On November 25, 2019, the Consumer Finance Protection Bureau (CFPB) filed concurrent consent orders against a Kentucky-based military travel loan lender (here) and its loan servicer (here).
The lender sold and financed airline tickets to military servicemembers and their families from 2010-2016 by both facilitating financing by other creditors and originating loans itself. The CFPB alleged that the lender provided documentation to customers that failed to include the actual finance charge, a description of the total amount financed, and the total payment amounts. The lender also failed to include a mark-up imposed on tickets purchased using financing when providing the actual finance charge and the annual percentage rate (APR) to customers. Further, in 2012, the lender began accepting upfront payment for the airline tickets it sold, typically with debit or credit cards. But for tickets purchased using financing, the lender charged mark-ups averaging 109% of the cost. The lender also instructed employees to provide false answers regarding the lender’s interest rates in response to customer inquiries. The lender’s servicer began purchasing the finance contracts from the lender in 2014, and furnished consumer information about the contracts to consumer-reporting agencies.
According to the lender’s consent order, the CFPB alleged that the lender violated TILA and Regulation Z by (1) failing to disclose a true finance charge, annual percentage rate, total amount consumers would pay, and the amount financed in its finance contracts, and (2) orally disclosing to consumers a monthly interest rate without also disclosing the APR.
The CFPB further alleged violations of the CFPA because of the lender’s failure to include an accurate APR in the additional mark-up of airline tickets imposed when consumers chose to finance the tickets, misrepresentation of monthly rates associated with consumers’ finance contracts, and failure to disclose the total costs of purchasing airline tickets when providing financing.
According to the servicer’s consent order, the CFPB alleged violations of the FCRA and Regulation V because the servicer failed to establish, review, or update written policies and procedures regarding consumer information furnished to consumer-reporting agencies. The CFPB further alleged that the servicer violated the CFPA by collecting fees on debt-cancellation agreements offered by the lender, which provided for cancellation of the loan in the event of permanent disability for a fee calculated based on the percentage of the outstanding loan balance. The servicer collected the debt-cancellation fees based on the original balance, regardless of whether the consumer paid down the principal on the loan.
The lender’s consent order requires the lender to pay resitution to servicemembers and their families by imposing a “suspended judgment” in the amount of $3,468,224.30; harmed consumers may be eligible for relief from the CFPB’s Civil Penalty Fund. The order further requires the lender to pay civil penalties amounting to $1 based on its inability to pay more, and prohibits the lender from all future lending to servicemembers and their families.
The servicer is required to provide redress to borrowers overcharged for the debt-cancellation product, including $54,625 in restitution with no outstanding balance on their loans and additional resitution in the form of account credits to borrowers with outstanding balances. The servicer’s consent order also requires payment of a civil money penalty of $25,000 to the CFPB, and prohibits the collection on or selling of travel loans purchased from the lender.