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  • District Court sanctions bankruptcy law firm for allegedly harming consumers and auto lenders

    Consumer Finance

    On February 12, following a four-day trial, the U.S. Bankruptcy Court for the Western District of Virginia entered a memorandum opinion to sanction and enjoin a national consumer bankruptcy law firm and its local partner attorneys (defendants) for “systematically engag[ing] in the unauthorized practice of law, provid[ing] inadequate representation to consumer debtor clients, and promot[ing] and participat[ing] in a scheme to convert auto lenders’ collateral and then misrepresent[ing] the nature of that scheme.” According to a DOJ press release, the combined order was entered in two actions consolidated for trial brought by the DOJ’s U.S. Trustee Program. The actions concern a Chicago-based law firm that offered legal services via its website to financially distressed consumers and allegedly had “non-attorney ‘client consultants’” engage in the unauthorized practice of law and employ “high-pressure sales tactics” when encouraging consumers to file for bankruptcy relief. Among other things, the defendants allegedly (i) refused to refund bankruptcy-related legal fees to clients for whom the firm failed to file bankruptcy cases; (ii) failed to have in place oversight and supervision procedures to prevent non-attorney salespeople from practicing law; and (iii) partnered with an Indiana-based towing company to implement a scheme that would allow clients to have their bankruptcy-related legal fees paid if they transferred vehicles “fully encumbered by auto lenders’ liens” to the towing company without lienholder consent. Under the “New Car Custody Program,” the towing company allegedly claimed rights to the vehicles, sold the vehicles at auction, paid the client’s bankruptcy fees to the defendants, and pocketed the proceeds. According to the release, this program “harmed auto lenders by converting collateral in which they had valid security interests,” and exposed clients to “undue risk by causing them to possibly violate the terms of their contracts with their auto lenders as well as state laws.”

    Under the terms of the order, the court sanctioned the defendants $250,000, imposed additional sanctions totaling $60,000 against the firm’s managing partner and affiliated partner attorneys, ordered the defendants to disgorge all funds “collected from the consumer debtors in both bankruptcy cases,” and revoked the defendants’ privileges to practice in the Western District of Virginia for various specified periods of time. The court also sanctioned the towing company and “ordered the turnover of all funds it received in connection” with the program. The towing company did not respond to the filed complaints.

    Consumer Finance DOJ Bankruptcy Auto Finance State Issues Courts

  • FTC seeks permanent injunction to stop alleged student loan debt relief scam

    Consumer Finance

    On February 7, the FTC announced it was charging a student loan debt relief operation with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, defendants contacted consumers through personalized mailers that falsely claimed borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments to a fixed payment or result in total loan forgiveness. However, the FTC asserted that monthly payments under federal income-driven repayment programs vary from year to year due to fluctuations in income, and that most consumers do not meet the programs’ strict eligibility requirements. Among other things, defendants allegedly charged illegal up-front fees to purportedly enroll consumers in programs, accepted monthly payments that were not applied towards student loans, and collected monthly fees that consumers believed were being applied to their loans but instead were going towards unrelated “financial education” programs. According to the FTC, defendants have collected over $28 million since 2014. In connection with the telemarketing of student loan debt relief services, the FTC also charged defendants with TSR violations for allegedly collecting illegal upfront fees and misrepresenting “material aspects of their debt relief services.” The FTC is seeking a permanent injunction against defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”

    This action is part of the FTC’s enforcement initiative, Operation Game of Loans, which targets companies that engage in practices that harm student loan borrowers. (See previous InfoBytes coverage here.)

    Consumer Finance FTC Debt Relief Enforcement Student Lending

  • FTC releases report on military consumer finance

    Consumer Finance

    On February 2, the FTC released a new Staff Perspective (perspective) which highlights takeaways from a July 2017 FTC workshop focused on examining the array of financial issues that may affect military consumers (defined as servicemembers, veterans, and their families). The perspective notes, among other things, that servicemembers may struggle during auto financing transactions because of a lack of time to shop and lack of credit history, which may result in disadvantageous credit terms. Additionally, the perspective highlights that debt collection problems may result in a servicemember not qualifying for a security clearance and that debt collectors may threaten to contact servicemembers’ commanding officers. The perspective also summarized the additional legal rights that may apply to military consumers, such as the Military Lending Act (MLA) and the Servicemembers Civil Relief Act (SCRA), and emphasized the FTC’s focus on financial education for servicemembers throughout the various stages of their military career.

    Consumer Finance FTC Debt Collection Military Lending Act Auto Finance SCRA

  • District judge enters final judgment against company posing as a direct lender; rules in favor of CFPB

    Consumer Finance

    On January 30, a federal judge for the U.S. District Court for the Southern District of New York ordered a New Jersey-based company along with two associated individuals (defendants) to pay civil money penalties totaling $75,000 for allegedly offering loans to consumers who were awaiting payouts from legal settlements or victim-compensation funds. As previously covered in InfoBytes, the order stems from a complaint filed against defendants for allegedly engaging in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Defendants neither admitted nor denied the allegations in the complaint. In addition to civil money penalties, the order permanently bans defendants from participating either directly or indirectly in any activities related to funding post-settlement litigation or victim compensation funds.

    Consumer Finance CFPB Lending UDAAP CFPA Enforcement

  • 10th Circuit says FCBA claim ends if credit account is paid

    Consumer Finance

    On January 26, the U.S. Court of Appeals for the 10th Circuit affirmed a District Court’s decision dismissing a consumer’s claim that, under the Fair Credit Billing Act (FCBA), two credit card providers (collectively, defendants) must refund his accounts after a  merchant failed to deliver goods purchased using credit cards issued by the defendants. The FCBA allows consumers to raise the same claims against credit card issuers that can be raised against merchants, but limits such claims to the “amount of credit outstanding with respect to [the disputed] transaction.” According to the opinion, the consumer ordered nearly $1 million in wine from a merchant and prior to delivery of the complete order, the merchant declared bankruptcy. The consumer filed lawsuits against each credit card provider in the U.S. District Court for the District of Colorado seeking a refund to his credit accounts for the amounts of the undelivered wine. The District Court dismissed the suits against both defendants because the consumer had fully paid the balance on his credit cards. In affirming the District Court’s decision, the 10th Circuit concluded that because “‘the amount of credit outstanding with respect to’ the undelivered wine is $0” the consumer had no claim against the defendants under the FCBA.

    Consumer Finance Courts Credit Cards Tenth Circuit Appellate

  • FTC announces charges against mortgage loan modification operation

    Consumer Finance

    On January 19, the FTC issued a press release announcing charges against a mortgage loan modification operation for allegedly violating the FTC Act and the Mortgage Assistance Relief Services Rule by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. According to the charges, the defendants contacted consumers using doctored government logos on correspondence, which misrepresented an affiliation with the government’s Making Home Affordable loan modification program. Additionally, the defendants allegedly made unlawful claims that they had “special relationships with particular lenders” and instructed consumers to stop paying their mortgages without actually obtaining the promised loan modifications. As alleged by the FTC, this resulted in many consumers paying substantial interest charges, incurring penalties for paying the defendants rather than making mortgage payments, and in some instances, losing their homes to foreclosure. On January 10, a federal judge in the U.S. District Court for the District of Nevada temporarily restrained and enjoined the defendants’ alleged illegal practices and froze their assets at the request of the FTC.

    Consumer Finance FTC Mortgages FTC Act

  • Judge’s $10 million order against payday lender falls far short of CFPB request

    Consumer Finance

    On January 19, a federal judge for the U.S. District Court for the Central District of California ordered an online loan servicer and its affiliates to pay a $10 million penalty for offering high-interest loans in states with usury laws barring the transactions. The judge denied the CFPB’s requested penalty of over $50 million. The judge ordered the company to pay this penalty after determining in September 2016 that the online loan servicer was the “true lender” of the loans that were issued through entities located on tribal land, previously covered by a Buckley Sandler Special Alert. The judge found that a lower statutory penalty was more appropriate than the CFPB’s requested amount because the CFPB failed to show the company “knowingly violated the CFPA.” The judge also rejected the CFPB’s requested restitution of $235 million. In rejecting the CFPB’s requested restitution amount, the judge found that the CFPB had not put forth any evidence that the company “intended to defraud consumers or that consumers did not receive the benefit of their bargain from the [program]” for restitution to be an appropriate remedy. The judge also denied the CFPB’s request for a permanent injunction, finding that the CFPB did not present any evidence to support its assertion that the servicer would violate the CFPA in the future.

    Consumer Finance Payday Lending Courts CFPB

  • CFPB Releases Biennial Credit Card Report

    Consumer Finance

    On December 27, the CFPB released its biennial report on the state of the U.S. credit card market, finding that the total amount of credit lines, the total number of credit accounts, the total number of enrollments in online services, and the total amount of debt have increased since 2015. The report also found that the overall credit card cost to consumers has “proved largely stable” since 2015. Among other things, the report concludes:

    • The total amount of credit lines has increased steadily since the recession but still remains below the mid-2008 high of $4.4 trillion.
    • Over the last two years, credit card debt averages have increased by more than nine percent.
    • Credit card originations have increased by roughly 50 percent since 2010 but still remain below pre-recession volumes.
    • More than 60 percent of active credit card accounts enroll in online services.

    Consumers average fewer credit cards than before the recession, and more consumers are signing up for secured credit cards.

    Consumer Finance CFPB Credit Cards

  • CFPB Ombudsman’s Office Publishes Fiscal Year 2017 Annual Report

    Consumer Finance

    The CFPB’s Ombudsman’s Office published its annual report to the Director for fiscal year 2017, entitled Advocating for Fair Process in Consumer Financial Protection. The December 6 report details Ombudsman initiatives undertaken in 2017 and highlights the Bureau’s selection as one of four case studies in a December 2016 study by the Administrative Conference of the United States (ACUS) on the use of ombudsmen in federal agencies. Specifically, the Bureau’s report focuses on systemic reviews concerning the following: (i) the accessibility of CFPB print materials for different groups of people; (ii) the telephone entry point for non-consumers; (iii) the documenting and standardizing of ex parte communications regarding proposed rules; and (iv) the implementing of improvements to the way consumers select categories when identifying issues with companies in the consumer complaint database.

    The Ombudsman’s report also outlines strategic goals for the next two years, including, among other things, (i) addressing CFPB process issues facing consumers, financial entities, and trade groups; (ii) optimizing resources for effective assistance; and (iii) expanding educational efforts and engagement with stakeholders, in addition to implementing best practices to convey feedback. 

    Consumer Finance CFPB Consumer Complaints

  • FTC Announces Settlement With Debt Collection Operation

    Consumer Finance

    This week, the FTC obtained a court order banning a Florida-based debt collection operation and its managing member from the debt collection business. The defendants were accused of violations of the FTC Act and the Fair Debt Collections Practices Act for, among other things, allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. The order resolves a complaint filed by the FTC in July against defendants. (See previous InfoBytes coverage here.) Under the terms of the settlement, the defendants are prohibited from, among other things, (i) engaging in debt collection activities; (ii) misrepresenting material facts regarding financial-related products or services; (iii) disclosing, using, or benefiting from consumers’ personal information; and (iv) improperly disposing such information when appropriate. Finally, the order assessed a $702,059 judgment for equitable monetary relief. 

    Consumer Finance FTC Debt Collection Settlement

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