WASHINGTON - A California payday lender is refunding about $800,000 to consumers to settle allegations that it steered borrowers into high-interest loans and engaged in other illegal practices, state officials said Monday.
California Check Cashing Stores also agreed to pay $105,000 in penalties and other costs in a consent order with the state’s Department of Business Oversight, which has been cracking down on payday and other high-cost consumer loans that critics allege are predatory. The company did not admit guilt in the consent order.
The eight North Bay locations for California Check Cashing Stores and Cash 1 are in Santa Rosa, Rohnert Park, Vallejo, Fairfield and Vacaville. Owned by privately held Community Choice Financial Inc. of Ohio, the lender has 118 locations in California.
The regulatory department, which oversees financial service providers and products, has taken similar actions against four other companies since late 2017 as part of an effort to enforce the state’s limits on interest rates for payday and other small-dollar loans.
In Monday’s action, the settlement involves alleged violations regarding administration of payday loans, which are capped at $300, and the steering of borrowers into consumer loans of more than $2,500 to avoid rate caps.
California law limits interest on loans of up to $2,499 at between 20 percent and 30 percent, but there is no cap for loans of $2,500 and larger.
“Steering consumers into higher-cost loans to circumvent statutory interest rate caps is abusive,” said Jan Lynn Owen, commissioner of the Department of Business Oversight.
“Consumers deserve protection and access to lending markets that are fair, transparent and comply with the law,” she said.
The action comes as the newly installed chief of the Consumer Financial Protection Bureau is reportedly planning on loosening new federal rules on payday lending that were proposed during the Obama era but have not yet gone into effect.
The proposed federal rules would provide a floor of basic protections for borrowers nationwide, but states would be free to make them tougher, including enacting interest rate caps, which the federal consumer bureau is prohibited from doing.
Richard Cordray, the former head of the bureau who proposed the rules in 2017, said the move by California regulators is another example of why the industry needs to be closely regulated.
“The enforcement actions they’re bringing show that some people are really ignoring what the requirements are supposed to be,” said Cordray, appointed by former President Obama as the bureau’s first director.
Patrick Crowley, a spokesman for Community Choice Financial, said, “We disagreed with the findings of this but we agreed to the settlement so we can move beyond this and get back to serving our customers in California.”
In addition to check-cashing services, the California stores offer payday loans, auto title loans and prepaid debit cards, with the company touting on its website that it can help people “Get Cash Fast, In-Store or Online.”
State examiners said they found that, from 2012 to 2017, California Check Cashing Stores overcharged customers interest and fees by steering them into loans of $2,500 or more to avoid the interest rate caps.
The settlement also resolves allegations that the company made “false and misleading statements in its advertising” by saying in brochures that it made loans of “up to $5,000” but had a minimum of “$2,501.”
The consent order requires California Check Cashing Stores to refund about $100,000 related to 1,200 consumer loans.