The Consumer Financial Protection Bureau (CFPB) has stepped up enforcement actions with lawsuits this month against two companies over what it describes as deceptive consumer lending practices.
On July 19, the agency sued Snap Finance, a Utah-based lease-to-own service company that provides millions of lease-purchase and rental-purchase agreements to consumers. In a separate suit announced July 13, the CFPB joined with the California Department of Financial Protection and Innovation (CA DPI) and 10 state attorneys general (AGs) to sue online vocational training firm Prehired.
A Snap Finance spokesperson said in a statement to Kiplinger that the company disagrees with the CFPB’s assertions and plans to vigorously defend itself against the allegations.
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“We believe Snap Finance’s practices have been transparent and compliant with both the letter and spirit of the law,” the spokesperson said. “Our customers are provided with clear summaries of their rights in our application flow and benefit from our best-in-class support.”
Prehired did not immediately respond to Kiplinger’s requests for comment.
The CFPB alleges that Snap Finance violated the law in several ways including by running misleading ads, misrepresenting consumer payment obligations and making false threats in collections. The company illegally obscured terms and conditions of its rental purchase agreements, which led to exorbitant charges for consumers, CFPB Director Rohit Chopra said in a statement.
“To ensure fair competition and to protect the public, the CFPB is carefully watching lending outfits operating outside of the traditional banking system,” he said.
Snap Finance partners with merchants to underwrite rental-purchase and lease purchase agreements to consumers. The company has sold more than three million of these agreements since January 2017 to consumers purchasing products and services such as furniture and appliances.
In the Prehired case, the company claims to prepare consumers for entry-level positions as software sales development representatives with six-figure salaries and a job guarantee. However, applicants who signed up were led to believe they would pay nothing until they were hired through Prehired for a high-paying job, the CFPB alleges.
Prehired “deceptively buried terms that required consumers to pay even if they never got a job and, in many cases, unilaterally increased consumers’ required minimum monthly payments without any evidence that they had secured employment or experienced an increase in income,” the CFPB charges.
Through its two debt-collection companies - South Carolina-based Prehired Recruiting and Florida-based Prehired Accelerator - the company primarily pursued collection activities on defaulted income share loans. The CFPB alleges, however, that the company tricked consumers into converting the loans into a revised “settlement agreement” that required them to make loan payments and contained burdensome dispute resolution and collection terms.
Between Jan. 27 and Feb. 16, 2022, Prehired Recruiting filed more than 280 lawsuits in Delaware courts against consumers who entered into income share loans that it claimed were in default, and it sought to collect $25,000 from each consumer, the CFPB said.
The states joining CFPB and CA DFPI in the Prehired case are the attorneys general of Washington, Oregon, Delaware, Minnesota, Illinois, Wisconsin, Massachusetts, North Carolina, South Carolina and Virginia.
In bringing these suits, the CFPB and the other plaintiffs are seeking to protect the unwary consumer, two attorneys who follow the agency told Kiplinger.
When the government officials bring cases like these, they base their decisions on what is having the largest negative impact on consumers, which also can have an impact on other companies that may be engaging in the same type of conduct, said Cathy Lesser Mansfield, a professor at Case Western Reserve Law School who formerly served as a CFPB policy analyst. The suits are a warning shot for other companies that they might be next, she said.
“Snap Finance is targeting the most vulnerable consumers; those without the ability to pay for essential items with cash or traditional financing,” said David Chami, Consumer Attorneys managing partner. These consumers can be the most vulnerable and companies can take advantage of that by, for example, intentionally misleading them about the terms of their agreements and not giving them the opportunity to read or understand those terms, he said.
“Prehired, on the other hand, is reminiscent of Trump University, promising to prepare people for six-figure jobs that they knew were almost certainly never going to happen,” Chami said. “In one breath, they guaranteed that the students would get a job, while burying repayment obligations, regardless of whether that guarantee was met,” he added.
Earlier this month, the CFPB and the Office of the Comptroller of the Currency fined Bank of America $250 million for illegally charging junk fees, withholding credit card rewards and opening fake accounts.
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