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FTC Returning More Than $2.7 Million to Consumers Scammed in Debt Collection Scheme
On March 30, the FTC announced that it is mailing checks to 5,232 consumers who lost money as part of a debt collection scheme that cheated consumers out of more than $2.7 million. The compensation follows a 2011 complaint filed by the Commission that was settled in 2014, in which the two principal owners (Defendants) of the debt collection company were ordered to surrender more than $3.3 million worth of assets to be paid to the victims. Defendants were also permanently banned from the debt collection business and prohibited from falsely representing any financial products or services. The charges in the complaint allege Defendants (and others) violated the FTC Act and FDCPA by: (i) calling consumers and posing as process servers attempting to “deliver legal papers . . . purportedly related to a lawsuit”; (ii) threatening consumers with arrest if they did not respond to the calls; and (iii) masquerading as attorneys or law office employees demanding consumers pay legal fees where, in many instances, “consumers did not even owe the debt the defendants were trying to collect.” According to the Commission’s March 30 announcement, consumers who lost money will receive the full amount of fraudulent fees Defendants added to their debt.
FINRA Bars Broker Charged in NY Pension Fund Scandal
On March 28, FINRA filed a disciplinary action in the form of a Letter of Acceptance, Waiver and Consent (Letter of Acceptance) against one of the brokers charged in December of last year for participating in a "pay-for-play" bribery scheme involving the $184 billion New York State Common Retirement Fund (NYSCRF). The Letter of Acceptance bars the broker from the industry and prohibits association with “any FINRA member in any capacity.” From 2014 through 2016, the broker, along with two other individuals, engaged in a scheme to defraud the pension fund, its members and beneficiaries, by paying bribes to a portfolio manager totaling more than $100,000 in the form of entertainment, travel expenses, narcotics, luxury gifts, and other items in “exchange for fixed-income business from the NYSCRF.” The broker was charged with allegedly conspiring to commit securities fraud, conspiring to obstruct justice in a Securities and Exchange Commission investigation, as well as wire fraud charges. Currently the SDNY criminal case and SEC civil action are pending against the broker.
Not-For-Profit Educational Organization Claims Department of Education Lacks Transparency over Number of Student Loan Failures
On March 20, a not-for-profit educational organization (Plaintiff), announced a FOIA lawsuit against the U.S. Department of Education (Defendant) in the U.S. District Court for the District of Columbia. Judicial Watch v. U.S. Department of Education, No. 1:17-CV-00501 (D.D.C. Mar. 20, 2017). The complaint alleges Defendant failed to respond to a request for access to all records in Defendant’s possession relating to a “coding error” that incorrectly computed College Scorecard repayment ranges, thus “masking [the fact] that most borrowers are failing to pay down their federally-subsidized student loans.” Defendant acknowledged in January of this year that an error in the coding did lead to the “undercounting of some borrowers who had not reduced their loan balances by at least one dollar, and therefore inflated repayment rates for most institutions.” Plaintiff claims to regularly request records from various federal agencies in order to analyze and disseminate findings of interest to the public in an effort to “promote transparency, accountability, and integrity in [the] government” and states it will be “irreparably harmed unless Defendant is compelled to comply with FOIA.”
FDIC Q4 2016 Quarterly Banking Profile Reveals Community Bank Deposits, Office Count Both Up; OCC Reports Uptick in Mortgage Performance through End of 2016
Earlier this week, the FDIC released the latest issue of both its Quarterly Banking Profile and the FDIC Quarterly Report–a “comprehensive summary of the most current financial results for the banking industry” that is published quarterly by the FDIC’s Division of Insurance and Research. According to its latest Report, community banks—which represent 92 percent of insured institutions—reported net income of $5.6 billion in the fourth quarter of 2016, a 10.5% increase over 2015. According to the Report, “the increase was driven by higher net interest income and noninterest income, which was partly offset by higher loan-loss provisions and noninterest expense.” The Report also reveals an 8.3 percent 12-month growth rate in loan balances at community banks. The Report notes further that “community banks accounted for 43 percent of small loans to businesses.” Notably, the FDIC observed that, although deposits across the banking industry grew, the number of non-community bank offices actually shrank. By contrast, however, the number of community banks increased during 2016.
Also this week, the OCC announced the release of its “OCC Mortgage Metrics Report, Fourth Quarter 2016,” its quarterly report based on performance data from seven national bank servicers, including over a third of all outstanding U.S. residential mortgages. As explained in the OCC’s Q4 2016 Report, foreclosure activity declined and mortgage performance continued to improve through the fourth quarter of 2016, with 94.7 percent of mortgages current and performing at the end of 2016, compared with 94.1 percent a year earlier. Servicers initiated 45,495 new foreclosures in the fourth quarter, a decrease of 5.1 percent from previous quarter and a decrease of 28.2 percent year-over-year. Notably, the number of mortgage modifications—most involving a reduction in borrower monthly payments—similarly reflected a substantial 9.3 percent decrease from the previous quarter. The OCC also notes, among other things, that the percentage of seriously delinquent mortgages dropped to 2.3 percent of the portfolio, down from 2.7 percent reported in the fourth quarter a year earlier.
Federal Judge Sentences Ex-Mortgage Banker to 12.5 Years for $30 Million Scheme, Fined $22.5 Million in Forfeiture and Restitution
On March 24, the United States Attorney for the Eastern District of New York announced that District Judge Arthur Spatt levied a 12 ½ year prison sentence against the former head of a mortgage lending bank charged in connection with a conspiracy to commit bank fraud in a $30 million scheme to deceive lenders by lying about property values. The former CEO of a New York state licensed mortgage bank allegedly artificially inflated home prices through a series of same-day transactions, submitted loan applications and appraisals to “warehouse lenders” (financial institutions which fund loans for companies lacking the assets to fund the loans themselves) with values nearly double the true sales prices of the homes, and “inflated [his] own personal assets, used straw purchasers and sham trust entities, and concealed significant liabilities to get loan approval, typically obtaining proceeds for 80 to 100-percent more than the actual value of the homes.” The defendant, found guilty by a jury in January 2016, was also ordered to pay $22.5 million in forfeiture and restitution as part of his sentence.
Bank Holding Company and Nonbank Auto Lender Subsidiary Sign New Written Agreement with Boston Fed
On March 21, the Federal Reserve Bank of Boston (Boston Fed) and a national bank holding company and its nonbank subsidiary (a Dallas-based auto lender) entered into a Written Agreement to address concerns related to their July 2015 Written Agreement, which required a detailed description of the holding company’s efforts to strengthen board oversight specifically with regard to committees, executive positions, and lines of reporting (see July 2015 InfoBytes summary). The 2017 Written Agreement is a result of deficiencies identified by the Boston Fed in the subsidiary’s compliance risk management program. The terms of the current Written Agreement require, among other things, the board of directors of the subsidiary to submit a revised compliance risk management plan addressing, among others: (i) comprehensive compliance risk assessments to identify “risks associated with applicable consumer compliance laws”; (ii) enhanced written policies and procedures to address risks arising from noncompliance; and (iii) a revised code of conduct for employees that outlines rules governing compliance and reporting processes for known or suspected violations of consumer compliance laws, regulations, and supervisory guidance. Furthermore, the company must submit written revisions to its firmwide internal audit program with respect to auditing its revised compliance risk management program.
CFPB Proposes Amendment to Regulation B to Harmonize Regulation B with Other Mortgage Lending Regulations
On March 24, the CFPB announced the release of its proposal to amend Regulation B (12 CFR Part 1002), which implements the ECOA, a federal civil rights law that protects applicants from discrimination by lenders. According to the Bureau, the proposed amendment is intended to “provide additional flexibility for mortgage lenders concerning the collection of consumer demographic information.” Specifically, the regulation, as amended, would allow lenders to use the updated Uniform Residential Loan Application form adopted by Fannie Mae and Freddie Mac in 2016, rather than the 2004 version currently included in Regulation B, along with additional changes that would permit lenders to employ more uniform practices.
As explained in a March 24 CFPB blog post, a core justification for the proposed change is consistency and clarity with respect to other Bureau rules. While ECOA and Regulation B generally prohibit creditors from asking loan applicants about their race, religion, ethnicity, national origin, or gender, in some cases, such as mortgage loans, other regulations (i.e., Regulation C and the HMDA) require creditors to specifically ask for some of the very same information – including, for instance, race and ethnicity. To address this issue, the proposed amendments would allow institutions not subject to HMDA reporting requirements to choose on an “application-by-application basis” between two approaches to collecting personal demographic data from applicants: either the more limited, aggregate race and ethnicity categories required by Regulation B, or the disaggregated and more expansive categories required for HMDA-reporting institutions under revisions to Regulation C effective in 2018. The new rule would also create a safe harbor allowing for the collection (in certain circumstances) of data previously barred by Regulation B, establish consistent race and ethnicity categories that could be used in complying with both Regulation B and C.
Comments on the proposal will be due within 30 days of its publication in the Federal Register.
CFPB Issues Companion Guide to Your Money, Your Goals Toolkit, Targets “Justice-Involved” Individuals
Earlier this month the CFPB published its Focus on Reentry companion guide to the Your Money, Your Goals toolkit introduced in 2014. The companion guide, intended to assist organizations and their staff on how to address the unique financial challenges facing individuals pre- and post-release from incarceration as well as encourage financial empowerment and consumer financial protection education, also contains tools designed to aid “justice-involved” individuals. In particular, Focus on Reentry helps frontline staff teach these individuals to:
- Assess financial goals and understand their current financial situation to identify financial challenges to successful transition;
- Set “SMART” goals (Specific, Measurable, Able to be reached, Relevant, and Time bound) and identify steps to achieve them;
- Understand potential issues they may face when trying to secure documents related to identification to help ease the transition process;
- Identify and prioritize debt—both debt arising from the individual’s involvement in the criminal justice system (criminal justice debt) as well as consumer debt—in order to set debt management goals;
- Understand the process for accessing and reviewing credit reports and how to dispute errors to credit reporting agencies; and
- Understand individual rights to obtain and review criminal background screening reports and how to dispute and correct errors in criminal background checks.
In addition, Focus on Reentry provides information and resources on the impact of incarceration on student loans, access to financial aid, tax obligations, as well as many other categories.
Debt Collection Company President Fined $2 Million for FDCPA Violations
On March 21, a U.S. district judge in the Eastern District of Texas ordered the president of a Texas-based third-party debt collector company (Defendant) to pay a $2 million civil penalty for FDCPA violations by company employees. U.S. v. Commercial Recovery Systems, Inc., No. 4:15-CV-00036, 2017 WL 1065137 (E.D. Tex. Mar. 21, 2017). The complaint, filed in 2015, alleges that Defendant had the authority to direct and control the employees’ actions and had personal knowledge that employees were “impersonating attorneys, attorneys’ staff and judicial employees; falsely threatening litigation; falsely threatening wage garnishments and asset seizures; and misrepresenting the character or legal status of debts under collection.” In his order, the judge notes that Defendant “admitted to hiring abusive collection managers and refused to fire them if they were effective,” acknowledged that the company had no formal FDCPA training program, and testified that the company had been driven into bankruptcy largely by FDCPA suits brought by private litigants. Such conduct, the judge reasoned, evidences a “lack of good faith.” The Court noted that theoretically the Defendant could have faced a civil penalty exceeding $4 billion if the estimated 109,643 violations were penalized at $40,000 each—the maximum penalty amount authorized by the FTC Act for “each instance of conduct that violates the FDCPA with actual or implied knowledge of the FDCPA.” In additional to the penalty, the Defendant must cease all debt collection activity.
FTC Settles with Debt Collection Company for Violations of FTC Act and FDCPA
On March 24, the FTC entered into an agreement with a debt collection company and its owners (Defendants) to resolve allegations that Defendants had engaged in deceptive acts or practices in violation of the FTC Act and the FDCPA. Earlier in the month, the FTC filed a complaint against Defendants, claiming that Defendants collected “court fines, parking tickets, and debts for utility bills and other services on behalf of more than 500 municipalities in various states, including Alabama, Arkansas, Illinois, Kansas, Louisiana, Mississippi, Oklahoma and Texas.” The complaint alleges that Defendants used government letterhead to mislead consumers into thinking the letter was coming from a government agency. The complaint further asserts that Defendants sent consumers an initial warning letter, followed by a “FINAL NOTICE PRIOR TO ARREST” document, which falsely claimed that due to nonpayment, the consumer was subject to arrest, suspension of his or her driver’s license, and reporting to consumer reporting agencies. The agreement enters a civil penalty of $350,000 that must be paid within seven days and prohibits Defendants from misrepresenting debt collection practices and making unsubstantiated claims.