The California Department of Financial Protection and Innovation yesterday announced an enforcement action against an online lending platform that failed to disclose the existence of convenience fees to borrowers making payments online or over the phone when the customers entered into the agreement with the lender.
The Background: Credova Financial has contracted with a third-party servicer to service all of its lending contracts. Before a consumer makes his or her first payment, the service sends out a notice, informing the consumer that the account has been assigned to the company, provides information about how to make monthly payments without incurring any fees, and shares the fees that will be charged if payments are made over the phone ($15) or online ($10).
- In some cases, the lender did not disclose these fees to consumers until after contracts were signed, meaning the consumers were already legally bound to repay the debts.
- The lender was accused by the DFPI of deceiving consumers by not disclosing this information beforehand.
The Order: Under the terms of the consent order, Credova is ordered to stop failing to disclose to consumers the potential convenience fees that may be assessed by a servicer but are known to Credova at the time the consumer enters into the contract.
- The company must also pay a fine of $50,000.
The Last Word: “Hidden convenience fees fit into a broad category known as “junk fees” and increase the amount that consumers pay for goods and services,” said Clothilde V. Hewlett, DFPI Commissioner, in a statement. “The California Consumer Financial Protection Law is a powerful tool against these fees and excessive financial charges, which have an outsized negative impact on low-income consumers.”
