Nov 28, 2013 Philip Burgess
Since it was created several years ago, the Consumer Financial Protection Bureau (CFPB) has made no secret of its desire to crack down on rogue short term lenders. Although most enterprises in the industry are reputable and operate within the law, a few unlawful lenders have created a negative yet unwarranted perception of the sector among federal regulators.
Now that the CFPB's leader, Richard Cordray has been officially approved as the group's director, the organization is ramping up its regulatory efforts, evident by recent steps taken by the bureau. On its website, the CFPB proudly noted that it brought its first enforcement action against a short term loan outlet. The CFPB stated that it punished a lender for questionable robo-signing practices, where debt collection agreements are approved without properly analyzing or investigating an account.
As a result, the lender at the subject of the issue will have to reimburse impacted customers a total of $14 million. On top of that, the firm has been slapped with a separate $5 million penalty.
"We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records and instructing employees to mislead examiners is unacceptable," Cordray said in a statement.
Short term outlets need to note the steps Cordray and other officials at the CFPB are taking. If they don't, they could find themselves subject to costly financial penalties. Also, as the Pittsburgh Post-Gazette stated, debt collectors related to short term outlets will also need to ensure they are stepping up their compliance efforts to avoid enforcement actions in the future.
Dangers of robo-signing
Robo-signing can land short term lenders and debt collectors in hot water. Even if they do not mean to do so, many professionals in these industries often approve or sign important documents without following proper procedures.
For this reason, it's important for businesses in these sectors to ensure employees handling sensitive financial documents are trained to understand the Fair Debt Collection Practice Act (FDCPA) and other regulatory policies that outline best collection practices.
Also, short term outlets can partner with a reputable debt relief organization to outsource collection efforts. Professional collectors are well-versed in FDCPA standards and know how to approach sensitive accounts and avoid potentially litigious errors. This way, short term lenders can mitigate their chances of being the subject of an FDCPA action.