As if there were any doubt before, the Consumer Financial Protection Bureau reports that the payday lending business is fraught with problems. A document released last week discussing supervisory actions
from November 2013 through February 2014 included a litany of legal and regulatory problems uncovered during examinations of these non-bank lenders. And it warned payday and other short-term lenders that it's time to get with the program.
The CFPB was created by the Dodd-Frank financial reform legislation. Among its many assigned duties: examining and enforcing consumer protection laws as they relate to non-bank financial services, such as payday loans. The Supervisory Highlights report relates experiences from a first round of examinations. It offers a detailed look at the CFPB's efforts to keep tabs on the payday lending market.
"Supervision has cited multiple lenders for unfair, deceptive or abusive acts or practices, or the potential for problems." In some cases, the Bureau said, lenders even tried to impede the examination process. One lender was even caught destroying documents instead of providing them as requested by CFPB examiners.
Concerns raised by CFPB's examiners included: no oversight of compliance management programs, inadequate complaint management, lack of written polices and procedures, poor staff training, ineffective compliance audit programs, and inadequate oversight of third-party service providers (especially debt collectors).
"CFPB examinations found third-party collectors engaging in conduct the natural consequences of which is to harass, oppress, or abuse any person in connection with the collection of a debt in violation" of fair debt collection laws, the Bureau wrote."CFPB expects supervised persons to oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer financial law. In the payday lending market, third-party debt collection is an area where this guidance is particularly relevant, and it will remain a focus for CFPB examiners."
Copies of the CFPB's Supervisory Highlights report can be downloaded here.