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Massachusetts AG Takes Action Against Federal Loan Servicer for Unfair or Deceptive Practices
On August 23, Massachusetts Attorney General Maura Healey filed a complaint in the Suffolk County Superior Court against the Pennsylvania Higher Education Assistance Agency (d/b/a FedLoan Servicing) for allegedly overcharging borrowers and improperly processing claims for public service loan forgiveness. According to the Commonwealth’s lawsuit, the loan servicer purportedly engaged in unfair or deceptive acts or practices by, among other things, (i) failing to timely and properly process applications for Income Driven Repayment plans and thereby denying borrowers the opportunity to make qualifying payments under forgiveness programs; (ii) failing to properly count qualifying payments under the Public Service Loan Forgiveness program; (iii) failing to properly process certification forms in connection with the Teacher Education Assistance for College and Higher Education Grant program, thereby causing grants to be converted into loans; and (iv) collecting amounts not legitimately due and owing and failing to refund them. The complaint seeks restitution, civil penalties, reimbursement of the Commonwealth’s costs and expenses, and injunctive relief.
CFPB, 13 State Attorneys General Take Action Against Private Equity Firm for Allegedly Aiding For-Profit College Company’s Predatory Lending Scheme
On August 17, the CFPB announced a proposed settlement against a private equity firm and its related entities for allegedly aiding a now bankrupt for-profit college company in an illegal predatory lending scheme. In 2015, the CFPB obtained a $531 million default judgment against the company based on allegations that it made false and misleading representations to students to encourage them to take out private student loans. (See previous InfoBytes summary here.) However, the company was unable to pay the judgment because it had dissolved and its assets were distributed in its bankruptcy case that year. Because of the company’s inability to pay, the CFPB indicated that it would continue to seek additional relief for students affected by the company’s practices. In a complaint filed by the CFPB on August 17 in the U.S. District Court for the District of Oregon, the Bureau relied on its UDAAP authority to allege that the private equity firm engaged in abusive acts and practices when it funded the college company’s private student loans and supported the college company’s alleged predatory lending program. Specifically, the CFPB alleged that the private equity firm enabled the company to “present a façade of compliance” with federal laws requiring that at least 10 percent of the for-profit school’s revenue come from sources other than federal student aid in order to receive Title IV funds. The Bureau further alleged that both the company and the private equity firm knew that the high-priced loans made under the alleged predatory lending scheme had a “high likelihood of default.” According to the complaint, the private equity firm continues to collect on the loans made under the alleged predatory lending program. In regard to these loans, the proposed order requires the private equity firm to, among other things: (i) forgive all outstanding loan balances in connection with certain borrowers who attended one of the company’s colleges that subsequently closed; (ii) forgive all outstanding balances for defaulted loans; and (iii) with respect to all other outstanding loans, reduce the principal amount owed by 55 percent, and forgive accrued and unpaid interest and fees more than 30 days past due.
Relatedly, New York Attorney General Eric T. Schneiderman, announced on August 17 that his office, in partnership with the CFPB and 12 other state attorneys general, had reached a $183.3 million nationwide settlement with the private equity firm in partnership with the CFPB. According to a press release issued by AG Schneiderman’s office, under the terms of the settlement, an estimated 41,000 borrowers nationwide who either defaulted on their loans or attended the company’s colleges when it closed in 2014 are entitled to full loan discharges—an amount estimated to be between “$6,000 and $7,000.”
Massachusetts AG Directs Refunds to Homeowners Affected by Force-Placed Insurance Policies
On August 11, Massachusetts Attorney General Maura Healey announced that “a major Massachusetts insurance company is paying more than $6.3 million in refunds to more than 4,500 homeowners who were improperly charged” for force-placed property insurance. According to the state’s investigation, the company unnecessarily charged some homeowners by force-placing duplicative insurance products, and overcharged others by force-placing commercial policies instead of less expensive residential policies. The company had settled with the AG’s Office in November 2015, paying $565,000 to the state and agreeing to an audit that would identify affected Massachusetts homeowners for refunds. According to the AG’s press release, the company “cooperated fully with the audit.”
Colorado UCCC Administrator Opinion Provides Guidance on Debt Cancellation and Suspension Agreement Fees
On August 7, the Colorado Attorney General’s Office, through the Administrator of the Uniform Consumer Credit Code (UCCC), issued an Administrator Opinion to provide clarification on fees related to debt cancellation and suspension agreements. The UCCC has adopted and authorized rules permitting additional charges to be assessed in addition to a finance charge, such as fees for Single Premium Non-Credit Insurance, Involuntary Unemployment Insurance Premiums, and Guaranteed Automobile Protection. However, because the UCCC has not yet adopted by rule permissible fees for debt cancellation and suspension agreements, those fees must be included in the calculation of the finance charge, even if they are “permitted by federal or state law or regulation—including debt cancellation and suspension agreements offered by Colorado-[c]hartered [b]anks, Colorado-[c]harted [i]ndustrial [b]anks, and Colorado-[c]hartered [c]redit [u]nions.” This Administrator Opinion rescinds the November 9, 2004 Advisory Opinion titled “Debt Cancellation and Suspension Agreements Offered by Colorado-Chartered Banks, Colorado-Chartered Industrial Banks, and Colorado Chartered Credit Unions.” Organizations have 120 days to comply with the newly issued guidance.
National Insurance Company Settles States’ Investigation over 2012 Data Breach, Pays $5.5 Million in Settlement
On August 9, a national insurance company and its wholly-owned subsidiary reached a $5.5 million settlement with 32 states and the District of Columbia to resolve the states’ investigation into a 2012 data breach, which allegedly caused the personal information of certain consumers to be compromised—including social security and driver’s license numbers, as well as credit scoring information and other data. According to the states’ investigation, the October 2012 data breach occurred when hackers were able to exploit a vulnerability in the company’s website application hosting software. A security patch was later applied. Under the terms of the Assurance of Voluntary Compliance, the company agreed to a number of requirements, including:
- providing an online disclosure notifying consumers that personal information is retained even if they do not become insured;
- appointing an individual to oversee company security practices and manage and monitor software and application security updates, including security patch monitoring; and
- hiring an outside, independent provider to conduct a “patch management audit” of the company’s covered systems.
The majority of the requirements last three years.
The company, while admitting that it experienced a data breach, denied any liability or wrongdoing.
Virginia AG Announces Settlement with Small Dollar Lender Over Excessive Fees
On August 1, Virginia Attorney General Mark Herring announced a settlement with a Virginia pawnbroker to resolve allegations that the company violated the Virginia Consumer Protection Act (VCPA) by offering consumers small dollar loans in exchange for personal property—held as security for the loans—and then charging interest and fees beyond the limits allowed by the state’s statutes applicable to pawnbrokers. According to a press release issued by the Attorney General’s office, the settlement requires the company to provide refunds of more than $27,000 to borrowers and reimburse the state for expenses incurred during the investigation. A permanent injunction also prohibits the company from violating state pawnbroker statutes and the VCPA.
Massachusetts AG Announces Settlement with Law Firm Over Debt Collection Practices
On July 27, Massachusetts Attorney General Maura Healey announced a $1 million settlement with the largest debt collection law firm in the state to resolve allegations that the firm engaged in unfair and unlawful debt collection practices. According to a lawsuit filed by the Attorney General’s office in 2015, the firm began filing tens of thousands of debt collection lawsuits each year beginning in 2011, at times targeting the wrong consumers or filing claims based on unsubstantiated debts. The firm also allegedly demanded payment from consumers who relied on social security or other exempt income, despite being provided evidence that the income was exempt from court-ordered collection. Under the terms of the settlement, the company is required to reform its debt collection practices by adhering to guidelines including the following:
- The firm is required to obtain and review “original account-level documentation” prior to initiating a collection to determine whether a consumer is obligated to pay the debt such as, among others, (i) an authenticated bill of sale reflecting the transferred ownership of debt; (ii) original documents reflecting the charge-off balance; (iii) contractual terms and conditions; and (iv) original consumer signed documents showing proof the account was opened;
- The firm is prohibited from engaging in threatening actions to collect on a debt initiated on behalf of a collector or debt buyer, and is further restrained from commencing a collection suit without possessing a final judgment or execution against the consumer, or acceptable account-level documentation;
- The firm cannot initiate a collection suit against a consumer until an attorney listed on the company in the collection suit has reviewed the pertinent information and made the determination that the debt owed is not subject to bankruptcy proceedings and certifies in writing that the collection suit is in compliance.
The settlement terms also stipulate that the firm must comply with collection terms and restrictions concerning exempt and protected income, must adhere to time-barred debt collection restrictions, is enjoined from using false and misleading affidavits to collect debts, and must submit enhanced compliance reporting to AG Healey for review. Additionally, the firm previously paid $1 million to the state to be used in one or more of the following ways: (i) as payments to consumers; (ii) to assist with final judgment facilitation; (iii) to be added to the state’s general fund and/or the Local Consumer Aid Fund; and (iv) to fund programs that “address the negative effect of unfair and deceptive practices related to debt collection.”
Massachusetts AG Leads AG Coalition Urging Senate to Oppose Joint Resolution to Set Aside CFPB Arbitration Rule
On July 28, Massachusetts Attorney General Maura Healey, along with 20 other state attorneys general, issued a letter to Senate Majority leader Mitch McConnell and Minority Leader Charles Schumer, urging Senate leaders to oppose S.J.Res. 47—a joint resolution that would set aside the CFPB’s arbitration rule. As previously discussed in InfoBytes, on July 25, the House exercised its authority under the Congressional Review Act to pass a measure to strike down the rule. The coalition of state attorneys general support the CFPB’s proposed rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The letter asserts that most customers lack the time and resources to enter into arbitration and that “[t]he CFPB’s Arbitration Rule would deliver essential relief to consumers, hold financial services companies accountable for their misconduct, and provide ordinary consumers with meaningful access to the civil justice system.”
In 2016, AG Healey led a group of 17 state attorneys general who offered support to the CFPB in favor of the Bureau’s proposed rule and asserted a need for regulations that would prohibit such clauses outright. (See previous InfoBytes coverage here.)
District Judge Denies Summary Judgement in FTC, New York AG FDCPA Suit
On July 18, the U.S. District Court for the Western District of New York denied summary judgment in a suit filed by the FTC and the New York Attorney General against four corporate defendants (Corporate Defendants) and four individual defendants (Individual Defendants) alleging that the Defendants engaged in abusive and deceptive debt collection practices. See Federal Trade Commission and People of the State of New York v. Vantage Point Services, LLC, Case 1:15-cv-00006-WMS-HKS (W.D.N.Y., Jul. 18, 2017). Plaintiffs argued that the Corporate Defendants, together with several non-defendant debt-collecting businesses, engaged in a single debt-collection enterprise. The Corporate Defendants maintained, however, that while they “did business with the various entities, either by placing debt with them or by processing payments on debt they were collecting,” the businesses remained separate, distinct entities, and they operated independently.
The court found that there were “numerous disputed issues of fact” concerning the plaintiffs’ common enterprise theory, including a failure by the plaintiffs to specify which entities allegedly made threats or used illegal tactics to collect debt. Indeed, the court noted that while there was “overwhelming evidence of wrongdoing,” the plaintiffs had “failed to link that wrongdoing to any specific Defendant.” In fact, the court observed that the “majority of the wrongdoing appears to have been committed by the non-defendant call initiators.” The court also found material disputes of fact as to whether the Corporate Defendants shared office space and commingled funds and as to whether the Individual Defendants were liable at all.
Ohio Enacts Consumer Installment Loan Act
On June 13, Ohio Governor John R. Kasich signed into law S.B. 24, the Ohio Consumer Installment Loan Act (CILA). According to a blog post on the Ohio senate majority caucus’ website, CILA aims to “clarify Ohio's installment lending laws to help eliminate confusion for consumers and lenders as well as simplify the role of industry regulators.” CILA applies to loans that, among other requirements, exceed a term of six months, generally require equal monthly payments, are not secured by real property, are not covered by any other Ohio loan laws, and have a maximum interest rate of 25 percent (or 28 percent for an open-end loan). CILA also provides for regulation and lender licensing by the state’s Division of Financial Institutions in the Department of Commerce. The law goes into effect on July 1.