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From Banking and Finance Law Daily, October 21, 2016

Online lender uses PHH decision as intervening law in CFPB action

By Colleen M. Svelnis, J.D.

Integrity Advance, LLC, an online lender, has been granted a stay in its appeal of an administrative law judge’s Recommended Decision by using the holding in PHH Corporation v. CFPB as intervening law. The ALJ had recommended that Integrity pay more than $38 million in restitution to consumers who were allegedly deceived by the costs associated with the company’s short-term loans. The Director of the Consumer Financial Protection Bureau, Richard Cordray, granted Integrity’s motion to stay and remanded the case to a Hearing Officer.

In PHH Corporation v. CFPB, the D.C. Circuit appellate court ruled that the single-director structure is unconstitutional and that the President has the authority to discharge the CFPB’s director at will and without cause. The court rejected the bureau’s claims that there is no statute of limitations that restricts its ability to enforce the Real Estate Settlement Procedures Act against a mortgage lender that was accused of taking illegal kickbacks (see Banking and Finance Law DailyOct. 11, 2016).

Integrity argued that the ALJ decision "directly contradicts the D.C. Circuit’s decision in PHH, and cannot stand in light of the substantial, intervening change in controlling law." The D.C. Court’s holding that statutes of limitation apply to CFPB administrative proceedings "directly affects the hearing officer’s decision," according to Integrity’s motion. Integrity maintains that the statutes of limitation had run before the bureau filed its claims against the online lender.

ALJ Decision. The administrative law judge agreed with the CFPB’s allegations that Integrity and its CEO, James R. Carnes, deceived consumers about the cost of short-term loans (see Banking and Finance Law DailyOct. 3, 2016). The judge determined that the lender:

  • violated the Truth in Lending Act by disclosing incorrect finance fees and annual percentage rates in its loan agreements;
  • violated the Electronic Funds Transfer Act by conditioning its loans on repayment by electronic means; and
  • violated the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by, among other things, using a loan agreement that was likely to mislead consumers, and violated the CFPA’s prohibition against unfairness by using remotely created checks to obtain funds from consumers’ accounts after those consumers blocked authorization for electronic debits.

In addition to recommending more than $38 million in restitution, McKenna also recommended a civil penalty against Integrity Advance of more than $8.15 million and a civil penalty against Carnes for more than $5.4 million.

Both Integrity Advance and the CFPB appealed the decision. Integrity Advance objected to all findings of liability and all recommended relief against them in the Recommended Decision, while the CFPB also appealed portions of the judge’s recommended decision in its enforcement action.

Companies: Integrity Advance, LLC; PHH Corporation

MainStory: TopStory CFPB ChecksElectronicTransfers CreditDebitGiftCards DelawareNews DoddFrankAct EnforcementActions Loans TruthInLending UDAAP

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