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Payday lender hit with $10M in penalties, refunds

7/17/2014, 9 a.m.
An ACE Cash express store in Liberty City

ACE Cash Express, which has stores in Liberty City, Opa-locka and North Miami will pay $10 million in penalties and refunds for violations in its debt collection practices.

The U.S. Consumer Financial Protection Bureau struck a deal with the company, which was accused of forcing customers into taking out more loans by harassing them and threatening them with lawsuits and criminal prosecution.

“This culture of coercion drained millions of dollars from cash-strapped consumers who had few options to fight back,” CFPB director Richard Cordray said in a statement.

The CFPB released a graphic that showed how ACE Cash Express engaged in a pattern of predatory behavior against many customers who couldn’t pay off payday loans. These short-term loans carry high interest rates, usually around 300 percent in Florida.

Short-term loans do not require a credit or background check, allowing customers easy access to money. Loan applicants must produce a check stub from their employer as proof of income. They must also write a post-dated check for the loan that includes the amount plus interest. The loan is due two weeks from the date in which it was secured. The check is cashed if the loan is not paid by the due date. Customers can “rollover” the loan to the next pay period if they cannot pay the loan amount, but more interest fees would accrue.

If the check bounces, customers are assessed an overdraft fee by stores in addition to an overdraft fee imposed by their bank. Meanwhile, the interest on the unpaid loan continues to accrue while the amount remains unpaid. Eventually the loan goes into collection and the customer takes out another loan just to pay off the balance. With hundreds or thousands of dollars piling up because of high interest fees, customers are eventually caught in a vicious cycle of debt that’s nearly impossible to pay off.

When customers fell behind, regulators say ACE Cash Express threatened them with lawsuits and criminal prosecution.

According to the company’s website, ACE Cash Express has 91 stores in Florida, including 21 in Miami-Dade and Broward counties. In 2003, the company agreed to pay $500,000 to settle a dispute with Florida regulators over its lending practices. In addition to ACE Cash Express, there are other payday loan stores all over Liberty City, Brownsville and Opa-locka. These loans can also be secured at currency exchanges or online.

Advocates say short term loans help people who don’t have easy access to bank credit. But consumer advocates argue the loans are predatory and loaded with hidden fees and charges. A 2013 report by The Center for Responsible Lending, an advocacy group, found that Floridians who use payday lenders take out an average of 8.8 loans per year. Around 834,000 Floridians borrow from payday lenders every year, according to the report.

In a statement, ACE Cash Express said that the company had cooperated with the CFPB and implemented several of its recommended reforms. It will pay a $5 million civil penalty and $5 million in refunds to customers. It has also promised to refrain from harassing customers or pressuring them into taking out more loans. It did not admit or deny wrongdoing as part of the settlement. “We settled this matter in order to focus on serving our customers and providing the products and services they count on,” the company’s CEO, Jay Shipowitz, said in the statement.