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  • CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits

    Consumer Finance

    On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.

    According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.

    A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.

    Consumer Finance CFPB Student Lending Debt Collection Enforcement

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  • CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas

    Consumer Finance

    On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.

    As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:

    • consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
    • debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
    • companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
    • borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”

    The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.

    Consumer Finance CFPB Enforcement Auto Finance Credit Cards Debt Collection Fair Lending ECOA Compliance Mortgage Origination Mortgage Servicing HMDA Student Lending

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  • 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

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  • 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

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  • National Bank, Debt Collection Agency Reach $4.3 Million Class Action Settlement for Alleged FDCPA Violations

    Courts

    On August 21, a national bank and a debt collection agency (Defendants) together entered a $4.3 million settlement in a Fair Debt Collection Practices Act (FDCPA) class action lawsuit brought by borrowers who alleged the Defendants unlawfully attempted to collect certain mortgage payments. The July 2015 complaint, filed in the U.S. District Court for the Southern District of California, accused Defendants of violating the FDCPA, California’s Rosenthal Fair Debt Collection Practices Act, and California’s Unfair Competition Law, Business and Professions Code when they sent more than 20,000 allegedly misleading, unenforceable payment notices to borrowers after the bank had released the liens on the properties securing the mortgage loans.

    According to a memorandum in support of the motion seeking preliminary approval of the settlement, approximately three percent of the 23,376 members of the settlement class members made payments on unenforceable loans. The rest of the class did not make any payments. After three mediation sessions and a series of negotiations, Defendants agreed to award class members amounts based on their placement into one of three tranches: (i) tranche 1: borrowers who made at least one “challenged payment” on a purchase money mortgage; (ii) tranche 2: borrowers who made at least one challenged payment on a non-purchase money mortgage; and (iii) tranche 3: borrowers who received an “allegedly deceptive payment communication” but did not make any challenged payments. The settlement terms stipulate that class members in tranche 1 will receive an initial payment worth 76 percent of the total challenged payments they made, and members in tranche 2 will receive an initial distribution of 38 percent of what they paid. Class members from Tranche 1 and Tranche 2 will be eligible for a second distribution if sufficient funds remain available. An approximately $22 payment will be sent to the majority of the class members (who fall into tranche 3), which will be paid from the $500,000 maximum statutory civil penalty available under the Rosenthal Act. Class members are not required to do anything to receive their award.

    Courts Debt Collection FDCPA Mortgages Class Action Settlement

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  • 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

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  • Illinois Governor Enacts Amendments to Collection Agency Act

    State Issues

    On August 18, Illinois Governor Bruce Rauner enacted amendments (HB 2783) to the state’s Collection Agency Act, which establishes provisions relating to licensing requirements. Among other things, the amended Act now (i) allows the Secretary of the Department of Financial and Professional Regulation (Department) to require licensing applications to participate in a multi-state licensing system and permits the licensing system to share regulatory information and charge administrative fees; (ii) removes the requirement to file an annual trust account financial report to the Department; (iv) provides that members of the Collection Agency Licensing and Disciplinary Board “shall have no liability in any action based upon any disciplinary proceeding or other activity performed in good faith as a member of the Board”; and (v) removes the provision requiring the Department to maintain rosters of all active licensees under the Act or persons whose licenses have been suspended, revoked, or denied renewal under the Act. The amended Act took effect upon being signed into law.

    State Issues State Legislation Debt Collection Licensing

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  • Oregon Governor Enacts Law Regarding Compliance Requirements for Debt Collection Licensees

    State Issues

    On August 2, Oregon Governor Kate Brown signed into law House Bill 2356 (HB 2356), which establishes provisions relating to debt collection practices in the state. Among other things, the law (i) details the practices a debt buyer, or debt collector acting on behalf of a debt buyer, is required to follow to legally collect debt; (ii) specifies the type of notice and documents that a debt buyer must provide to a debtor; (iii) requires persons engaged in debt buying to obtain or renew their licenses through the Department of Consumer and Business Services; and (iv) specifies duties of licensees, outlines prohibited conduct, and identifies unlawful collection practices. The law takes effect January 1, 2018.

    State Issues State Legislation Debt Collection Debt Buyer Compliance

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  • CFPB Issues Bulletin Warning Service Providers About Pay-By-Phone Fees

    Consumer Finance

    On July 31, the CFPB issued a bulletin to warn service providers that misleading consumers about pay-by-phone fees may potentially be a violation of Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. The Bureau also provided guidance regarding its expectations for UDAAP and FDCPA compliance when assessing pay-by-phone fees. According to the bulletin, the CFPB noted several instances where consumers were either not informed up front of the fees that came with paying expenses over the phone or were not offered lower-cost alternatives. The Bureau cited several public enforcement actions, in which it alleged, among other things, that entities (i) misrepresented available payment options or gave the impression that a fee was required to make a payment by phone, when the only purpose of the fee was to expedite the phone payment; (ii) failed to disclose phone pay fees, thus creating the impression that there was no service fee; or (iii) lacked monitoring and oversight programs to deter this type of misleading behavior. The Bureau further encouraged service providers to consult a 2016 bulletin issued to discuss “detecting and preventing consumer harm from production incentives” to examine whether existing or future provider production incentive programs might “steer borrowers to certain payment types or to avoid disclosures,” which it says increases the potential risk for UDAAP.

    Consumer Finance CFPB UDAAP Debt Collection Dodd-Frank FDCPA

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  • FTC to Host Joint Conference on Protecting Military Consumers

    Consumer Finance

    On July 27, the FTC announced it is partnering with state and local authorities to host the Protecting Military Consumers: A Common Ground Conference on September 7 in Los Angeles to provide training on consumer fraud and other issues affecting servicemembers and their families. The conference is geared towards military attorneys, law enforcement personnel, and consumer protection officials, and will include the following topics:

    • student loans and for-profit colleges;
    • identity theft and imposter scams;
    • debt collections;
    • mortgage disputes; and
    • real estate fraud.

    Additionally, the conference will discuss several federal, state, and local consumer protection laws, including the Servicemembers Civil Relief Act, the Military Lending Act, and FTC and CFPB rules and regulations.

    Earlier in July, the FTC held a Military Consumer Financial Workshop to educate consumers on financial issues and scams they may face. (See previous InfoBytes coverage here.)

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

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