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  • CFPB Proposes Permanent Ban on Credit Repair Company for Misleading Consumers, Illegal Fees

    Consumer Finance

    On August 30, the CFPB and a credit repair company requested a California federal court to enter a final judgment and order to end the CFPB’s lawsuit against the company. The Bureau claimed that the company had violated the Consumer Financial Protection Act of 2010 and the Telemarketing Sales Rule among other things. According to a CFPB press release, the company “[c]harged illegal advance fees”; “[m]isled consumers about the benefits of its credit repair services”; “[m]isrepresented the costs of its services”; and “[f]ailed to disclose limits on ‘money-back guarantee.’” As previously reported in InfoBytes, the CFPB filed similar proposed final judgments against other credit repair companies for largely the same reasons.

    In addition to permanently prohibiting the defendant from working in the credit repair industry, the proposed settlement also requests a civil money penalty of $150,000.

    Consumer Finance CFPB Telemarketing Sales Rule CFPA Enforcement

  • FTC Enters Consent Order with Final Defendant in Alleged 2015 Debt Collection Scheme

    Consumer Finance

    On August 30, the FTC announced a settlement banning the final defendant who had participated in a debt collection scheme from debt collection activities. The settlement stems from a 2015 action against three groups of defendants who allegedly violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by engaging in the following activities, among others: (i) attempting to collect debts consumers claimed they did not owe; (ii) impersonating law enforcement to threaten non-compliant consumers with arrests and lawsuits; (iii) harassing friends, family members, and employees in an attempt to collect debts; and (iv) failing to identify themselves as debt collectors. (See previous InfoBytes summary here.) In 2016, the FTC reached separate settlements (here and here) against two of the three groups of debt collectors. In addition to banning the final defendant from debt collection activities, the 2017 action also imposes a $9.39 million judgment to be suspended due to the defendant’s inability to pay. However, the judgment will become immediately due if the defendant is found to have misstated his financial condition.

    Consumer Finance Debt Collection FTC Enforcement UDAAP FDCPA FTC Act

  • Banking Agencies Offer Guidance Regarding Harvey Response

    Agency Rule-Making & Guidance

    On August 29, the OCC and FDIC each issued guidance and resources for national banks and federal savings associations aiding consumers affected by recent natural disasters.

    OCC Bulletin 2012-28. The OCC bulletin rescinds and replaces previously issued natural disaster guidance and encourages banks serving affected customers to consider the following: (i) “waiving or reducing ATM fees”; (ii) “temporarily waiving late payment fees or penalties for early withdrawal of savings”; (iii) assisting borrowers based on individual situations, when appropriate, by restructuring debt obligations or adjusting payment terms—not to generally exceed 90 days; (iv) “expediting lending decisions when possible”; (v) “originating or participating in sound loans to rebuild damaged property”; and (vi) communicating with state and federal agencies to help mitigate the effects. “Examiners will not criticize these types of responses as long as the actions are taken in a manner consistent with sound banking practices,” the OCC announced. The bulletin also provides additional resources on accounting and reporting issues and Qualified Thrift Lender requirements, among other things.

    FDIC FIL-38-2017. The FDIC financial institution letter (FIL) provides similar guidance for depository institutions assisting affected customers. FIL guidance includes the following suggestions: (i) “waiving ATM fees for customers and non-customers”; (ii) “increasing ATM daily cash withdrawal limits”; (iii) waiving items such as overdraft fees, time deposit early withdrawal penalties, availability restrictions on insurance checks, and credit card/loan balance late fees; (iv) “easing restrictions on cashing out-of-state and non-customer checks” as well as “easing credit card limits and credit terms for new loans”; (v) allowing borrowers to defer or skip some loan payments; and (vi) “delaying the submission of delinquency notices to the credit bureaus.” “Prudent efforts by depository institutions to meet customers' cash and financial needs generally will not be subject to examiner criticism,” the FIL noted. Also, the FDIC “encourages depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.”

    The following agencies also issued guidance: Federal Reserve, Farm Credit Administration, and the National Credit Union Administration.

    Agency Rule-Making & Guidance Banking Consumer Finance Bank Secrecy Act FDIC OCC Federal Reserve Farm Credit Administration NCUA Disaster Relief

  • FTC Files Complaint Against Debt Collection Operation for FTC Act and FDCPA Violations

    Consumer Finance

    On August 29, the FTC issued a press release announcing charges against a North Carolina-based debt collection business (defendants) for allegedly using a variety of “trade names” that sound like law firms to threaten individuals if they failed to pay debt they did not actually owe or that the defendants had no right to collect. According to the complaint, the defendants violated the FTC Act by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. Additionally, the defendants allegedly violated the Fair Debt Collection Practices Act by: (i) communicating with consumers “at times or places known or which should be known to be inconvenient to the consumer” or “at the consumer’s place of employment when Defendants knew or had reason to know that the consumer’s employer prohibits the consumer from receiving such communications”; (ii) engaging in “unlawful third-party communications” without obtaining prior consumer consent; (iii) participating in harassing and abusive collection practices; (iv) making false, deceptive, or misleading representations, including by withholding the true status of the debt, impersonating attorneys, threatening legal action, and failing to disclose they were debt collectors; and (v) failing to provide consumers written verification of their debt within the required time frame. A federal judge in the U.S. District Court for the Western District of North Carolina has temporarily restrained and enjoined the defendants’ alleged illegal practices and frozen their assets.

    Consumer Finance Debt Collection FTC Enforcement UDAAP FDCPA FTC Act

  • CFPB Consent Order to Banking Subsidiaries Resolves Discriminatory Credit Card Term Practices in Puerto Rico and U.S. Territories

    Consumer Finance

    On August 23, the CFPB announced it was taking action against two banking subsidiaries of a multi-bank holding corporation for violating the Equal Credit Opportunity Act (ECOA) by allegedly offering credit card products and services to consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories that were inferior to those offered to consumers in the 50 states and discriminating against certain consumers with Spanish-language preferences. The consent order alleges the pattern of discrimination started in January 2005 and continued through November 2015. In 2013, the subsidiaries began self-reporting to the Bureau differences between credit cards and charge cards offered to consumers in the territories versus those offered to consumers in the 50 states, including disparities in pricing, terms and conditions, underwriting, rebates, promotional offers, customer and account management services, credit score requirements, credit limits, and debt collection practices. During the course of the CFPB’s review, the subsidiaries provided monetary and non-monetary relief to more than 200,000 affected consumers, resulting in approximately $95 million of remediation broken into the following amounts paid or credited to consumers: (i) roughly $55.7 million towards pricing, rebates, and promotional offer differences; (ii) approximately $3.2 million towards disparities in underwriting; and (iii) $35.7 million towards customer service, account management, collections, debt mitigation, and line assignment differences. The order also states that the subsidiaries instituted enhancements to their policies and procedures and compliance management systems. Pursuant to the consent order, the subsidiaries must (i) pay at least a $1 million more in restitution to fully compensate affected consumers; and (ii) develop and implement a compliance plan to ensure credit and charge card provisions are handled in a non-discriminatory manner in compliance with ECOA, make any necessary changes to their compliance management systems based on an annual compliance audit program assessment of current business structure, and correct any identified deficiencies. The Bureau further notes that penalties were not assessed due to efforts undertaken by the subsidiaries to self-report deficiencies, self-initiate remediation, and cooperate with the CFPB’s investigation. Furthermore, the Bureau concluded through its review that the subsidiaries did not intentionally discriminate against the consumers, but that the differences occurred as a result of business units utilizing different card management structures in the territories versus in the states.

    Consumer Finance CFPB Credit Cards ECOA Fair Lending

  • FTC Announces Agenda for Joint Conference on Protecting Military Consumers

    Consumer Finance

    On August 22, the FTC released the agenda for the Protecting Military Consumers: A Common Ground Conference to be held on September 7 in Los Angeles. As previously discussed in InfoBytes, the conference is geared towards military attorneys, law enforcement personnel, and consumer protection officials to provide training on consumer fraud and other issues affecting servicemembers and their families, and will be held in partnership with state and local authorities. Topics for discussion on the agenda include, among things:

    • higher education;
    • identity theft and imposter scams;
    • real estate fraud;
    • auto financing;
    • debt collection;
    • lending; and
    • privacy issues such as data collection, storage, and sharing.

    Consumer Finance Agency Rule-Making & Guidance FTC Servicemembers Student Lending Mortgages Debt Collection Privacy/Cyber Risk & Data Security Auto Finance

  • FTC Files Complaint Against Operators of Online Discount Clubs and Payment Processors for Allegedly Debiting More Than $40 Million from Consumers Without Their Consent

    Consumer Finance

    On August 16, the FTC issued a press release announcing charges against the operators of a group of marketing entities and payment processors (defendants) for allegedly violating numerous laws when they enrolled consumers into online discount clubs and debited more than $40 million from consumers’ bank accounts for membership without their authorization. According to the August 15 complaint, several of the defendants promoted their respective online discount club through websites and telemarking calls to offer services to consumers in need of payday, cash advance, or installment loans. Other defendants then used “Remotely Created Payment Orders” and “Remotely Created Checks” without the consumers’ authorization to debit their bank accounts for the initial application fee as well as automatically-recurring monthly fees. Notably, during the period when one of the discount clubs was launched, several of the defendants were facing contempt proceedings for allegedly violating a 2008 stipulated final order with the FTC in another deceptive debiting scam. The defendants purportedly, among other things, (i) engaged in unfair billing practices; (ii) made false, misleading, and deceptive statements when they represented, “directly or indirectly,” to consumers seeking refunds that they were not entitled to a refund because the entities possessed personal and financial information, which served to confirm that the consumers agreed to “purchase the products or services” or authorize money to be debited from their bank accounts; and (iii) provided “substantial assistance or support” in the way of payment processing services while knowing—or “consciously avoiding knowing”—that the actions being supported were in violation of the Telemarketing Sales Rule. The FTC also claims that hundreds of thousands of consumers called to cancel their memberships and request refunds, with thousands more informing their banks about the unauthorized debits. Additionally, more than 99.5 percent of consumers enrolled in a discount clubs apparently never accessed a single coupon—“the only service for which they had supposedly paid.”

    Consumer Finance FTC Telemarketing Sales Rule Fraud UDAP

  • CFPB Issues New Student Loan Repayment Study

    Consumer Finance

    On August 16, the CFPB published a study of student loan repayment patterns over a 14-year period. The report, entitled “Data Point: Student Loan Repayment,” analyzed borrower balance and payment status data from the Bureau’s Consumer Credit Panel (CCP). By tracking overall repayment history for borrowers who entered repayment at different points in time, the CFPB observed borrower behavior, including delinquency patterns for those who have not paid down their loan balances. Key findings in the report include:

    • Borrowers with recent repayment periods have repaid their loans fully at rates similar to those with repayment periods starting 15 years ago when the loan amount is held constant. “However, 25 to 30 percent of the borrowers in the older cohorts do not pay off their loans within the standard 10-year repayment period, and the more recent cohorts appear to be following the same trend.”
    • An apparent relationship exists between the loan amount and repayment speed. Borrowers with loan amounts less than $5,000 are two and a half to four times more likely to fully repay their loans within eight years of entering repayment than borrowers with loans of $50,000 or more. Additionally, more than 40 percent of all borrowers entering repayment today have loan amounts exceeding $20,000—a 20 percent increase from 15 years ago.
    • The proportion of student loan borrowers aged 35 or older doubled between 2002 to 2014, whereas the proportion of borrowers younger than 25 declined from 30 to 15 percent between 2002 to 2014. Notably, the CFPB found “remarkably little variation in repayment speed by consumer age despite potential differences in income or resources.”
    • Of the student loan borrowers making loan payments large enough to reduce loan balances, recent cohorts are reducing their loan balances faster than earlier cohorts.
    • There is an increase in the proportion of borrowers—particularly those with loans less than $20,000—not making large enough payments to lower their loan balances. Specifically, the Bureau claims this trend is in part due to the prevalence of income-driven repayment plans as well as borrowers who are either delinquent or in default on their loans.

    The Bureau’s study further recognizes the need to understand how large loan balances could affect consumers’ access to and use of other credit products, such as mortgages. While most borrowers have continued to repay their student loans over the 14-year observation period, the CFPB has suggested that (i) delinquent borrowers may not be taking advantage of alternative repayment options such as income-driven repayment plans, or (ii) servicing delivery platforms may be inadequate for student loan borrowers.

    Consumer Finance CFPB Student Lending

  • Massachusetts Regulator Fines Auto Finance Companies for Violations of State Fair Lending Rules

    Lending

    On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.

    None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.

    Lending Fair Lending Auto Finance Consumer Finance UDAAP

  • FTC Files Complaint Against Independent Sales Organization and Sales Agents for Alleged Credit Card Laundering Charges

    Consumer Finance

    On August 7, the FTC issued a press release announcing charges against 12 defendants, comprised of an independent sales organization (ISO), sales agents, payment processors, and identified principals, for allegedly violating the Federal Trade Commission Act and the Telemarketing Sales Rule (TSR) by laundering credit card transactions on behalf of a “telemarketing scam” operation (operation) through fictitious merchant accounts. According to a July 28 complaint filed by the FTC, the defendants engaged in a scheme with the operation to process credit card charges through merchant accounts set up by the operation under fictitious company names instead of processing charges through a single merchant account under the operation’s name. This type of practice, the FTC claims, is known as “credit card laundering” or “factoring” and violates the TSR. The defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants. The FTC seeks “permanent injunctive relief, recession or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten moneys, and other equitable relief.”

    Notably, in 2013, the FTC accused the same “telemarketing scam” operation of allegedly promoting “worthless business opportunities” to consumers and falsely promising that they would earn thousands of dollars. A 2015 summary judgement resulted in over $7 million in consumer injury. (See previous InfoBytes coverage here.)

    Consumer Finance Credit Cards FTC UDAAP Telemarketing Sales Rule Fraud

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