Kansas City payday lender must pay restitution and fine

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The Consumer Financial Protection Bureau said Mission Hills payday lender James Carnes and his company provided payday loans that misled consumers about the cost of their loans and continued to charge borrowers’ accounts after the cancellation of authorization.

The National Law Review

The director of a federal consumer watchdog has concluded that a payday loan operation run by a Mission Hills businessman broke the law and ordered that he pay $38.5 million in restitution.

Kathleen Kraninger, director of the Consumer Financial Protection Bureau, ruled this month that Integrity Advance must also pay a $7.5 million civil penalty and that the lender’s founder, Jim Carnes, pay a civil penalty of $5 million.

Unless appealed, Kraninger’s decision ends a long-running CFPB case over Integrity Advance, which the agency accuses of misleading its borrowers. A lawyer for Carnes could not immediately be reached for comment.

The order marks another sanction, and the second in January, for payday lenders in the Kansas City area.

Last week, Del Kimball, also of Mission Hills, dropped the indictment and pleaded guilty to a charge of bankruptcy fraud which was related to its payday lending business.

Over the past four years, various agencies ranging from the Federal Trade Commission, FBI, and CFPB have targeted a gang of Kansas City payday lenders because their loans were deceptive, charged too much interest, took money in the accounts of people who hadn’t authorized the loans or operated through shell companies on Native American reservations.

The CFPB, an agency born out of the aftermath of the 2008 economic crisis to protect consumers from financial scams, filed its first complaint against Integrity Advance in 2015.

Integrity Advance offered payday loans — so called because they’re supposed to hold borrowers until their next paycheck — for amounts between $100 and $1,000. Borrowers gave Integrity Advance electronic access to their bank accounts, letting the company invest and withdraw money.

If borrowers did not repay their loan in full on their next paycheck, the loans automatically renewed and incurred new finance charges. The CFPB believed loan disclosures misled borrowers into believing that loans would be repaid in one installment when they tended to put borrowers on track to renew their loans multiple times.

Federal law requires lenders to clearly and without deception explain loan terms to borrowers so they know how much the loan will cost to repay.

The CFPB also said that when borrowers revoke Integrity Advance access to their bank accounts, the lender creates what are called “remotely created cheques” to withdraw funds from the accounts.

The CFPB director’s order of $38.5 million in restitution is down significantly from an administrative judge’s recommendation that Integrity Advance and Carnes pay $132.5 million. But the director adopted the judge’s suggestion of $7.5 million and $5 million in civil penalties for Integrity Advance and Carnes, respectively.

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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.