On July 12, 2021, the Consumer Financial Protection Bureau (CFPB) issued a consent order ( Consent order) against a fintech company that provides home improvement loans (fintech). The CFPB says fintech has allowed “contractors and other merchants to take out loans on behalf of thousands of consumers who did not request or authorize them.” The consent order will require Fintech to (i) provide up to $ 9 million in cash refunds and loan cancellations, (ii) pay a $ 2.5 million civil penalty to the CFPB, and (iii) prevent future illegal activities and enforce stricter requirements to the consumer. protection standards are moving forward.
Fintech builds and services on behalf of banks and uses merchants to market and receive credit applications from consumers at the point of sale. Most merchants provide home improvement products and services, healthcare services, or retail products. Fintech trains these sellers to promote and apply for a Fintech loan.
Specifically, Fintech allows most merchants to apply for consumer loans online using the Fintech website or mobile app, or by phone under certain circumstances. Upon receipt of the application, Fintech makes an “on-site financing decision by comparing consumer application data with the lending criteria” of Fintech partner banks. When a consumer or merchant applies for a loan through the Fintech website or mobile app, the approved loan terms are displayed on a computer or tablet upon completion of the application process. However, if the seller submits an application on behalf of the consumer, the consumer can only view the approved credit terms if the seller shares their screen with the consumer. Until at least April 2019, Fintech was mailing or emailing loan documents to consumers after determining that the consumer was eligible for a loan, but did not require consumers to sign and return loan documents to complete the loan.
The CFPB also claims that Fintech issues consumers a “shopping pass” number, which acts like a credit card, and treats the use of a shopping pass as acceptance of credit. Fintech does not repay loans to consumers; instead, the consumer provides the merchant with his trade ticket number to pay for the product or service. The seller then uses the shopping ticket number to apply for payment from Fintech, and Fintech pays the credit directly to the seller.
The CFPB discovered that Fintech had taken a number of fraudulent practices against its clients in violation of the 2010 Financial Consumer Protection Act (CFPA). The CFPB claims that some sellers applied for loans to Fintech without consumer consent. Fintech then, according to the CFPB, performed the issuing and servicing of these loans and, in some cases, disbursed the loan funds directly to the merchant without the knowledge or consent of consumers. Some consumers have complained that they never applied for a loan or heard of Fintech prior to receiving account reports from Fintech. The CFPB also argues that Fintech was unable to establish and implement appropriate controls during the loan application and funding approval processes, failed to adequately train and supervise participating merchants, and failed to effectively manage consumer complaints.
The Order of Consent clearly states that POS financing programs must closely monitor and monitor participating merchants to prevent fraudulent loans.