CFPB sues online lender for alleged violation of Military Loans Act and UDAAP | Hudson Cook, LLP

STRONG POINTS:

  • The lawsuit alleges the lender charged more than the 36% rate cap allowed under the Military Loans Act on loans to service members and their dependents, through interest rates and fees monthly membership.
  • In the CFPB press release announcing the deal, Director Chopra accused the lender “of targeting military families by collecting fees and making it difficult to cancel monthly subscriptions.”
  • This case is another example of the CFPB’s willingness to litigate, rather than settle, to achieve the desired results.

CASE SUMMARY:

The complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the fintech company violated the MLA when it imposed membership fees on borrowers which, combined with interest rate fees on loans, exceeded the annual percentage rate of the MLA. cap. In addition, the Bureau alleges that the company violated the MLA by inserting an illegal arbitration clause into the contracts and failing to make required disclosures to borrowers. The complaint also alleges that the company misled consumers by falsely stating that borrowers owed loan repayments and fees that were not actually due because the alleged MLA violations rendered the loans void from the outset.

With respect to membership fees, the Bureau alleges that the company engaged in unfair, deceptive and abusive acts and practices because it did not allow borrowers to exit the membership program and stop monthly membership fees. The Bureau says this distorted borrowers’ right to cancel memberships for any reason, as the cancellation restriction was not clearly disclosed when borrowers took out loans. The Bureau alleges that this practice was also unfair and abusive. The complaint seeks redress for consumers, an injunction and a civil penalty. The complaint is not a final finding or decision that the company broke the law.

Resources:

You can view all relevant court documents and press releases here.

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