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FDIC fines Delaware-based bank for unfair and deceptive practices
On March 7, the FDIC announced that a Delaware-based bank agreed to settle allegations of unfair and deceptive practices in violation of Section 5 of the Federal Trade Commission Act for assessing transaction fees in excess of what the bank previously had disclosed. The FDIC also found that the bank’s practices violated the Electronic Funds Transfer Act, the Truth in Savings Act, and the Electronic Signatures in Global and National Commerce Act. According to the FDIC, from December 2010 through November 2014, the bank overcharged transaction fees to consumers who used prepaid and certain reloadable debit cards to make point-of-sale, signature-based transactions that did not require the use of a personal identification number. The transaction fees allegedly exceeded what the bank had disclosed to consumers. Under the terms of the settlement order, the bank will, among other things, (i) establish a $1.3 million restitution fund for eligible consumers; (ii) prepare a comprehensive restitution plan and retain an independent auditor to determine compliance with that plan; and (iii) provide the FDIC with quarterly written progress reports detailing its compliance with the settlement order. The settlement also requires the bank to pay a civil money penalty of $2 million.
CFPB releases 2018 lists of rural, underserved counties
On March 6, the CFPB released its annual list of rural counties and rural or underserved counties for lenders to use when determining qualified exemptions under certain TILA regulatory requirements. In addition to these lists, the Bureau also directed lenders to use its web-based Rural or Underserved Areas Tool to assess whether a rural or underserved property qualifies for safe harbor for purposes of Regulation Z.
CFPB issues final rule on periodic statements during bankruptcy
On March 8, the CFPB issued a final rule updating technical aspects of the upcoming periodic statement requirements for borrowers in bankruptcy under Regulation Z. The Bureau adopted the proposed rule, released in October 2017, without revision (previously covered by InfoBytes here). Specifically, the final rule changes the transition rules for borrowers who enter or leave bankruptcy by replacing the previous single-billing-cycle exemption with a single-statement exemption for the next periodic statement or coupon book that a servicer would otherwise have to provide, regardless of when in the billing cycle the triggering event occurs. The Bureau also added new commentary to clarify the operation of the single-statement exemption. The rule is effective April 19.
FTC announces resolution of an action against the final defendant in a debt collection operation
On March 5, the FTC announced that the U.S. District Court for the Middle District of Florida entered a default judgment against the final defendant of a debt collection operation accused of violating the FTC Act and Fair Debt Collections Practices Act by allegedly posing as lawyers and threating individuals with lawsuits or prison time if they failed to pay debt they did not actually owe. (See InfoBytes coverage here on previously issued order against three other co-defendants.) Under the terms of the January 23 order, the defendant is prohibited from, among other things, (i) engaging in debt collection activities; (ii) buying or selling consumer or commercial debt; (iii) misrepresenting material facts regarding financial-related products or services; (iv) misrepresenting an affiliation with an attorney or law firm; (v) disclosing, using, or benefiting from consumers’ personal information; and (vi) improperly disposing of consumers’ information. In addition, the court assessed a $702,059 fine, jointly and severally with the co-defendants.
FTC issues annual summary of consumer complaints
On March 1, the FTC issued its annual summary on consumer complaints received by the agency over the past year, highlighting trends in various categories such as fraud and identity theft. The report, Consumer Sentinel Network Data Book 2017 (2017 Data Book), provides category breakdowns and national and state specific data extrapolated from the Consumer Sentinel Network (CSN)—a secure online database of millions of consumer complaints available only to law enforcement agencies. In compiling the 2017 Data Book, CSN collected and analyzed nearly 2.7 million consumer complaints—a decrease from the nearly 3 million complaints it received in 2016. However, total loses reported for 2017 increased by $63 million to nearly $905 million in total losses due to fraud.
The 2017 Data Book provides a breakdown of complaints sorted into 30 top categories. Highlights include the following:
- States. Florida, Georgia, and Nevada were the top states for fraud complaints, while Michigan, Florida, and California were the top states for identity theft complaints.
- Top categories. While there were 1.1 million fraud reports filed overall (42.5 percent of all reports), debt collection remained the top complaint in 2017, amounting to 22.7 percent of all complaints. Identity theft (13.8 percent) and imposter scams (13 percent) rounded out the top three. “While we received fewer overall complaints in 2017, consumers reported losing more money to fraud than they did the year before,” said Tom Pahl, Acting Director of the FTC’s Bureau of Consumer Protection in a press release issued by the agency. “This underscores the importance of the FTC’s work in educating consumers and cracking down on the scammers who try to take their money.” Rounding out the top ten consumer complaints for 2017 were: telephone and mobile services; banks and lenders; prizes, sweepstakes, and lotteries; shop-at-home and catalog sales; credit bureaus, information furnishers, and report users, auto related complaints, and television and electronic media.
- Military. Fraud and identify theft were the largest category of complaints from military consumers—the majority reporting imposter scams, credit card fraud, and bank fraud. Military retirees and veterans submitted the highest number of reports.
- Fraud losses by age. The 2017 Data Book includes data broken out by age groups for the first time. Younger consumers aged 20-29 reported losing money to fraud more than consumers over age 70, but for older consumers who reported losing money, the median amount lost was greater.
Additional information about the 2017 Data Book is available here.
CFPB reviews removal of public records from credit reports
On February 22, the CFPB released a report finding that the removal of public records from consumer credit reports may have had an effect on consumers’ credit scores. The report reviewed the impact of the civil public records minimum information standards established pursuant to the National Consumer Assistance Plan (NCAP) – an initiative launched by the top three U.S. credit reporting agencies (CRAs) as a result of settlement agreements between the CRAs and over 30 state attorneys general. Starting in July 2017, the NCAP required public records furnished to the CRAs to include a name, address, and social security number and/or date of birth and required the records be refreshed every 90 days. According to the report, prior to the NCAP, six percent of consumers had a civil judgment or tax lien on their credit report; and after the NCAP implementation, the CFPB found that only 1.4 percent of consumers had a tax lien on their credit report and zero consumers had civil judgments. However, the report notes that while there was a significant drop in the overall reporting of public records, only six percent of those affected by the NCAP new reporting requirements, experienced an increase from “deep subprime or subprime credit scores in June before the standards took effect and rose to near prime or above in September.” The CFPB noted in a blog release that the Bureau cannot assess scoring-model accuracy because it requires two years of data following the implementation of new standards to perform the analysis.
District Court sanctions bankruptcy law firm for allegedly harming consumers and auto lenders
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.
FTC seeks permanent injunction to stop alleged student loan debt relief scam
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.)
Virginia attorney general announces $2.7 million settlement with internet lender
On February 7, Virginia’s Attorney General, Mark R. Herring, announced a $2.7 million settlement with a Virginia affiliate of a New York-based internet lender to resolve alleged violations of the Virginia Consumer Protection Act (VCPA). According to the announcement, between January 2017 and July 2017, the online lender (i) offered installment loans with interest rates as high as 359 percent without qualifying for an exception to the state’s 12 percent interest cap; (ii) falsely claimed it was licensed by Virginia’s Bureau of Financial Institutions; and (iii) charged state residents an unlawful check-processing fee of $15 for payments made by check on closed-end installment loans. The attorney general’s office stated that the settlement requires the lender to disgorge more than $2 million in illegal interest payments received, provide over $300,000 in refunds to affected state consumers, and pay the state $30,000 in civil money penalties, costs, and fees. The settlement also contains a permanent injunction that prohibits the lender from misrepresenting its status as a licensed Virginia lender.
FTC releases report on military 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.