After a customer pawned a television that he had leased from Rent-A-Center, the manager swore out a criminal complaint for theft of rental property. When the State subsequently retired the charges without prosecution, the customer sued Rent-A-Center and its manager for malicious prosecution and false imprisonment. Relying on language in the arbitration clause that it “shall be interpreted broadly as the law allows” to include “any dispute or controversy . . . based on any legal theory, including, but not limited to allegations based on . . . tort, fraud, . . . , [and] the common law . . . ,” the trial court entered an order compelling arbitration. However, the Mississippi Supreme Court reversed, holding that “the agreement did not contemplate” a criminal complaint, based in part on the fact that such claims were not specifically listed in the arbitration agreement. This case is troubling for the financial services industry in that plaintiffs may be able to avoid even very broadly worded arbitration clauses through inflammatory allegations or allegations related to criminal conduct. The case was styled Brian Ray Pedigo v. Rent-A-Center, Inc., Civil Action No. 2016-CA-00572-SCT.
With the Consumer Financial Protection Bureau (“CFPB”) now employing mystery shoppers, financial institutions must ensure that their branches are actually putting non-decimation policies into practice. As we reported here on July 1, BancorpSouth, a Mississippi-based bank, recently entered into a $10.6M settlement with the CFPB regarding alleged redlining in the Memphis market. That investigation was the CFPB’s first use of testing, also called “mystery shopping,” as an investigative tool. This practice, which has long been in use by the Department of Justice and the Department of Housing and Urban Development, involves sending both white and African American individuals into branch offices to determine whether white customers are treated more favorably than African American customers.
More information about the CFPB’s use of mystery shopper’s as well as the redlining settlement can be located here.
In a case that demonstrates the scope of the Consumer Financial Protection Bureau’s (“CFPB’s”) reach, the CFPB and Department of Justice (“DOJ”) have entered into a settlement with BancorpSouth totaling almost $10,600,000 over alleged redlining. Redlining is the practice of denying services or raising prices to residents of certain geographic areas based upon their racial or ethnic makeup. The term was coined from the practice by lenders of marking in red areas on maps of cities that were not desirable for mortgage loans.
According to the CFPB and DOJ, when BancorpSouth expanded into the Memphis market, it did not build any branches in neighborhoods with large minority populations. Further, nearly all of its loans allegedly originated outside minority neighborhoods. The fine was announced as part of a settlement between BancorpSouth and the government under which, if approved by the court, Bancorp South will provide $4,000,000 in direct loan subsidies in minority neighborhoods, spend at least $800,000 on community programs and minority outreach, pay $2,780,000 to African American customers who were overcharged or denied credit, and pay a $3,000,000 penalty. Although it settled with the government, BancorpSouth did not admit guilt.
The CFPB is showing that its enforcement actions are not limited to larger companies and that it will file actions in federal courts across the country. On May 11, 2016, it filed an enforcement action against Mississippi payday lender All American Check Cashing in the United States District Court for the Southern District of Mississippi. In its complaint, the CFPB alleged that all American took steps to hide its fee from customers, going so far as to train its employees to “NEVER TELL THE CUSTOMER THE FEE.” Further, the CFPB alleges that All American took steps to prevent customers who had changed their minds from cancelling transactions. According to the CFPB, these actions would constitute “unfair, deceptive, or abusive acts” under 12 U.S.C.A. ss 5531 and 5536, portions of the Consumer Financial Protection Act.