Avant, a leading online consumer lender, agreed to pay the Federal Trade Commission $3.85 million as part of a lawsuit settlement. Avant and the FTC filed the settlement order with U.S. District Court for the Northern District of Illinois on April 15, 2019.
The FTC claims Avant overcharged consumers and unlawfully required consumers to consent to automatic payments from their bank accounts. Although everybody seems to agree Avant overcharged many of its customers, two FTC Commissioners dissented on the second part of that charge.
I cannot support the use of these provisions, particularly on their maiden application, against a legitimate company offering legitimate products to customers. Second, this matter could have a chilling effect on pro-consumer business behavior. […] I fear that the decision to penalize a company, in part, for fielding phone calls from consumers interested in purchasing complex and expensive financial products could limit legitimate efforts by Internet firms to provide quality customer service.”FTC Commissioner Christine S. Wilson
The FTC will use the settlement money to compensate customers harmed by Avant’s lending practices.
What were the charges against Avant?
According to the Federal Trade Commission’s complaint, Avant falsely advertised that it would accept payments by credit card or debit cards but then rejected these forms of payment. It also claims that Avant repeatedly withdrew payments from borrowers’ bank accounts without authorization and charged them duplicate payments. In one case, Avant charged a borrower 11 times in a single day.
We have alleged that Avant gave the run-around to consumers trying to repay their loans, because of systemic issues with the company’s loan servicing platform. Online lenders need to understand that loan servicing is just as important to consumers as loan marketing and origination. And we will not hesitate to hold lenders liable for unfair or deceptive servicing practices.”Andrew Smith Director of the FTC’s Bureau of Consumer Protection
The FTC also claims that when borrowers complained, Avant would insist the consumers had authorized the payments and would not refund the withdrawals. The claim states that after hundreds of complaints and multiple internal documents acknowledging the issue, Avant continued to charge unauthorized payments.
The FTC also charged Avant with:
- failing to properly and timely credit payments made by check;
- collecting additional payments once the loan had been repaid;
- violating the Telemarketing Sales Rule (TSR) and the Electronic Fund Transfer Act (EFTA) by requiring borrowers to agree to recurring automatic debits of their bank account as a condition of obtaining a loan;
- giving borrowers inaccurate payoff quotes.
As well as the payment of $3.85 million, the settlement prohibits Avant from accepting remotely created checks (RCC). It must also refrain from taking unauthorized payments and misrepresenting their accepted methods of payment.
FTC Commissioners dissent on two of the charges
The Federal Trade Commission settlements must be approved by its Commission. In this case the settlement order was approved by unanimity (5-0).
However, Commissioner Phillips dissented with the FTC’s charge that Avant violated the EFTA rule. Commissioner Wilson dissented with two charges linked to the Electronic Fund Transfer Act and the Telemarketing Sales Rule. These dissents touch on consumer rights many of us don’t know about. They also show the FTC may be guilty of regulatory overreach in its treatment of Avant.
EFTA automatic payments rule
The Electronic Fund Transfer Act (EFTA) rules prohibit lenders from making automatic payments a requirement for a loan. Avant offered both remotely created checks and preauthorized electronic funds transfers. Having two options would mean Avant did not break the EFTA rule. However, the FTC categorizes Avant as a telemarketer and telemarketers cannot offer remotely created checks. Therefore, the only payment method Avant could really accept was an electronic funds transfer.
In his dissent, Commissioner Phillips stated: “I believe the Commission could reach the same relief obtained in its settlement with Avant by pleading only a TSR violation. Doing so would avoid the use of novel pleading based on the facts of a particular case to rewrite a statute based on our policy preferences. EFTA does not prohibit the use of RCCs as an alternative to EFTs, and we should not pretend it does.”
The TSA’s remotely created checks (RCC) rule
Commission Wilson also had issues with charging Avant for breaking the TSA rule of using remotely created checks. The TSA rule is there to protect consumers from fraudulent telemarketing transactions. Fraudulent companies often use novel payment methods, such as remotely created checks. Avant made many mistakes when billing customers and ignored systemic issues with its lending platform. However, it is a legitimate company.
As Commissioner Wilson states in his dissent, “I cannot support the use of these provisions, particularly on their maiden application, against a legitimate company offering legitimate products to customers. Second, this matter could have a chilling effect on pro-consumer business behavior. […] I fear that the decision to penalize a company, in part, for fielding phone calls from consumers interested in purchasing complex and expensive financial products could limit legitimate efforts by Internet firms to provide quality customer service.”