Business capital

ACE sued for costly reborrowing strategies

Payday lender ACE Cash Express has been accused by the Consumer Financial Protection Bureau (CFPB) to hide free reimbursement alternatives from its customers.

Due to ACE’s activities, reborrowing fees of hundreds or thousands of dollars would have been charged to eligible borrowers under free repayment plans. Fees associated with these practices produced by ACE are estimated to have totaled at least $240 million.

According to a statement published by the CFPB on Tuesday July 12, ACE allegedly misled customers about the number of times their bank accounts would be debited for loan repayments and fees. In turn, the CFPB filed a lawsuit against ACE in the U.S. District Court for the Northern District of Texas.

ACE has previously breached financial consumer protection regulations. The CFPB found in 2014 that ACE was using improper debt collection practices to entice delinquent consumers into taking out new loans. By encouraging borrowers to repay their debts over a period of time, ACE encouraged them to come back to the company for more loans.

Even after the borrower said he could not afford to repay his loans, ACE would continue to pressure him to take on more debt, according to the CFPB. Each time a borrower took out another payday loan from ACE, they had to pay an additional fee.

A different strategy was employed by ACE following enforcement action by the CFPB in 2014. By then, borrowers in 10 states had contractually agreed that they were entitled to one free repayment plan per year.

Paying off the debt in four equal installments over the next four paydays was the only requirement of the free repayment plan, which allowed borrowers to avoid having to make one large payment. Moreover, there would be no other fees or interest charged to them.

Read more: CFPB notifies fee collectors

According to the complaint, ACE used techniques to entice consumers to refinance and renew instead of free repayment options. As a result, borrowers were charged interest at the same three-digit annualized rate that they were being charged at the time the loan was made.

The CFPB said at least $1.3 million had been fraudulently taken from at least 3,000 debtor debit cards since January this year.

“Deceit and misdirection have allowed ACE Cash Express to pocket hundreds of millions of dollars in reborrowing fees,” CFPB Director Rohit Chopra said in the statement.

For all PYMNTS TechREG coverage, subscribe to the daily TechREG newsletter.



About: More than half of utilities and consumer finance companies have the ability to digitally process all monthly bill payments. The kicker? Only 12% of them do. The Digital Payments Edge, a collaboration between PYMNTS and ACI Worldwide, surveyed 207 billing and collections professionals at these companies to find out why going digital remains elusive.