“There is nothing new under the sun.” It’s from the Book of Ecclesiastes and who are we to disagree? So even when innovative products enter the market – for example, new platforms offering financial services – fundamental consumer protection principles remain constant. And as the FTC’s $3.85 million settlement with Avant, LLC, demonstrates, that includes representations and practices related to online lending.
Offering unsecured installment loans to consumers, Avant handles marketing to servicing to the collection of payments. The FTC’s complaint alleges that Avant engaged in deceptive and unfair practices at a number of critical stages of the process.
You’ll want to read the seven-count complaint to get the full picture, but here are some of the practices challenged as illegal. One FTC concern was Avant’s insistence on illegal methods of payment that violated regulations that ensure borrowers have the right to control which bills they pay and when. As a condition of getting credit, Avant required consumers to agree to pay by automatic payments from their bank accounts – either remotely created checks or preauthorized electronic fund transfers. However, some of Avant’s dealings with consumers are covered by the Telemarketing Sales Rule, which expressly bans the use of remotely created checks. And Avant’s insistence on preauthorized electronic fund transfers as the only alternative to illegal remotely created checks violated the Electronic Fund Transfer Act, which prohibits the conditioning of credit on that payment method. These protections are critically important for consumers and preserve their ability to prioritize which bills to pay each month. By requiring consumers to agree to repay their loans by recurring debits to their bank account each month, Avant illegally deprived consumers of control over which bills to pay and when.
Avant also told people that after they completed their loan application, they could change their payment method to “any other reasonable form of payment, including but not limited to paper check, money order, debit card or credit card” and even listed on its website the credit and debit cards it accepted. But when consumers tried to pay by credit or debit card, in many instances, Avant refused. Consumers who had relied on Avant’s representation and planned to pay off their loans early with a credit card were instead stuck with their Avant loans, resulting in additional interest.
The FTC says even people who paid by check or money order ran into problems with Avant. According to the complaint, in some cases, the company waited days – or even weeks – to deposit consumers’ checks and credit them to their account. The upshot: Avant charged consumers late fees and interest they didn’t owe. The lawsuit alleges that, even after the company received complaints from consumers about mishandled checks, Avant failed to implement routine mail handling controls like date-stamping payment envelopes when they were received.
The company also claimed that people could pay their loans off early without penalty, but some consumers reported receiving the run-around. Because Avant charges daily simple interest on its loans, it’s not easy for consumers to calculate down to the penny the amount of their final payout because it will depend on the exact date they make the payment. So consumers called Avant or contacted them by email or through Avant’s online tool for their calculated payoff amount. But even when consumers got an email or verbal confirmation from Avant that their loan was paid off, the company came back for more – sometimes months later – claiming the payoff quote was erroneous. The FTC says Avant dinged consumers for extra fees and interest and even reported to credit bureaus that loans were delinquent after consumers paid the quoted payoff amount.
The lawsuit also alleges that Avant charged consumers’ credit cards or took payments from their bank accounts without permission or in amounts larger than authorized. Sometimes Avant charged duplicate payments. One unfortunate consumer’s monthly payment was debited from his account eleven times in a single day. Another person called Avant’s customer service number trying to reduce his monthly payment only to be charged his entire balance. In other instances, Avant took consumers’ payoff balance twice. One consumer was stuck with overdraft fees and angry creditors when Avant withdrew his monthly payment three times in one day. According to the lawsuit, despite hundreds of consumer complaints about unauthorized charges and internal documents acknowledging there was a problem, Avant continued to charge people without authorization.
The settlement in the case imposes a judgment of $3.85 million, which will be returned to consumers who were harmed by Avant’s unlawful practices. The order also includes injunctive provisions to stop the kinds of deceptive and unfair conduct alleged in the complaint.
What’s the primary takeaway for others in the industry? Online lending may be relatively new, but unauthorized payments and untruthful claims have been around way too long. It benefits consumers – and in the long run, it benefits business – if 21st century financial platforms abandon misleading 20th century practices.