Judge: Kansas City payday lender should pay restitution

A judge recommended that a Kansas City payday lender is paying $132.5 million in restitution to borrowers tricked by their loan agreements.

An administrative law judge also said Integrity Advance and its chief executive James Carnes, a Johnson County businessman, should pay $7.5 million and $5 million in civil penalties, respectively.

The recommendation came last month in a long-running case brought by the Consumer Financial Protection Bureau, a federal consumer watchdog agency, against Integrity Advance and Carnes.

The latest recommendation reveals that Integrity Advance is on the hook for a quantity much higher than a previous recommendation in the CFPB case. In 2016, another judge suggested that Integrity Advance owed $38 million to its clients. The CFPB director rejected that 2016 recommendation and sent the case back to another judge last year for a new recommended decision.

Earlier this year, the United States Supreme Court ruled that the structure of the CFPB was unconstitutional and that its director could be removed by the president. This decision could affect the final outcome of the Integrity Advance case.

On Thursday, attorneys for Carnes and Integrity Advance appealed the judge’s recommendation. The appeal cited the Supreme Court’s finding on the CFPB’s structure and also argued that the statute of limitations had now passed, preventing the CFPB director from ratifying the judge’s recommendation.

“We disagree with the administrative judge’s recommendation,” Richard Zack, a Philadelphia attorney representing Integrity Advance and Carnes, said in an email. “We are confident that at the end of this process, Mr. Carnes and Integrity Advance will be cleared and cleared of all liability.”

In 2015, the CFPB filed suit against Integrity Advance and Carnes, accusing the company of providing misleading payday loans. Payday loans are short-term, high-interest loans that are often marketed to borrowers as quick and easy access to money.

Critics of payday loans say they exploit financially desperate people and tend to trap borrowers in cycles of debt that become difficult to escape.

Kansas City, in particular, is a nexus for payday loan operations that have been accused by civil and criminal authorities of predatory practices.

The CFPB said Integrity Advance had misled borrowers about the cost of loan repayment. Borrowers were under the impression that a $300 loan would cost $390 to repay. But, according to the CFPB, the loans were set up to renew automatically, with the result that unless a borrower took certain steps to repay the loan all at once on the first due date, a loan of 300 $ could end up costing $1,065.

The CFPB also challenged Integrity Advance’s use of “remotely created cheques” or demand drafts that allowed the company to make withdrawals from a borrower’s bank account if the borrower had previously revoked the loan. the company’s authorization to make withdrawals.

The judge agreed that the borrowers did not authorize Integrity Advance to use these remotely created checks and that this resulted in cases where withdrawals were made from borrowers who had repaid the full amount described in the loan agreement .

“Thus, taking money from consumer accounts, regardless of the amount, is an inherently significant harm,” the judge’s recommendation said.

Integrity Advance made loans from 2008 to 2012, according to court records. The company’s assets were sold to operators of a Dallas pawn shop for $50 million.

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Steve Vockrodt is an award-winning investigative journalist who has reported from Kansas City since 2005. Reporting interests include business, politics, justice issues and breaking news investigations. Vockrodt grew up in Denver and studied journalism at the University of Kansas.