10th Circuit: Payday lender must pay $38.4 million restitution order

On September 15, the United States Court of Appeals for the Tenth Circuit upheld the CFPB’s administrative decision against a Delaware-based online payday lender and its founder and CEO (respondents/petitioners) regarding an enforcement action Administrative Order of 2015 which alleged breaches of consumer financial protection. (CFPA), TILA and EFTA. As previously covered by InfoBytes, in 2015 the CFPB announced action against the respondents for alleged violations of TILA and EFTA, and for engaging in unfair or deceptive acts or practices. Specifically, the CFPB alleged that, from May 2008 to December 2012, the online lender (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the authorization of the lender to do so; (ii) compelled consumers to repay their loans through pre-authorized electronic funds transfers; and (iii) misled consumers about the cost of short-term loans by providing them with contracts containing information based on repayment of the loan in one installment, while the default terms provided for multiple rollovers and additional finance charges. The order required the respondents to pay $38.4 million in lawful and equitable restitution, as well as $8.1 million in company penalties and $5.4 million in CEO penalties.

According to the notice, between 2018 and 2021, the United States Supreme Court issued four decisions, Lucia c. DRY (covered by InfoBytes here)Seila Law v. CFPB (covered by a Buckley Special Alert here), Liu vs. SEC (covered by InfoBytes here), and Collins vs Yellen (covered by InfoBytes here), which “dealt with the Bureau’s law enforcement activity in this case”, per “decide[ing] fundamental issues such as the Office’s constitutional authority to act and the appointment of its Administrative Law Judges (‘ALJ’). The rulings have resulted in intermittent delays and restarts in the Bureau’s case against the petitioners. For example, the notice noted that two different ALJs had adjudicated the present case years apart, with their recommendations separately appealing to the Director of the Bureau. The CFPB director upheld the second ALJ’s decision and ordered the lender and its owner to pay restitution, and a district court issued a final order affirming the award. The petitioners appealed.

On appeal, the applicants presented three substantive arguments to dismiss the Director’s Final Order. The applicants argued that under Seila, the structure of the CFPB was unconstitutional and therefore the agency had no authority to issue the order. The appeals court disagreed, saying it was “using a ‘scalpel rather than a bulldozer’ to remedy a constitutional defect”, and that “because the actions of the director were not unconstitutional, we reject the petitioners’ argument to strike down the Bureau’s action in its entirety”.

The petitioners also argued that the enforcement action violated their due process rights by denying the CEO further discovery regarding the statute of limitations. The applicants asserted that they were entitled to a “rehearing” under Lucy, and that the second administrative hearing fell short of the level of due process prescribed in this case. The appeals court determined there was “no support for a clear rule against de novo review of a previous administrative hearing,” nor did it see reason for a longer hearing. thorough. Additionally, the petitioners “had a full opportunity to present their case in the first proceeding,” the 10th Circuit wrote. The appeals court further rejected the company’s argument regarding various evidentiary rulings, including permission to provide evidence on the company’s operational expenses, among others. The appeals court also held that the CFPA’s statute of limitations begins when the Bureau becomes aware of a violation or, through due diligence, would have discovered the violation. of limits. »

The petitioners also challenged the recourse order, saying they were not permitted “to present evidence of their bona fide recourse to counsel (regarding restitution and civil penalties) and evidence of their expenses (with respect to the Director’s Residual Restoration Order)”. The appeals court dismissed this challenge, finding that the director properly considered all factors, including good faith, and dismissed the petitioners’ challenge to the civil penalties recommended by the ALJ.

The 10th Circuit upheld the District Court’s order of restitution in the amount of $38.4 million, dismissing the petitioners’ various challenges and affirming the Director’s order.