For the first time, the Consumer Financial Protection Bureau has determined that the risks surrounding the conduct of a small-dollar consumer finance company are sufficient that it needs to be supervised by the Bureau, a decision that the company contested, but was unable to convince the Bureau to change its mind. A cause to believe the company engages in coercive and harassing collection practices was one of the key reasons that led to the CFPB’s decision.
The Background: The Consumer Financial Protection Act gives the CFPB the authority to supervise, examine, and take enforcement against covered persons. There are several criteria for determining who meets the definition of a covered person, including whether the risks to consumers posed by a company warrant supervisory oversight. To meet this threshold, the CFPB must ensure that it:
- Identify concrete risks to consumers, which it has reasonable cause to determine exist
- Notify the entity of those risks
- Give the entity a reasonable chance to respond.
This process against World Acceptance Corp. began back in March of 2023 when the CFPB’s Assistant Director for Supervision determined there was reasonable cause to put the company under the Bureau’s supervision.
The Ruling: The CFPB identified four risks that the company’s conduct poses to consumers.
- First, the CFPB has reasonable cause to determine that World Acceptance does not adequately explain to its customers that the insurance coverage World Acceptance offers is optional, which may cause consumers to be deceived or misled into purchasing coverage they do not want or need.
- Second, the CFPB has reasonable cause to determine that World Acceptance engages in excessive, harassing, and coercive collection practices that, in some cases, may jeopardize consumers’ employment or cause significant emotional distress.
- Third, the CFPB has reasonable cause to determine that World Acceptance furnishes inaccurate information to consumer reporting agencies or fails to adequately respond to consumer disputes regarding the accuracy of information ti has furnished, which may negatively impact consumers’ credit scores and thereby restrict their access to credit.
- Fourth, the CFPB has reasonable cause to determine that World Acceptance’s business model relies on serially refinancing its loans, a practice that may harm consumers in a variety of ways.
It is important to note that this ruling does not constitute a funding that the company has engaged in any wrongdoing, the CFPB noted.