InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
CFPB sues debt collection company that used DA letterhead to threaten consumers
On December 9, the CFPB announced it filed a complaint in the U.S. District Court for the Western District of Missouri against a Missouri-based company alleging violations of the FDCPA and the CFPA. The company allegedly engaged in deceptive and otherwise unlawful debt collection acts and practices in the course of operating “bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States.” According to the Bureau, the company used district-attorney letterhead to threaten consumers with criminal prosecution unless they paid the amount of the dishonored check, enrolled and paid for a financial-education course, and paid various other administrative fees. The complaint claims that not only did the company fail to include required FDCPA disclosures in the letters it sent to consumers, it also failed to identify itself in the letters and did not inform consumers that it is a debt collector and not a district attorney. The company also allegedly failed to inform consumers that district attorneys almost never prosecute individuals who do not pay back the amount owed. Moreover, the Bureau claims that in most cases the company did not refer cases for prosecution, even if the check writer failed to respond to the collection letter, did not pay the alleged outstanding debt and fees, or failed to complete the financial-education course. The complaint seeks an injunction against the company as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
CFPB reaches settlement with unlicensed debt collector
On December 8, the CFPB announced a settlement with a New Jersey-based debt collector resolving allegations that the defendant violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by obtaining judgments and demanding payments from consumers in states where it was not legally licensed to do so. According to the Bureau, the defendant purchased consumer debts from debt brokers, used law firms to obtain judgments against the consumers, and “continued to collect on those judgments . . . as well as on a handful of payment agreements it obtained from debtors.” The Bureau found that the defendant falsely implied that it had a legally enforceable right to recover payments from consumers in Connecticut, New Jersey, and Rhode Island, and demanded payments and threatened legal action even though it did not hold the debt collection licenses required under the laws of those states. The consent order requires the defendant to pay a $204,000 civil money penalty, and prohibits the defendant from collecting on the judgments against, or payment agreements entered into with, consumers in Connecticut, New Jersey, and Rhode Island when it was not legally allowed to do so. The defendant is also required to “take all necessary steps to vacate all judgments not discharged in bankruptcy or [that were] previously satisfied,” and must suspend collection of those judgments and provide notice to consumers with payment agreements that have been satisfied.
District court denies dismissal and stay of CFPB action
On November 30, the U.S. District Court of the District of Maryland denied a motion to dismiss an action brought by the CFPB against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”), rejecting the defendants’ argument that the Bureau lacked standing to bring the action. As previously covered by InfoBytes, in September 2019, the Bureau alleged the defendants violated the FCRA, FDCPA, and the CFPA by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The defendants moved to dismiss the action arguing, among other things, that (i) the Bureau lacks standing to bring the action; and (ii) Director Kraninger’s ratification of the litigation was invalid. In the alternative, the defendants moved to stay the lawsuit until the U.S. Supreme Court issued a ruling in Collins v. Mnuchin (covered by InfoBytes here).
The court denied the motion to stay, concluding that the issues pending before the Supreme Court in Mnuchin may not necessarily apply to the Bureau, as they are different agencies and further, there is no issue of ratification in Mnuchin. Thus, given the “uncertainty surrounding the effect a decision in Collins v. Mnuchin will have on the present case,” the court denied the motion to stay. The court also denied the motion to dismiss, concluding, among other things, that the Supreme Court’s finding in Seila Law LLC v. CFPB (covered by a Buckley Special Alert) that the Bureau had a constitutional defect in its leadership structure under Article II does not diminish the agency’s Article III standing. Moreover, the court concluded that the decision in Seila Law does not mean that the Bureau “lacked authority during the time in which it was led by an improperly removable Director,” and therefore the Bureau had the authority to initiate the September 2019 lawsuit against the defendants. Further, the court held that the July 2020 ratification of the enforcement action was proper.
CFPB charges debt-settlement company with TSR and CFPA violations
On December 1, the CFPB announced it filed a complaint in the U.S. District Court for the District of Massachusetts against a Massachusetts-based debt-settlement company alleging violations of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). According to the complaint, the company violated the TSR and/or the CFPA by, among other things, (i) requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement or before a consumer had made a payment under their agreement; (ii) misrepresenting to consumers that it would not charge fees for its services until it settled a debt and consumers made payments under the settlement to the creditor; (iii) charging fees based on the amount of debt after enrollment instead of the amount of debt at the time of enrollment; and (iv) failing to disclose the amount of time it would take the company to make a settlement offer or the amount of debt the consumer would need to accumulate to make a settlement offer to each creditor. The complaint seeks an injunction against the company as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
District court advances CFPB action against bank for alleged TILA, CFPA violations
On December 1, the U.S. District Court for the District of Rhode Island denied a national bank’s motion to dismiss a CFPB lawsuit alleging violations of the Consumer Financial Protection Act (CFPA) and TILA, rejecting the bank’s arguments that, among other things, the CFPB’s claims were time-barred and that the case cannot proceed because the CFPB’s structure violates constitutional separation-of-powers identified in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the CFPB filed suit in January against the bank alleging, among other things, that when servicing credit card accounts, the bank failed to properly (i) manage consumer billing disputes for unauthorized card use and billing errors; (ii) credit refunds to consumer accounts resulting from such disputes; or (iii) provide credit counseling disclosures to consumers. According to the CFPB, the alleged conduct “began in 2010 or earlier and ended, depending on the violation, sometime in 2015 or 2016.” The CFPB also noted that the parties signed agreements tolling all relevant statutes of limitations from February 23, 2017, until January 31, 2020. The bank argued that the CFPB’s claims are governed by section 1640 of TILA with its one-year statute of limitations, but the CFPB countered that its claims were brought pursuant to section 1607 of TILA, which provides a “three-year discovery period.”
In denying the bank’s motion to dismiss, the court concluded that the tolling agreements were valid and that the three-year limit under section 1607 applied because “plain language indicates that § 1640 only governs cases brought by individuals or state attorneys general,” whereas § 1607 “provides the cause of action for federal enforcement agencies such as the CFPB.” Furthermore, the court determined that because § 1607 “does not contain a statute of limitations,” and “instead stat[es] that cases brought by the CFPB ‘shall be enforced under. . . subtitle E of the [CFPA],’ the action is governed by subtitle E’s requirement that cases be brought within three years of discovery by the CFPB.” The court also dismissed the bank’s constitutional claims, ruling, among other things, that the argument is moot following the U.S. Supreme Court’s decision in Seila, which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB (covered by a Buckley Special Alert).
CFPB charges debt-relief company and owners
On November 20, the CFPB announced it filed a complaint in the U.S. District Court for the Northern District of Illinois against a debt-relief company and its two owners (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. According to the complaint, between 2011 and April 2019, the defendants allegedly misrepresented material aspects of their student loan debt-relief services, by, among other things, falsely representing that the services would reduce or eliminate payments, stop wage garnishment, lift tax liens, and improve credit scores. Additionally, the Bureau alleges the defendants violated the TSR by requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement. Moreover, the defendants’ fees were allegedly not proportional to or a percentage of the amount saved as a result of their services. The complaint seeks injunctions against the defendants as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
CFPB settles with auto loan company over deceptive sales practices
On November 20, the CFPB announced a settlement with a Florida-based nonbank and the nonbank’s founder (collectively, “defendants”), resolving allegations that the defendants violated the Consumer Financial Protection Act by making misleading statements in disclosures and advertisements for their auto loan payment accelerator program. According to the Bureau, the defendants’ program automatically deducts partial payments on a bi-weekly basis from consumers’ bank accounts and then forwards those payments every month to consumers’ lenders or servicers. As a result, enrolled consumers end up making the equivalent of 13 monthly payments each year instead of 12. While the program is marketed as an opportunity for consumers to save money, the Bureau claimed that the defendants misrepresented the amount consumers would save by not disclosing a $399 enrollment fee in the savings calculations presented to consumers. Due to the enrollment fee, the program’s costs “ordinarily exceed[ed] any savings,” the Bureau alleged, noting that the defendants had no basis for claiming that thousands of consumers saved money by enrolling in the program.
The consent order requires the defendants to pay a $1 civil money penalty and $9.3 million in consumer redress, which is suspended upon payment of $900,000 based on the defendants’ demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The defendants are also prohibited from making any deceptive misrepresentations about the payment program or any other payment accelerator programs.
CFPB settles with debt collector over credit reporting violations
On November 12, the CFPB announced a settlement with an Illinois-based non-bank debt collector, resolving allegations that the company violated the Fair Credit Reporting Act (FCRA), Regulation V, and the Consumer Financial Protection Act when providing information to consumer reporting agencies (CRAs). According to the Bureau, the company allegedly (i) “furnished information to CRAs that it knew or had reasonable cause to believe was inaccurate and failed to report to CRAs an appropriate first date of delinquency on certain accounts”; (ii) failed to conduct reasonable investigations into disputes reported to the company and to the CRAs; (iii) failed to send required notices about the results of investigations; and (iv) “failed to establish, implement, and update its policies and procedures regarding its furnishing of consumer information to CRAs.” According to the consent order, the company, among other things, allegedly furnished actual payment amounts as $0.00 on roughly 165,000 accounts even though consumers had made payments. For about 72,000 accounts, the company allegedly furnished current balances and amounts past due in amounts other than $0.00 even though the accounts were settled in full.
The consent order requires the company to pay a $500,000 civil money penalty and to (i) regularly review samples of furnished account information for accuracy and integrity; (ii) review samples of consumer disputes to ensure they are handled in compliance with the FCRA; (iii) update its policies and procedures to ensure compliance and continued effectiveness; and (iv) secure at least one independent consultant who specializes in FCRA and Regulation V compliance to conduct a review of the company’s activities, policies, and procedures related to furnishing and credit reporting.
CFPB and South Carolina settle with loan broker for veteran pension loans
On October 30, the CFPB and the South Carolina Department of Consumer Affairs filed a proposed final judgment in the U.S. District Court for the District of South Carolina to settle an action alleging that two companies and their owner (collectively, “defendants”) violated the Consumer Financial Protection Act and the South Carolina Consumer Protection Code by offering high-interest loans to veterans and other consumers in exchange for the assignment of some of the consumers’ monthly pension or disability payments. As previously covered by InfoBytes, in October 2019, the regulators filed an action alleging, among other things, that the majority of credit offers that the defendants broker are for veterans with disability pensions or retirement pensions and that the defendants allegedly marketed the contracts as sale of payments and not credit offers. Moreover, the defendants allegedly failed to disclose the interest rate associated with the offers and failed to disclose that the contracts were void under federal and state law, which prohibit the assignment of certain benefits.
If approved by the court, the proposed judgment would require the defendants to pay a $500 civil money penalty to the Bureau and a $500 civil money penalty to South Carolina. The proposed judgment would permanently restrain the defendants from, among other things, (i) extending credit, brokering, and servicing loans; (ii) engaging in deposit-taking activities; (iii) collecting consumer-related debt; and (iv) engaging in any other financial services business in the state of South Carolina. Additionally, the proposed judgment would permanently block the defendants from enforcing or collecting on any contracts related to the action and from misrepresenting any material fact or conditions of consumer financial products or services.
CFPB charges lender with misrepresenting loan risks
On November 5, the CFPB filed a complaint in the U.S. District Court for the Southern District of Florida against a Florida-based company and its CEO (collectively, “defendants”) alleging violations of the Consumer Financial Protection Act through their offering of short-term, high-interest loans funded by deposits made by other consumers. According to the complaint, the defendants allegedly misrepresented both the risks associated with the deposit product as well as the annual percentage rate (APR) for the loans offered to other consumers. The Bureau alleges that the defendants engaged in deceptive acts or practices by, among other things, (i) purportedly marketing loans, which ranged from $100 to $500 each, as having a 440 percent APR, when in reality the actual APR ranged from 975 to 978 percent; (ii) claiming that deposits received by consumers to fund its loans are guaranteed a 15 percent annual percentage yield; (iii) guaranteeing that consumers’ deposits are FDIC insured and held at “‘member financial institutions’ and ‘participating banks’”; and (iv) claiming that roughly every minute a new consumer makes a deposit. However, the Bureau contends that deposits are not held in FDIC-insured accounts, that the rate of return is not guaranteed, and that “the average rate of new customers is just a few each day.” The Bureau further alleges that because the majority of the loans violate Florida’s criminal-usury law, rendering them uncollectable, the defendants would be unable to collect delinquent loans or meet their obligations to consumers seeking to withdraw their deposited funds. Among other things, the Bureau seeks an injunction against the defendants, damages, consumer redress, disgorgement, and a civil money penalty.