ACE sued over costly debt restructuring strategies

Payday lender ACE Cash Express has been accused by the Consumer Financial Protection Bureau (CFPB) of withholding free repayment alternatives from its customers.

As a result of ACE’s activities, borrowers who were eligible for free repayment plans were allegedly charged hundreds or thousands of dollars in debt restructuring fees. It is estimated that the fees related to these ACE-produced practices totaled at least $240 million.

According to a CFPB statement Tuesday (July 12), ACE allegedly misled customers about how often their bank accounts were charged for loan repayments and fees. In response, the CFPB has filed a lawsuit against ACE in the US District Court for the Northern District of Texas.

ACE has previously violated consumer protection laws. The CFPB discovered in 2014 that ACE was using improper debt collection practices to entice defaulting consumers to take out new loans. By encouraging borrowers to pay off their debts over a period of time, ACE encouraged them to return to the company for more loans.

According to the CFPB, even after the borrower declared that he could not afford to pay back his loans, ACE would still pressure him to take on more debt. Every time a borrower took another payday loan from ACE, they would have to pay additional costs.

A different strategy was employed by ACE following the CFPB enforcement action in 2014. At this point, borrowers in 10 states have contracted that they are entitled to one free amortization schedule per year.

Paying off the debt in four equal installments over the next four paydays was the only requirement of the free repayment plan, which allowed borrowers to avoid a single large payment. Beyond that, they do not incur any additional fees or interest.

Continue reading: CFPB warns debt collectors about fees

According to the complaint, ACE used techniques to lure consumers into refinancing and rollovers rather than free repayment options. As a result, borrowers were charged interest at the same three-digit annual rate they were charged at the time the loan was made.

The CFPB said at least $1.3 million has been fraudulently debited from at least 3,000 debtor debit cards since January this year.

“Through deception and misdirection, ACE Cash Express has raked in hundreds of millions of dollars in debt restructuring fees,” CFPB Director Rohit Chopra said in the release.

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