On November 18, 2015, California’s Department of Business Oversight (DBO) announced that a national finance company paid approximately $1 million in restitution to California consumers as part of a prior settlement with the DBO related to company’s lending practices. Enforcement Watch previously covered the settlement, in which the the company agreed to pay $125 per consumer in restitution, and $1 million in penalties and enforcement cost reimbursement.
The company allegedly offered personal loans to California consumers that allegedly contravened California’s usury laws. According to the DBO, the company offered loan amounts “up to” $2,600. When consumers requested loans below that amount, however, the company allegedly explained that the minimum loan amount was $2,600 but consumers could take out the full loan and immediately pay back the amount that was not needed. The company advertised this service as a “prepayment” option. According to the DBO, this practice allowed the company to charge unlimited interest rates on the loans because, under California law, the interest rate limits for personal loans do not apply to loans above $2,500. The company allegedly charged interest rates that in some cases approached 180%, which far exceeds the 30% limit for loans that are under $2,500.
As part of the settlement, the Company must clearly disclose to consumers that the minimum loan amount is $2,600, and stop promoting its “prepayment” program to consumers who want to borrow less than $2,600. According to the DBO’s November 18 announcement, the company has now paid $125 in restitution to over 7,000 California consumers. Prior to announcing the restitution awards, the DBO audited the company’s loan files to ensure the company paid restitution to all eligible consumers.