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CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government
On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.
CFPB Issues Consent Order for Steering to Real Estate Settlement Services Provider
On September 27, the CFPB issued a consent order against a real estate settlement services provider for allegedly steering consumers to a title insurer owned in part by three of its executives without disclosing its affiliated business interests, as required by RESPA. According to the consent order, the company received money “beyond the commission it would normally have been entitled to collect” due to an agreement or understanding that it would refer its business to the title insurer, but it did not make the disclosures of the affiliate relationships required by RESPA to over 7,000 consumers. The CFPB’s order requires the company to pay up to $1.25 million in redress to affected consumers and to implement policies and procedures to ensure proper disclosure of applicable referrals to consumers in the future.
DOJ Obtains Auto Repossession Settlement for Servicemembers
On September 27, the DOJ announced a settlement with a California-based indirect auto financing company and its subsidiary responsible for extending auto title loans (defendants) resolving allegations that the defendants violated the Servicemembers Civil Relief Act (SCRA) by illegally repossessing at least 70 SCRA-protected servicemembers’ vehicles. The DOJ filed its complaint against the defendants in the U.S. District Court for the Central District of California the same day the settlement agreement was reached. This is the second DOJ settlement reached this month over alleged SCRA violations concerning auto repossessions. (See previous InfoBytes summary here.) According to the complaint, the CFPB’s Office of Servicemember Affairs alerted the DOJ in 2016 to the alleged unlawful vehicle repossessions. The DOJ’s investigation concluded that the defendants repossessed the vehicles between 2011 and 2016, without confirming whether the servicemembers were SCRA-protected or obtaining court orders. The defendants’ practice of violating the SCRA, the DOJ contends, was “intentional, willful, and taken in disregard for the rights of servicemembers.”
Under the terms of the settlement agreement, the defendants must comply with the following: (i) obtain a court order or “valid SCRA waiver” in compliance with the outlined terms of the agreement before repossessing servicemember vehicles; (ii) develop a set of SCRA policies and procedures that outline repossession compliance measures and another set of policies and procedures to provide SCRA relief; (iii) appoint SCRA-specialized employees; and (iv) provide SCRA compliance training. The defendants must also compensate affected servicemembers $700,000, in addition to “lost equity,” accrued interest, credit repair relief, and an auto loan interest rate cap for eligible servicemembers. Further, the defendants must pay a civil penalty of $60,788 to the Treasury, and provide a list of repossessions between October 2016 and the effective date of the settlement to be reviewed by the DOJ for additional SCRA-violations.
NYDFS Announces Settlement to Provide Restitution and Loan Forgiveness to Consumers Affected by Payday Lending Practices
On September 25, New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo announced the Department had entered into a consent order with a payday loan debt collector and payday loan servicer (together, “defendants”) for allegedly collecting on illegal payday loans made to New York consumers between 2011 to 2014. Payday lending, according to NYDFS’ press release, is illegal in the state, and debt collectors who “collect or attempt to collect outstanding payments from New Yorkers on payday loans violate debt collection laws.” The consent order notes that in 2013, NYDFS circulated a guidance letter to all debt collectors operating in the state to remind them that usurious loans made by non-bank lenders with interest rates exceeding the statutory maximum—and the attempts to collect debts on these types of loans—are “void and unenforceable and violate state and federal law.” However, one of the defendants continued to collect on payday loans for more than a year. The alleged actions, NYDFS asserted, are violations of the Fair Debt Collection Procedures Act, New York Debt Collection Procedures Law, and New York General Business Law.
Pursuant to the consent order, which includes a notice letter to be sent to affected consumers, the debt collector defendant must comply with the following: (i) cease all collection on payday loans in New York; (ii) release and discharge more than $11.8 million in outstanding applicable payday loan debts; (iii) move to vacate any judgments obtained on payday loan accounts; and (iv) “[r]elease any pending garnishments, levies, liens, restraining notices, or attachments relating to any judgments on New Yorkers’ payday loan accounts.” The loan servicer defendant must close any pending accounts in the state and cease communications with consumers regarding their accounts.
FTC Launches Military Task Force Website, CFPB Blog Post Discusses Servicemember Debt Collection Rights
On September 25, the FTC launched a new website to showcase the work of the agency’s Military Task Force. The Military Task Force identifies the needs of military consumers and their families and develops initiatives such as workshops that examine financial issues and scams more likely to affect military consumers or training for military attorneys, law enforcement personnel, and financial advisors. (See previous InfoBytes summaries here and here.) The FTC reported in a press release that in 2016, servicemembers, their dependents, military retirees, and veterans submitted more than 100,000 consumer complaints, with retirees and veterans comprising approximately two-thirds of the complaints. The top complaints were imposter scams, identity theft, and debt collection. The new webpage includes links to resources for servicemembers and veterans, workshops, related FTC cases and other initiatives, and congressional testimony.
On September 22, the CFPB published a blog post to discuss servicemembers’ debt collection rights and resources. According to the Bureau, as of August 1, 41 percent of servicemember complaints were related to debt collection, as compared to 26 percent of non-servicemember complaints. The Fair Debt Collection Practices Act (FDCPA) protects servicemembers from debt collectors who use abusive, unfair, or deceptive practices to collect debts, but according to the Bureau, some military consumers claim they have received threats from debt collectors stating that they will report the debt to their commanding officer, have their rank reduced, or put their security clearance up for review. As the post notes, making false threats or disclosing debts to third parties without permission are violations of the FDCPA.
DOJ Announces Settlement With Financial Institution Over Alleged SCRA Violations Concerning Auto Repossessions
On September 18, the DOJ announced a settlement with a large financial institution resolving allegations that the financial institution had illegally repossessed 164 active-duty servicemembers’ vehicles without first obtaining necessary court orders in violation of the Servicemembers Civil Relief Act (SCRA). The DOJ filed its complaint against the financial institution in the U.S. District Court for the Northern District of Texas the same day the settlement agreement was reached. According to the complaint, the financial institution repossessed the vehicles between 2007 and 2010, when it completed the sale of its automobile lending and servicing arm to a different company. As part of a separate enforcement action against the company that acquired the accounts, the DOJ discovered that the financial institution allegedly violated the SCRA by arranging “for the physical repossession of the automobile and later [selling] the account to [the new company], which attempted to collect fees relating to the unlawful repossession.” Further, the complaint alleges that the financial institution conducted repossessions without SCRA-required court orders, even though the company possessed information “in its own records suggesting that a borrower could be a SCRA-protected servicemember,” or knew that “the borrower was in military service or had received orders to report for military service” and “nevertheless continued repossession efforts and eventually succeeded in repossessing the [servicemembers’] vehicles.”
While the financial institution has denied the allegations, it agreed to compensate affected servicemembers $907,000, 163 of whom are to receive $5,000 each, in addition to the $5,000 previously received as partial compensation from a separate settlement the DOJ reached with the company that acquired the accounts. The remaining impacted servicemember, who did not receive partial compensation, will receive $10,000 from the escrow account. All 164 servicemembers will also receive $500 for “lost equity” and accrued interest. In addition, the financial institution must provide credit repair relief to each affected servicemember and any co-borrowers, and are required to cooperate with an “Independent Settlement Administrator” who will monitor compliance. Further, should the financial institution resume originating or servicing automobile loans, it is required to provide notice to the DOJ every six months of any SCRA or military-related complaint.
CFPB Files Complaint Against Company that Allegedly Made False Loan Offers
On September 19, the CFPB announced it had filed a complaint in the U.S. District Court for the Southern District of New York against a New Jersey-based company and two associated individuals (defendants) that allegedly offered loans to consumers who were awaiting payouts from legal settlements or statutory- or victim-compensation funds. According to the complaint, the company engaged 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. Among other things, the defendants allegedly (i) misrepresented the annual percentage rates (APR) on the advances given to consumers, often representing that interest rates were as small as one to two percent when the actual APR was much higher; (ii) falsely claimed that it had offices in all 50 states and employed a staff of accounting, financial, and legal professionals; and (iii) misled consumers by stating in their marketing materials that consumers could receive loan proceeds within one hour, when the process took longer.
According to the proposed final judgment and order, which must be approved by the district court, the defendants shall be banned from offering these types of loans or advances to consumers in the future. In addition, the company and the owner—who was responsible for decision-making and operations—are jointly liable for a $60,000 civil money penalty to the CFPB. The second individual—who was responsible for recruiting consumers through marketing materials and websites—must pay a $10,000 civil money penalty to the CFPB. The Bureau noted in the announcement that the low penalties take into account the defendants’ inability to pay greater amounts.
CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits
On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.
According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.
A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.
CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas
On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.
As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:
- consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
- debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
- companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
- borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”
The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.
CFPB’s Project Catalyst Issues First “No-Action” Letter to Consumer Lending Firm
On September 14, the CFPB’s Project Catalyst initiative issued its first “no-action” letter to a consumer lending firm that provides an online lending platform that uses alternative data when making lending decisions. As previously discussed in InfoBytes, Project Catalyst explores innovation in the consumer financial services sector and examines the potential challenges facing consumers, entrepreneurs, and investors. With the issuance of the no-action letter—at the lender’s request—the CFPB indicated that it does not, at the present, intend to take enforcement action against the lender under the Equal Credit Opportunity Act. However, the letter does not waive the Bureau’s right to choose to “conduct supervisory activities or engage in an enforcement investigation” should the lender fail to comply with the outlined terms. Further, the letter stipulates that the Bureau has the right to evaluate other matters concerning the lender. According to a press release issued by the Bureau, the lender has agreed to “share certain information with the CFPB regarding the loan applications it receives, how it decides which loans to approve, and how it will mitigate risk to consumers, as well as information on how its model expands access to credit for traditionally underserved populations.”
Earlier this year the CFPB issued a request for information seeking input about the use of alternative data, and it believes the information it will receive under the terms of the no-action letter will help to “further its understanding of how these types of practices impact access to credit generally and for traditionally underserved populations, as well as the application of compliance management systems for these emerging practices.” (See previous InfoBytes summary here.)