June 28, 2018 / 10:10 AM / 3 months ago

Mulvaney-led U.S. CFPB slashes payday lender penalty: sources

WASHINGTON (Reuters) - Mick Mulvaney, head of the U.S. Consumer Financial Protection Bureau, cut in half a fine that his Obama-era predecessor sought against a payday lender and dropped some of the agency’s earlier claims in the case, three people familiar the matter told Reuters.

FILE PHOTO: Office of Management and Budget Director Mick Mulvaney testifies before the House Appropriations Subcommittee on Financial Services and General Government on Capitol Hill in Washington, U.S., April 18, 2018. REUTERS/Aaron P. Bernstein/File Photo

Mulvaney, appointed by President Donald Trump, has vowed to dial back what he says is overreach by the independent agency, which was created following the 2007-2009 financial crisis to stamp out predatory lending.

The CFPB fined South Carolina-based lender Security Finance $5 million on June 13 for harassing borrowers when collecting debt and mishandling credit report data.

Richard Cordray, Mulvaney’s predecessor, had wanted to seek additional charges against the company for pushing borrowers to buy personal insurance that was bundled into loans.

Cordray wanted Security Finance to pay $11 million, with $3 million as a penalty for the debt collection and credit reporting abuses and at least $8 million to compensate consumers who felt pushed into insurance, the sources said.

Mulvaney dropped the insurance claims, meaning the settlement with Security Finance leaves no money for customers Cordray wanted to remediate. Reuters reported in March that Mulvaney was reviewing the case.

“We are agreeing to this settlement to close the matter and move forward in serving our customers,” said Security Finance chief Susan Bridges in a statement. The company declined to comment on its insurance business.

John Czwartacki, spokesman for the CFPB, said the agency’s claims in the consent order were based on what was supported by evidence.

“The enforcement arms of government should not be used in order to shake down the productive sector just because we can, especially when the legal case is shaky at best,” he said.

The CFPB has prevailed in many cases involving add-on products in the past and the industry will be watching to see if Mulvaney is pulling back from such cases, said Christopher Peterson, a former CFPB attorney.

“The CFPB’s job is to deter illegal activity, not look the other way,” said Peterson, who now teaches at the University of Utah. “If the agency eases up, industry will notice.”

Mulvaney has also dropped several cases begun by Cordray, Reuters has reported. The Security Finance penalty was only the second in Mulvaney’s seven months leading the bureau, following a record $1 billion fine against Wells Fargo & Co (WFC.N) for auto insurance and mortgage lending abuses.

Security Finance routinely charges triple-digit interest on short-term loans and sent collection agents to 1.3 million customers at home and at work, threatening and in some cases physically assaulting borrowers, according to the CFPB settlement.

Security Finance also delivered millions of faulty reports to credit bureaus, CFPB determined. In its settlement, Security Finance promised it would keep accurate records for the credit bureaus.

Reporting By Patrick Rucker; Editing by Michelle Price and Meredith Mazzilli

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