CFPB Takes Action Against Owners of Small Dollar Lender for Hiding Money to Avoid Penalties | Sheppard Mullin Richter & Hampton LLP

[co-authors: Brandon Mohamad and Celene Gayle*]

On June 17, the Consumer Financial Protection Bureau filed an order to resolve its 2023 lawsuit against the former CEO of a short-term small dollar lender and his spouse, in connection with a series of fraudulent transfers they utilized to evade the civil penalties imposed by the CFPB against the company.

The Bureau’s 2015 Action Against the Company

In 2015, the CFPB filed suit against the lender and its CEO for engaging in deceptive lending practices. Specifically, the CFPB alleged that (1) the company’s loan documents failed to fully disclose the total costs of the consumers’ loans; (2) the company violated the EFTA by requiring consumers to agree to repay their loans via ACH payments; and (3) the company unlawfully debited borrower accounts using remotely created checks after consumers canceled their previous authorization.

The Bureau’s lawsuit was extensively litigated and resulted in an order that required the company to pay restitution of over $38 million, a civil money penalty of $7.5 million, and the CEO to pay a civil money penalty of $5 million.

The Fraudulent Transfer Action

In April 2023, the Bureau took action against the CEO and his spouse, alleging that the couple engaged in a scheme to shield assets through multiple fraudulent transfers over two years, thereby hindering, delaying, and defrauding the CFPB’s efforts to collect the over $40 million in consumer redress and civil money penalties. If entered by the court, the CFPB’s order will require both individuals to pay $7 million of an imposed $12.3 million judgment, with the remaining amount suspended due to demonstrated inability to pay more. The amount will be applied towards satisfying the existing $43 million judgment against the CEO and company.

*Brandon Mohamad is a law clerk in the firm’s New York office and Celene Gayle is a summer associate in the firm’s Washington, D.C. office.

Putting it into Practice: The CFPB’s order underscores the CFPB’s resolve in enforcing compliance with its consent orders and highlights the consequences of attempting to circumvent regulatory enforcement penalties.