CFPB Tackles Payday Loan Lead Generators

CFPB

One of the unscrupulous business practices within the payday loan industry is lead generation. A trend that has been occurring is receiving sensitive personal data from payday loan applications and then selling this data to interested buyers. This is something federal officials are trying to rein in.

The Consumer Financial Protection Bureau (CFPB) launched a lawsuit in federal court against two businessmen who participated in this scheme of selling consumer loan applications. The federal consumer watchdog agency alleges that the accused selling the loans sold with the personal data did not assess the sources of the leaders or the parties they sold the information to.

According to a news release, the CFPB filed a lawsuit against Dmitry Fomichev and Davit Gasparyan (aka David Gasparyan), who co-founded and operated T3Leads, a lead aggregator. Ostensibly, the practice is legal, but companies are required to vet the buyers and sellers.

“T3Leads steered consumers toward bad deals with lenders it didn’t vet and with no regard for how the consumers’ information would be used,” said CFPB Director Richard Cordray in a statement. “This is a reminder to the middlemen who buy and sell consumer loan applications: if you engage in this type of conduct, you risk the consequences for harming people.”

What CFPB is against is that T3Leads did not know what promises were made to consumers or how the consumers’ information would be utilized. Since many of the buyers tend to be located in jurisdictions outside the United States or have affiliations with Indian tribes, many of these businesses can evade U.S. law and can stay out of the U.S. court system.

In the end, the CFPB argues that the firm violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.

This comes as the CFPB has been making news for a new study and the proposal of national standards for payday loans.

Last week, according to a CFPB study, millions of Americans face excessive banking fees and even shutdowns of their accounts because of online payday loans.

The study garnered national media attention because governments at any level are having a difficult time tackling online payday loan businesses. However, Washington lawmakers are coming up with legislation to fight this.

Next month, the CFPB is scheduled to release an outline of how to bring lenders that offer loans for people with bad credit under the purview of the federal government. The national standards would effectively end state-level regulations, while coming up with a balance that protects consumers as well as honest payday loan businesses.

Activists, politicians, community groups and consumer protection organizations have been calling on the government to impose strict regulations on the payday loan industry for years. They argue that payday loans lead impoverished consumers into an endless cycle of debt because of exorbitant interest rates and fees. Proponents, however, argue that payday loans are a necessary and in-demand tool for millions of Americans, who may not have an emergency fund to pay for the rent or a broken down radiator.

Moreover, a spokeswoman for the Community Financial Services Association of America (CFSA), a trade group that represents payday lenders, says the industry works with consumers and their ability to repay the full principal amount. Payday loan borrowers also take into account the risks associated with the loan.

An estimated 16,000 payday loan stores are situated in the U.S., and hundreds are working online. The payday loan industry is a $50 billion industry, where 12 million consumers borrow money.

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