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An auto finance company and its auto title lending arm must overhaul their collection practices and provide consumers $44.1 million in cash relief and balance reductions to settle charges brought by the Consumer Financial Protection Bureau, Collections & Credit Risk reported yesterday. The enforcement action, announced Thursday, includes a $4.25 million civil penalty. Westlake Services LLC and Wilshire Consumer Credit LLC allegedly deceived consumers by calling under false pretenses and using phony caller ID information, falsely threatened to refer borrowers for investigation or criminal prosecution and illegally disclosed information about debts to borrowers’ employers, friends and family. The CFPB found that Westlake and Wilshire deceived borrowers into thinking they were being called by repossession companies, other third parties or even the borrowers’ own family and friends. The CFPB’s investigation found that the companies’ debt collectors used a web-based service, Skip Tracy, to place outgoing calls and choose the phone number and caller ID text that the call recipient would see.

Federal regulators reached an $18 million settlement with Fifth Third Bancorp on Monday over allegations that the lender’s pricing policies resulted in minority borrowers paying more on their car loans, the Wall Street Journal reported today. The Consumer Financial Protection Bureau and the Justice Department claim that a portion of the annual percentage rate charged to African-American and Hispanic borrowers on Fifth Third loans was higher than the amount white borrowers were charged between 2010 and the first quarter of 2014. Fifth Third agreed to change its pricing, lowering its maximum markup cap to 1.25 percentage points. Regulators determined that African-American borrowers from Fifth Third were charged approximately 0.35 percentage points more in dealer markups than white borrowers, resulting in $200 more in interest payments on average over the life of the loan, according to the consent order.

U.S. banking regulators must defend a lawsuit brought by the Community Financial Services Association of America Ltd., the main payday-lending trade group, accusing them of applying “back-room pressure” on banks to stop serving its members, Bloomberg News reported yesterday. A federal judge on Friday refused to dismiss the suit against the Federal Deposit Insurance Corp., the Federal Reserve and the Office of the Comptroller of Currency. U.S. District Judge Gladys Kessler in Washington, D.C. threw out some claims while allowing others to go forward. The lenders group, in a complaint filed last year, said its members had been unfairly targeted in the government’s anti-fraud “Operation Choke Point” initiative. The association claims that the probe — also linked to FDIC concerns over banks lending to high-risk businesses, including ammunition dealers, online gambling and pornography merchants — led regulators to deny payday lenders their constitutional rights to hold bank accounts and pursue their chosen line of business. The judge said in her decision that it was clear payday lenders had suffered harm to their businesses.

An auto loan company that allegedly offered illegal loans to Oregon residents is being sued by Oregon Attorney General Ellen Rosenblum’s office, CollectionsCreditRisk.com reported today. The lawsuit claims that the company — which used several aliases, including Auto loans LLC, Car Loans LLC and Sovereign Lending Solutions — is repossessing cars when consumers fail to pay back loans. Rosenblum’s office claims the company sold loans to at least 250 Oregonians in exchange for getting listed as a security interest holder on their car titles. According to the lawsuit, the company isn’t licensed to offer loans in Oregon and charges annual interest rates of 181 percent to 334 percent.

Minnesota lawmakers plan to introduce legislation next year to curb payday lending after a previous proposal failed that would have limited the number of loans consumers can take out to four, CollectionsCreditRisk.com reported yesterday. A specific proposal has yet to be designed, but other states’ reforms are expected to provide guidance as lawmakers seek to strike a balance that protects consumers and avoids putting lenders out of business. Payday lenders had opposed earlier efforts to cap interest rates, arguing that rate and loan caps would wipe them out entirely. Payday America, the largest payday lender in Minnesota, spent more than $300,000 to kill the first bill. Nick Bourke, director of Pew Charitable Trusts' research on small dollar loans, said other states have implemented three types of reforms: lower interest rates, a limit on the number of loans and offering consumers a longer repayment period with more affordable payments. He believes the least effective of the three is the limit on the number of loans. Rep. Joe Atkins, DFL-South St. Paul, sponsored the 2014 payday lending reform bill. He said reform measures don’t seek to unjustly harm payday lenders but that “reasonable” interest rates need to be established.

Alabama Attorney General Luther Strange on Thursday sent a letter to the Consumer Financial Protection Bureau (CFPB) opposing new regulations that would shutter the doors on payday lenders, the Washington Times reported on Friday. The agency has proposed new rules that seek to regulate payday lenders frequently used for banking services by minority groups, the poor and the elderly who need short-term emergency loans. Strange wrote that he is concerned about the proposals for storefront consumer lenders, pointing out that the CFPB itself has acknowledged that the new regulations would force some lenders to close. “These statements are worrying because recent research indicates that payday loans can play a beneficial role for some consumers,” he wrote. “Eliminating the product will not eliminate the demand for it.”

Sen. Elizabeth Warren (D-Mass.) and other Senate Democrats are calling for an investigation into an Education Department report that cleared agency contractors of cheating military servicemen and women on their federal student loans, accusing the department of conducting a deeply flawed review, the Washington Post reported today. The request comes two months after the department announced that it had found little evidence of its student loan servicers, the middlemen who collect and apply payments to debt, unlawfully charging active-duty service members high interest rates on student loans. The findings contradicted similar Justice Department and Federal Deposit Insurance Corp. investigations that resulted in a $100 million settlement with student loan servicer Navient a year earlier. In their investigations, Justice and the FDIC found that Navient charged nearly 78,000 members of the military more than the 6 percent interest permitted by law. Yet the Education Department said less than 1 percent of the troops’ files from its four largest servicers — Navient, Great Lakes, Nelnet and American Education Services — contained violations of the Servicemembers Civil Relief Act (SCRA), a federal law that extends legal and financial protections to military personnel. The department looked at a random sampling of about 600 borrowers across all four servicers. An analysis of the reviews by Warren’s staff concluded that the agency only conducted detailed reviews of 55 cases where eligible borrowers asked for an interest rate cap. Even in those few cases, the department found problems 29 percent of the time, according to the analysis.

A collection of Canada-based payday lenders faces a lawsuit filed by the U.S. Consumer Financial Protection Bureau (CFPB), CBSNews.com reported yesterday. The CFPB on yesterday alleged that the companies collected money that wasn't owed and issued illegal loans with outrageous interest rates. Because many of the loans from companies connected to NDG Enterprise, which were issued to consumers in all 50 states, were in violation of state usury laws, the agency said they're considered void. The CFPB said that it wants to stop the allegedly illegal lending and recover money for consumers. The lawsuit offered some examples of the fees and interest rates the companies were charging. APRs ranged from 599 percent to more than 700 percent on 14-day loans of $100-$1,500. In addition to interest, consumers were hit with fees of $23-$405 per loan depending on its amount. Those rates were in excess of limits set by numerous states.

A growing number of congressional Democrats are challenging the Consumer Financial Protection Bureau’s (CFPB) proposed rules for payday lenders, cautioning that they could hurt consumers, the Washington Times reported on Saturday. The CFPB proposed new rules this spring that seek to regulate payday lenders frequently used for banking services by minorities, the poor and the elderly who need short-term emergency loans. The Obama Administration and Sen. Elizabeth Warren (D-Mass.) have accused the payday lending agency of engaging in predatory lending and seek to impose sweeping regulations across all lenders. But a growing number of Democrats, including Florida Rep. Debbie Wasserman Shultz who heads the Democratic National Committee, are challenging the new rules as a bad example of a “one-size-fits-all” policy that will limit consumers’ banking choices. In a bipartisan letter sent to the agency on Saturday, a handful of lawmakers included Ms. Schultz, Florida Reps. Alcee Hastins and Corrine Brown, and Calif. Reps. Jim Costa and Tony Cardenas. “We are concerned that individuals who rely on the availability of short-term and small-dollar loans to make ends meet will be forced to turn to more expensive alternatives potentially resulting in a phenomenon that is hardly the financial protection that the CFPB seeks to accomplish through this regulatory scheme,” the 28 lawmakers, including 16 democrats and 12 Republicans wrote in the letter.

A group of small banks is teaming up with Lending Club Corp. in a joint effort to wrest a larger share of the consumer-loan market from the biggest U.S. banks, the Wall Street Journal reported today. The partnership, expected to be announced today, aims to reverse a trend in which big banks, through mass marketing of credit cards and other products, have grown to hold the vast majority of loans to U.S. consumers. Members of BancAlliance, a consortium of about 200 community banks, will start using Lending Club, a website that facilitates loans to individuals, to build new portfolios of consumer loans. The banks will each commit to buy a certain amount of loans from Lending Club, which will vet borrowers for their ability to repay. The borrowers will come either from the bank’s own customers, whom the bank will send to a Lending Club website, or other borrowers that come directly to Lending Club. The banks are expected to buy unsecured loans of less than $35,000 without requiring collateral. Until now, small banks generally haven’t been able to justify the cost of underwriting those loans because big banks can do so much more efficiently. Now, instead of analyzing the loans on their own, the banks will rely on Lending Club’s software, which uses a data-driven process to evaluate a borrower’s ability to repay.