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  • FTC Resolves "Operation Collection Protection" Charges; Bans Companies from Debt Collection Business

    Consumer Finance

    On September 7, the FTC announced separate stipulated orders (here and here) against two groups of debt collectors to resolve November 2015 charges that their debt collection practices were deceptive, abusive, and unfair in violation of the FTC Act and the Fair Debt Collection Practices Act (FDCPA). According to the FTC, the first group of debt collectors (i) attempted to collect on debts consumers claimed they did not owe; (ii) failed to verify the debts; and (iii) impersonated law enforcement, threatened non-compliant consumers with arrests and lawsuits, and made accusations of bank fraud. In addition to barring the defendants from debt collection activities and from “misrepresenting material[] facts about any financial-related products or services,” the order imposes a judgment of more than $4.47 million. Regarding the second group of debt collectors, the FTC alleged that, in addition to threatening consumers with arrest if purported debts went unpaid and harassing friends, family members, and employees in an attempt to collect debts, they sent “alarming and deceptive text messages to trick consumers into contacting them, without identifying themselves as debt collectors.” Pursuant to the final judgment, the defendants must pay a judgment of approximately $27 million. The order imposes a separate judgment of $11,000 on the individually named defendant.

    Filed in federal district court of New York, the actions were part of the FTC’s Operation Collection Protection, a federal-state-local initiative that has brought a total of 148 debt collection-related actions to date.

    FTC FDCPA UDAAP Debt Collection

  • CFPB Issues Consent Order to a National Bank Over Student Loan Servicing Practices

    Consumer Finance

    On August 22, the CFPB issued a consent order to a national bank to resolve allegations that its student loan servicing practices were unfair and deceptive in violation of the Dodd-Frank Act and that its payment aggregation practices violated the Fair Credit Reporting Act. The CFPB alleged that the bank failed to disclose key aspects related to its payment allocation process, including that partial payments would be distributed across all loans, even if a payment was sufficient to satisfy the minimum payment required for an individual loan. According to the consent order, the bank’s “allocation of a Partial Payment proportionally to all loans in the account sometimes caused consumers’ payments to satisfy fewer, if any, of the loan amounts due in the account than if the Partial Payment had been allocated in a manner that satisfied as many of the loan amounts as possible.” According to the CFPB, the bank’s failure to properly disclose its method for payment allocation resulted in consumers incurring improper late fees, which, if left unpaid for more than 30 days at the end of the month, were reported as delinquent to consumer reporting agencies. The CFPB further alleged that the bank’s payment processors used a late fee monitoring report that had a system coding error that improperly charged consumers late fees if a payment was made on the last day of a grace period, or if consumers chose to make partial payments instead of one payment. The CFPB contended that the bank failed to update, correct, or remove negative information that was inaccurately reported to credit reporting agencies. Pursuant to the consent order, the bank must (i) pay $410,000 in consumer redress; (ii) pay a civil penalty of $3.6 million; (iii) improve its student loan servicing practices to ensure that consumers’ partial payments are distributed in such a way that the amount due is satisfied for as many loans as possible, unless the consumer requests otherwise; (iv) enhance its disclosure statements; and (v) remove or correct errors on consumers’ credit reports.

    CFPB Dodd-Frank FCRA Student Lending Enforcement UDAAP Credit Reporting Agency

  • CFPB Takes Action Against North Dakota Payment Processor for Alleged Unauthorized Withdrawal Practices

    Fintech

    On June 6, the CFPB filed a complaint against a North Dakota-based third-party payment processor and two of its senior executives for alleged violations of the Dodd-Frank Act’s prohibition against unfair acts and practices. Acting on behalf of its clients, the payment processor transferred funds electronically through a network called the Automated Clearing House, and in the process, according to the CFPB, the payment processor “ignored numerous red flags about the transactions they were processing, including repeated consumer complaints, warnings about potential fraud or illegality raised by banks involved in the transactions, unusually high return rates, and state and federal law enforcement actions against their clients.” The CFPB contends that the defendants failed to: (i) heed warnings, including federal and state enforcement actions taken against the defendants’ clients, from banks and consumers regarding potential fraud or unauthorized debits; (ii) adequately monitor and respond to “enormously” high return rates; and (iii) investigate “red flags” throughout its clients’ application processes that “should have caused it to… perform enhanced due diligence prior to accepting a client for processing.” Regarding the individuals’ involvement in the allegedly unlawful activity, the CFPB’s complaint alleges that both engaged in unfair acts and practices by “actively ignoring” a number of red flags associated with the payment processor’s business activities. The CFPB’s complaint seeks monetary relief, injunctive relief, and penalties.

    CFPB Enforcement Payment Processors Vendor Management UDAAP Third-Party

  • Vermont AG Announces Settlement with Arizona Payment Processor of Internet Loans

    Fintech

    Recently, Vermont AG William Sorrell announced a settlement of approximately $178,000 with an Arizona-based electronic payment processor to resolve alleged violations of state consumer protection laws prohibiting unfair and deceptive practices. According to AG Sorrell’s office, the company processed internet loans on behalf of unlicensed lenders in violation of the state’s consumer protection laws. Under the settlement, which is the state's fourth and largest against a payment processor of high interest, unlicensed loans, the company must credit consumer bank accounts a total of $153,282 and pay $25,000 in civil penalties and costs to Vermont.

    State Attorney General UDAAP

  • Congressman Luetkemeyer Proposes Bill to Eliminate "Abusive" in CFPB's UDAAP Authority

    Consumer Finance

    Recently, Representative Blaine Luetkemeyer (R-MO) introduced H.R. 5112, the Unfair or Deceptive Acts or Practices Uniformity Act, to make the authority of the CFPB and FTC more consistent and similar, and to encourage greater communication among regulators. Specifically, the Act would amend Section 1031 of the Dodd-Frank Act by removing the CFPB’s ability to regulate “abusive” conduct from its current authority to regulate “unfair, deceptive or abusive” acts or practices (UDAAP). In addition, the bill would insert the following language at the end of Section 1031: “[i]n prescribing any rule under this subsection, the Bureau shall comply with the requirements of section 18 of the Federal Trade Commission Act (15 U.S.C. 57a) applicable to the Federal Trade Commission when the Commission prescribes rules and general statements of policy under that section with respect to unfair or deceptive acts or practices in or affecting commerce.”

    CFPB FTC UDAAP U.S. House

  • FDIC and Federal Reserve Announce Settlement with Connecticut-Based Financial Aid Company Over Deceptive Practices

    Consumer Finance

    On December 23, the FDIC announced separate settlements with a Connecticut-based financial aid company and an affiliated Utah-based bank for alleged deceptive practices in violation of the FTC Act. Separately, the Federal Reserve announced a settlement solely with the Connecticut-based company for allegedly violating the FTC Act by employing deceptive practices. The company provides financial aid disbursements to higher education institutions for its students. According to the agencies, the company omitted material facts about its financial aid disbursement business, such as: (i) details about alternative disbursement methods available to students; (ii) a full and complete fee schedule; and (iii) information regarding the locations of fee-free ATMs. In addition, the agencies alleged that the company prominently displayed school logos, suggesting to students that schools had endorsed its refund product.

    The FDIC’s orders against the company and the bank require each to pay a civil money penalty of $2.23 million and $1.75 million, respectively. In addition, the company and the bank together will pay approximately $31 million in restitution to roughly 900,000 consumers. Under the terms of the Federal Reserve’s order, the company will: (i) pay approximately $24 million in restitution to an estimated 570,000 consumers; (ii) pay a civil money penalty of more than $2 million; (iii) adopt a consumer compliance risk-management program; and (iv) refrain from future violations of section 5 of the FTC Act.

    FDIC Federal Reserve Student Lending UDAAP Enforcement Settlement

  • CFPB Orders Small-Dollar Lender to Pay $10 Million for Debt Collection Practices; Releases Compliance Bulletin

    Consumer Finance

    On December 16, the CFPB announced a consent order against a Texas-based small-dollar lender for alleged violations of the Consumer Financial Protection Act, the Electronic Fund Transfer Act (EFTA), and the EFTA’s implementing regulation, Regulation E. According to the CFPB, beginning in July 2011, the company engaged in unfair or deceptive acts or practices and violated Regulation E by (i) visiting consumers’ homes and places of employment to collect debts; (ii) contacting third parties for reasons other than to acquire consumers’ location information, which put consumers at risk of their information being disclosed to third parties, and ignoring requests to stop calling consumers’ workplaces; (iv) making false threats of litigation if consumers did not pay the past due amount; (v) misrepresenting the company’s ability to, and routine practice to, run credit checks on loan applicants; (vi) requiring consumers to pay using pre-authorized electronic fund transfers; (vii) causing consumers to incur fees from their banks due to electronic withdrawal practices; and (viii) misrepresenting a consumer’s ability to repay loans early and to revoke authorization for electronic withdrawal authorization. The CFPB’s administratively-filed consent order requires the company to pay $7,500,000 towards refunding consumers affected by its practices, and pay a civil money penalty of $3,000,000. In addition, the order prohibits the company from collecting on defaulted loans owed by approximately 130,000 consumers, and from engaging in unfair and deceptive debt collection practices in the future. 

    The CFPB simultaneously released Compliance Bulletin 2015-07, warning creditors, debt buyers, and third-party collectors of potentially unlawful in-person debt collection practices. Specifically, the bulletin reminds the financial services industry of debt collection practices prohibited by the Dodd-Frank Act and the Fair Debt Collection Practices Act, including (i) engaging in unfair, deceptive, or abusive acts or practices; (ii) communicating with a consumer at any place or time that the debt collector knows, or should know, to be inconvenient to the consumer; (iii) communicating with persons other than the consumer (and other identified parties, except in certain circumstances) for purposes other than acquiring location information; (iv) “‘us[ing] unfair or unconscionable means to collect, or attempt to collect, debt’”; and (v) “‘engag[ing] in any conduct the consequences of which is to harass, oppress, or abuse a person in connection with collecting a debt.’”

    CFPB Dodd-Frank FDCPA Debt Collection Compliance Electronic Fund Transfer UDAAP

  • FCC and FTC Issue MOU for Continued Cooperation on Consumer Protection Matters

    Consumer Finance

    On November 16, the FCC and the FTC executed a Memorandum of Understanding (MOU) on continued cooperative efforts to protect consumers from unfair or deceptive acts or practices involving telecommunications services. In an effort to formalize existing cooperation among the agencies, the MOU outlines the ways in which the two agencies will continue to work together, including: (i) coordinating agency initiatives where one agency’s action will significantly impact the other agency’s authority or programs; (ii) sharing investigative techniques and tools, intelligence, technical and legal expertise, as necessary, in addition to best practices in response to reasonable requests for such assistance; and (iii) collaborating on consumer and industry outreach and education efforts, as appropriate. Moreover, the MOU identifies the scope of each agency’s enforcement authority with respect to common carriers, and confirms that the 2003 MOU regarding Telemarketing Enforcement between the two agencies remains effective, stating that the most recent MOU should not “be construed as altering, amending, or invalidating that [2003] MOU.”

    FTC FCC UDAAP

  • Illinois District Court Enters Final Judgment Against For-Profit College to Resolve CFPB Litigation

    Consumer Finance

    On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.

    CFPB FDCPA UDAAP Student Lending

  • CFPB Orders Auto Finance Company to Pay Over Three Million for Alleged Unfair Debt Collection Practices

    Consumer Finance

    On October 28, the CFPB filed an administrative order against an Ohio-based auto lender specializing in extending credit to servicemembers. The CFPB alleged that the company violated the CFPA by engaging in unfair, abusive, and deceptive debt collection practices, including: (i) contacting and threatening to contact servicemembers’ commanding officers to inform them of delinquencies and alleged military violations requiring discipline; (ii) exaggerating the potential disciplinary actions, such as demotion, loss of promotion, and discharge, that servicemembers may face if they failed to make payments; (iii) representing that the company could commence an involuntary allotment or wage garnishment without obtaining a court judgment; and (iv) threatening legal action when the company did not intend to take legal action at the time. Among other things, the consent order requires that the company: (i) refund or credit over $2 million to consumers; and (ii) pay a $1 million civil money penalty.

    CFPB UDAAP Auto Finance Enforcement

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