lure overdue borrowers into payday debt trap," the CFPB said.

"ACE would encourage overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE. Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE. The Bureau found that ACE's creation of the false sense of urgency to get delinquent borrowers to take out more payday loans is abusive."

ACE's own training manuals illustrate this cycle of debt, the CFPB said.

Cordray said ACE was "relentlessly overzealous" in going after the delinquent borrowers and was a part of "a culture of coercion" that pressured borrowers into "debt traps."

"We also found that ACE collectors were repeatedly calling consumers' employers and relatives - and improperly sharing the details of the debt," he said during a conference call Thursday. "ACE also made false threats about what would happen once it referred consumers' debts to third party collectors. For example, collectors said things like these third-party collectors' 'actions are unlimited.'"

ACE said in a statement that it had "cooperated fully" with the CFPB for two years. ACE claimed that an independent expert it hired to review a random sampling of its collection calls found that more than 96 percent of the calls satisfied collections standards. ACE disputed the claims of delinquent borrowers being forced to take out new loans, citing company policies that prevent them from doing so.

ACE offers payday, title and installment loans and check-cashing services at more than 1,500 retail locations in 36 states.

The CFPB began supervising and overseeing the payday lending industry in January 2012.

Follow @davejourno

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