Payday lender Cash America International must refund consumers $14 million and pay a $5 million fine for "robo-signing" court documents and overcharging military members, U.S. regulators said Wednesday.
The enforcement action is the first against a payday lender from the Consumer Financial Protection Bureau, a new regulator created by the 2010 Dodd-Frank Wall Street reform law.
The bureau said the payday lender robo-signed — a process when papers are signed without being reviewed — court documents in debt collection lawsuits and violated the Military Lending Act by charging service members and their families an annual interest rate higher than 36 percent, which is not allowed under the Military Lending Act.
Payday lenders like Cash America provide small short-term loans at high interest rates to help a borrower get to the next paycheck. But they have come under scrutiny from authorities in recent years amid concern about lax oversight.
In addition to the company's problems with debt collection and overcharging, the CFPB also accused the company of impeding a regulatory exam by destroying certain documents and coaching employees on what to tell examiners.
Cash America, one of the largest payday lenders in the country, said in a statement it neither admitted nor denied the allegations and has already refunded around $6.4 million to customers. Through Wednesday's order, the company is committing to an additional $8 million in payments to consumers, for a total refund of up to $14 million.
"Now that we have completed the initial CFPB review process and entered into this settlement, we will continue to focus on serving our customers while working to develop additional compliance programs," chief executive Daniel Feehan said.
The CFPB is the first federal regulator to examine payday lenders. Earlier this year the agency said such loans often trap borrowers in a cycle of debt and warned new rules could be on the way.
—Reuters and The Associated Press contributed to this report.
First published November 20 2013, 1:44 PM