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On October 13, the CFPB announced a settlement with the Texas-based auto-financing subsidiary of a Japanese automobile manufacturer to resolve allegations that the servicer violated the Consumer Financial Protection Act by engaging in illegal repossession and collection practices. The CFPB alleged that the servicer engaged in unfair and deceptive practices by (i) wrongfully repossessing vehicles even though customers made payments to decrease their delinquency to less than 60 days past due or kept a promise to pay; (ii) limiting the ability of borrowers who pay over the phone to select payment options with significantly lower fees; (iii) making false statements in loan extension agreements, which “created the net impression that consumers could not file for bankruptcy”; and (iv) knowing its repossession agents were charging customers upfront storage fees before returning personal property left inside repossessed cars.
Under the terms of the consent order, the servicer must pay a $4 million civil money penalty, as well as up to $1 million in consumer redress. The servicer must also credit any outstanding fees stemming from the repossession and pay consumers redress for each day it wrongfully held their vehicles. The servicer is also ordered to, among other things, (i) cease using language that creates the impression that customers may not file for bankruptcy; (ii) conduct a quarterly review to identify and remediate any future wrongful repossessions; (iii) adopt policies and procedures to correct its repossession practices; (iv) prohibit its repossession agents from charging fees to get personal property returned; and (v) clearly disclose phone payment fees to consumers.
On September 21, the CFPB announced a settlement with a California-based auto-loan servicer to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by charging certain borrowers for LDW coverage, but then failed to provide the coverage. Specifically, the LDW agreement allowed the company to suspend coverage if borrowers became 10-days delinquent on their auto loans. The company, however, continued to charge borrowers LDW premiums even though coverage was no longer being provided. The Bureau also alleged that the company assessed LDW claim-related fees that were not disclosed in the LDW contract, which the borrowers were not contractually obligated to pay.
Under the terms of the consent order, the company is required to pay more than $1.3 million in consumer redress to approximately 4,000 impacted consumers, as well as a $100,000 civil money penalty. The order also prohibits the company from “failing to provide consumers with LDW coverage, collateral protection insurance, or similar products or services for which [the company] has charged consumers” or from “charging consumers fees that are not authorized by its LDW contracts.”
On September 15, the CFPB filed a complaint and proposed stipulated judgment against a trust, along with three banks acting in their capacity as trustees to the trust, for allegedly providing substantial assistance to a now defunct for-profit educational institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act. The Bureau asserted that the trust owned and managed private loans for students attending the defunct institution, even though the trust “allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them.” The Bureau alleged that the defunct institution induced students to take out loans through several unfair practices, including “using aggressive tactics, and in some cases, gaining unauthorized access to student accounts to sign students up for loans without permission.” These loans, the Bureau contended, carried default rates well above what was expected for student loans. According to the Bureau, the trust was allegedly actively involved in the servicing, managing, and collection of these student loans.
If approved by the court, the Bureau’s proposed settlement would require the trust to (i) cease collection efforts on all outstanding loans owned and managed by the trust; (ii) discharge all outstanding loans owned and managed by the trust; (iii) ask all consumer reporting agencies to delete information related to the trust’s loans; and (iv) notify all affected consumers of these actions. The Bureau estimated that the total amount of loan forgiveness is roughly $330 million.
This settlement is the third reached by the Bureau in relation to the defunct institution’s private loan programs. In 2019, the defunct institution reached a settlement with the Bureau (covered by InfoBytes here), which required the payment of a $60 million judgment. Additionally, the Bureau entered into another settlement in 2019 with a different company that managed student loans for the defunct institution’s students, which required the loan management company to comply with similar requirements as the trust (covered by InfoBytes here).
On April 22, the FTC filed a complaint against a Canadian company and its CEO (defendants) for allegedly participating in deceptive and unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, laundering credit card payments for two tech support scams that were sued by the FTC in 2014. The FTC alleges in its complaint that the defendants entered into contracts with payment processors to obtain merchant accounts to process credit card charges. While these contracts prohibited the defendants from submitting third-party sales through its merchant accounts, the FTC claims that the defendants used the accounts to process millions of dollars of consumer credit card charges on behalf of the two tech support operators and also processed charges for lead generators that directed consumers to the tech support scam. The FTC alleges that the defendants were aware of the unlawful conduct of at least one of the two operators and attempted to hide these charges from the payment processors.
Under the proposed settlement, the defendants neither admitted nor denied the allegations, except as specifically stated within the settlement, and (i) will pay $6.75 million in equitable monetary relief; (ii) are permanently enjoined from engaging in any further payment laundering or violations of the TSR; and (iii) will screen and monitor prospective high risk clients.
On April 1, the CFPB announced a $1.3 million settlement with a Texas-based short-term lender to resolve allegations that the lender violated the Consumer Financial Protection Act, FCRA, and TILA. The Bureau alleged that while “marketing, servicing, and collecting on high-interest payday, auto-title, and unsecured consumer-installment loans,” the lender made deceptive representations through advertisements and telemarketing calls when promoting purported loan discounts. The Bureau also alleged that the lender engaged in unfair collection call practices by allegedly calling consumers who failed to make payments numerous times—some more than 15 or 20 times a day—even after being asked to stop. In addition, the lender allegedly repeatedly called consumers’ workplaces and references as a tactic to obtain payments and disclosed, or risked disclosing, to third parties the existence of the delinquent debts. According to the Bureau, the lender also violated FCRA by failing to maintain adequate consumer reporting policies and procedures to ensure the “accuracy and integrity” of the information furnished to consumer reporting agencies, and violated TILA by failing to provide telemarketers guidance on how to lawfully disclose a loan’s annual percentage rate as required by federal law when responding to consumers’ questions about interest and other loan costs.
Under the terms of the consent order, the lender is required to pay a $1.1 million civil money penalty, $286,675 in consumer redress, and is, among other things, (i) permanently restrained from certain collection practices; (ii) required to ensure employees do not misrepresent discount offers when marketing or selling consumer financial products or services; and (iii) tasked with ensuring employees correctly disclose the APR of loan products.
Illinois Department of Financial and Professional Regulation issues guidance to student loan servicers
On March 30, the Illinois Department of Financial and Professional Regulation, Division of Banking (Division), issued guidance encouraging Illinois-licensed student loan servicers to make prudent efforts to meet the financial needs of all student loan borrowers affected directly or indirectly by the Covid-19 pandemic. The guidance reiterates the importance of provisions in the Illinois Student Loan Servicing Rights Act that prohibit servicers from engaging in any unfair or deceptive practices and misapplying payments made by borrowers. Servicers are reminded that they are obligated to lay out all available options to borrowers, including income-based repayment, deferment, forbearance, and relieving borrowers of interest. In addition to adhering to the credit reporting provisions set forth under the CARES Act, the Division also encourages student loan servicers to use the disaster status code in conjunction with a deferment when reporting to the consumer credit reporting agencies to minimize any negative credit reporting impact to consumers due to the Covid-19 crisis.
On March 9, the FTC filed a complaint against a Colorado-based credit repair company and its owner for allegedly making false representations to consumers regarding their ability to improve credit scores and increase access to mortgages, personal loans, and other credit products in violation of the Credit Repair Organizations Act, the FTC Act, and the Telemarketing Sales Rule. In its complaint, the FTC alleged that the defendants charged consumers illegal, upfront fees ranging from $325 to $4,000 per tradeline with the deceptive promise that they could “piggyback” on a stranger’s good credit, thereby artificially inflating their own credit score in the process. As the FTC explained, “piggybacking” occurs when a consumer pays to be registered as an “additional authorized user” on a credit card held by an unrelated account holder with positive payment histories. The FTC alleged that the defendants’ practices did not, in fact, significantly improve consumers’ credit scores as promised, and that while the defendants claimed on their website that their piggybacking services were legal, the FTC “has never determined that credit piggybacking is legal” and the practice does not fall within the protections of the Equal Credit Opportunity Act. Under the terms of the proposed settlement, the defendants will be banned from selling access to another consumer’s credit as an authorized user and from collecting advance fees for credit repair services. The defendants will also be required to pay a $6.6 million monetary judgment, which be partially suspended due to the defendants’ inability to pay.
On February 4, the Washington state attorney general filed a complaint in King County Superior Court against a group of defendants who market services claiming they can release consumers from timeshare contracts. The AG alleges that since 2012, the defendants have unfairly and deceptively contracted with over 32,000 consumers seeking to release timeshare contracts, collecting millions in upfront fees. According to the complaint, the defendants, among other things, advertise their timeshare exit services as being “risk-free” with a 100 percent money-back guarantee; however, the defendants allegedly refuse to issue refunds to clients who face foreclosure, damaged credit ratings, and other negative financial consequences claiming that such outcomes are successful because the clients “technically” no longer own the timeshares. In addition, the AG alleges that the defendants charge clients upfront fees for each timeshare to be exited, and then outsource more than 95 percent of their clients’ files to third-party vendors for significantly discounted rates. These vendors are allegedly left to accomplish the timeshare exits without input or supervision from the defendants and often without a contract governing their work. The complaint alleges violations of the Consumer Protection Act, the Debt Adjusting Act, and the Credit Services Organization Act. The AG seeks numerous remedies including injunctive relief prohibiting the defendants from selling their services and $2,000 in civil penalties per violation of the Consumer Protection Act.
On February 5, the CFPB announced a settlement with a Texas-based payday lender and six subsidiaries (defendants) for allegedly assisting in the collection of online installment loans and online lines of credit that consumers were not legally obligated to pay based on certain states’ usury laws or licensing requirements. As previously covered by InfoBytes, the Bureau filed a complaint in 2017—amended in 2018—against the defendants for allegedly violating the CFPA’s prohibitions on unfair, deceptive, and abusive acts and practices by, among other things, making deceptive demands and originating debit entries from consumers’ bank accounts for loans that the defendants knew were either partially or completely void because the loans were void under state licensing or usury laws. The defendants—who operated in conjunction with three tribal lenders engaged in the business of extending and collecting the online installment loans and lines of credit—also allegedly provided material services and substantial assistance to two debt collection companies that were also involved in the collection of these loans.
Under the stipulated final consent order, the defendants are prohibited from (i) extending, servicing, or collecting on loans made to consumers in any of the identified 17 states if the loans violate state usury limits or licensing requirements; and (ii) assisting others engaged in this type of conduct. Additionally, the settlement imposes a $1 civil money penalty against each of the seven defendants. The Bureau’s press release notes that the order “is a component of the global resolution of the [defendants’] bankruptcy proceeding in the Bankruptcy Court for the Northern District of Texas, which includes settlements with the Pennsylvania Attorney General’s Office and private litigants in a nationwide consumer class action.” The press release also states that “[c]onsumer redress will be disbursed from a fund created as part of the global resolution, which is anticipated to have over $39 million for distribution to consumers and may increase over time as a result of ongoing, related litigation and settlements.”
On June 14, the CFPB announced a settlement with a company that manages student loans for a defunct for-profit educational institution resolving allegations it provided substantial assistance to the institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA). As previously reported by InfoBytes, the Bureau filed suit against the now-defunct for-profit institution in February 2014. The Bureau’s complaint against the institution alleged that the institution offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The complaint asserts that the institution then forced borrowers into “high-interest, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations, when their short-term loans became due. In the complaint in the current matter, filed the same day as the proposed stipulated judgment, the Bureau alleges that the management company: (i) was substantially involved in the creation and operation of the loan program, including raising money and overseeing the origination and servicing of the loans; and (ii) knew, or was reckless in not knowing, the risks associated with the loan program. The stipulated judgment requires the company to (i) cease enforcement and collection efforts on all outstanding loans associated with the program; (ii) discharge all outstanding loans associated with the program; and (iii) direct credit reporting agencies to delete consumers’ trade lines associated with the loan program. The company must also provide notice of these actions to affected consumers. The proposed judgment does not include a monetary penalty or require refunds to consumers.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference