Center for Responsible Lending

Four online lenders offering high-cost, small-dollar installment loans face a federal lawsuit alleging that the lenders collected on debts that consumers did not legally owe. Filed in late April by the Consumer Financial Protection Bureau, the lawsuit charges online lenders Golden Valley Lending, Silver Cloud Financial, Mountain Summit Financial and Majestic Lake Financial as having engaged in unfair, deceptive or abusive acts. The lawsuit also alleges the businesses did not make proper disclosures to consumers.

Consumers living in 17 states are affected by the lawsuit, including residents of Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Carolina and Ohio. If successful, the lawsuit could result in restitution for affected consumers, ban future loan collections, and civil monetary penalties.

According to CFPB, since at least 2012, the lenders sold installment loans valued from $300 and as large as $1,200 that carried annual percentage rates from a low of 440 percent to as high as 950 percent. These high interest rates allegedly violate state usury laws and in turn, void all of part of the loans. CFPB alleges that the four corporations unlawfully collected loans as the transactions violated state laws, as well as the federal Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act. As such, the firms:

• Failed to disclose the real cost of credit, including the annual percentage rates on the loads made.

• Deceived consumers about loan payments that were not owed.

• Collected loan payments which consumers did not owe.

“We allege that these companies made deceptive demands and illegally took money from peoples’ bank accounts. We are seeking to stop these violations and get relief for consumers,” said CFPB Director Richard Cordray.

The standard loan repayment schedule was one payment every two weeks or 20 payments over a 10-month period of time. For each payment made, a “servicer fee” was charged, usually $30 for every $100 in outstanding principal, plus 5 percent of the original principal.

For example, on an $800 loan, borrowers would actually repay $3,320 over 10 months.

To provide context for just how costly these loans were, in less than six months – from August to December 2013 – two of the firms, Silver Cloud and Golden Valley, originated approximately $27 million in loans but collected $44 million from consumers.

In recent years, the Center for Responsible Lending has advocated against predatory payday and car title lenders who have been pushing longer-term loans that can be as high as $10,000.

“For these loans, the packaging is different but the end result is the same: a triple-digit interest rate, long-term loan that is structured to give payday lenders access to borrowers’ bank accounts and keep them stuck in a cycle of unaffordable debt,” said Diane Standaert, a CRL EVP and Director of State Policy.

“This growing issue will not be resolved until a combination of legislation, regulation and enforcement are together ensuring that consumers and the financial marketplace will be protected. Complete consumer protection will occur when the financial marketplace is comprised of lenders who serve, rather than exploit, consumers,” Standaert concluded.

Last year, CFPB returned $39 million to consumers wronged by unlawful debt collection practices and additionally collected $20 million in civil penalties. As of March 2017, CFPB has returned nearly $12 billion to 29 million Americans harmed by illegal and predatory actions of financial companies.

However, CFPB’s ability to continue to protect consumers remains in jeopardy. Recent legislation introduced in the House of Representatives would strip the agency of its authority and independence.

The Financial CHOICE Act, dubbed “the Wrong CHOICE Act” by consumer advocates, would reverse consumer protection advanced by CFPB over a range of lending areas. On May 4, the measured was approved by the House Financial Services Committee on a 34-26 vote. A full floor vote on the bill is expected in mid-May.

“Among other things, the ‘Wrong CHOICE Act’ would prevent the consumer agency from regulating small dollar loans and initiating enforcement actions against the unfair, deceptive and abusive practices of predatory actors,” said Melissa Stegman, a Senior Policy Counsel with CRL. “This would drastically restrict the CFPB’s ability to protect consumers.”

Charlene Crowell is the Deputy Communications Director for the Center for Responsible Lending. She can be reached at

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