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On July 13, the CFPB announced a settlement with a Kansas-based company and its former CEO and part-owner for using a network of debt collection agencies (the Agencies) that allegedly engaged in improper debt collection tactics in violation of the prohibitions in the Consumer Financial Protection Act (CFPA) on engaging in unfair, deceptive, or abusive acts or practices (UDAAPs) and on providing substantial assistance to others engaging in such practices. The Bureau also alleged that the company, acting through the Agencies, violated the Fair Debt Collection Practices Act (FDCPA). According to the consent order, the Kansas-based company and its part-owner had “knowledge or a reckless disregard” of the illegal debt collection tactics used by the Agencies, including misrepresenting the amount the consumer actually owed and falsely threatening consumers and their families with lawsuits. In its findings and conclusions, the CFPB alleges that, after reviewing the Agencies’ practices, the company’s “compliance personnel recommended terminating the Agencies because of the Agencies’ illegal collection acts and practices, but [the company and its part-owner] continued placing accounts with the Agencies” and selling debts to one of the Agencies. In addition, the Bureau alleges the company and its part-owner provided operational assistance to the Agencies, such as (i) drafting and implementing policies and procedures that falsely implied compliance with federal laws; (ii) defending the Agencies’ practices when original creditors raised concerns about collection tactics; and (iii) preventing compliance personnel from conducting effective reviews of the Agencies. The order imposes a civil money penalty judgment of $3 million against the Kansas-based company and $3 million against the part-owner but the full payment is suspended subject to the company paying a $500,000 penalty and the part-owner paying a $300,000 penalty. In addition to the penalties, the company is prohibited from continuing the illegal behavior and must create and submit to the Bureau a comprehensive compliance plan, while the part-owner is permanently restrained from acting as an officer, director, employee, agent or advisor of, or otherwise providing management, advice, direction or consultation to, any individual or business that collects, buys, or sells consumer debt.
On June 27, the FTC and the New York Attorney General’s Office announced charges against two New York-based phantom debt operations and their principals. The complaint alleges they ran a deceptive and abusive debt collection scheme involving the marketing and selling of fictitious loan debt portfolios and collecting on debts consumers did not owe. The charges brought against the operations allege violations of the FTC Act, the Fair Debt Collection Practices Act, and New York state law. According to the complaint, the debt broker knowingly purchased fabricated debt from a phantom debt collection operation previously charged by the FTC and the Illinois Attorney General in a separate action for selling fabricated debt. (As previously covered by InfoBytes, the Illinois-based operation was banned from the debt collection business and prohibited from selling debt portfolios.) The debt broker then engaged a debt collection agency and its owner to collect on the fabricated debt using illegal collection tactics, while continuing to purchase debts and place them for collection despite having knowledge that consumers disputed the debts. The complaint seeks, among other things, injunctive relief, restitution, and disgorgement.
On June 4, the FTC announced settlements with a North Carolina-based debt collection business and its principals resolving allegations that the business violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. As previously covered in InfoBytes, the business allegedly used 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. The terms of the settlement call for a $2.7 million judgment against the business and one of the principals, as well as a $1.8 million judgment against the remaining principal, with all parties jointly and severally liable for approximately $1.6 million. The judgments will be partially suspended after defendants surrender certain assets. The settlements also prohibit all defendants from debt collection activities as well as from buying or selling debt in the future.
On May 31, the CFPB released a complaint snapshot on debt collection, which provides a high-level overview of trends from all consumer complaints and additional details related to debt collection complaints. The CFPB reports that it has received approximately 1,492,600 total complaints as of April 1, and that “credit or consumer reporting” was the most-complained-about category in March 2018. As for debt collection, the Bureau received approximately 400,500 debt collection complaints since July 21, 2011, 27 percent of the total number of complaints. The report also highlights common themes among debt collection complaints, including (i) debts being listed on credit reports without prior written notice of the existence of the debt; (ii) debt collection companies not responding to requests for additional information; and (iii) various communication tactics used by debt collection companies, including frequent and repeated calls, calls before 8 a.m. and after 9 p.m., and calls after requests for no further telephone contact.
On May 23, the OCC released Bulletin 2018-14, which encourages banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles. The Bulletin acknowledges the CFPB’s final rule on Payday, Vehicle Title, and Certain High-cost Installment Loans (Payday Rule) – which generally covers loans with maturities shorter than 45 days or longer-term loans with balloon payments – and states the OCC intends on working with the Bureau to ensure banks can “can responsibly engage in consumer lending, including lending products covered by the Payday Rule.”
Specifically, the Bulletin encourages banks to offer loans without balloon payments and with maturities greater than 45 days subject to three core lending principles: (i) the product should be consistent with safe and sound banking, treat customers fairly, and comply with all applicable laws and regulations; (ii) banks should effectively manage risks associated with the product; and (iii) the product should be underwritten based on reasonable policies and practices, such as amount and repayment terms aligning with eligibility, use internal and external data sources to assess a consumer’s creditworthiness, and loan servicing processes that assist distressed borrowers. Additionally, with regard to pricing, the Bulletin stated that the “OCC views unfavorably an entity that partners with a bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state(s).”
Immediately after the OCC’s release, the CFPB issued a statement applauding the Bulletin because “[m]illions of Americans desperately need access to short-term, small-dollar credit.” In January, the CFPB stated it plans to reconsider the Payday Rule and the Spring 2018 rulemaking agenda indicates the Bureau expects a notice of proposed rulemaking to be issued by February 2019 (previously covered by InfoBytes here and here).
On April 17, the Arizona governor signed SB 1264, which prohibits the issuance or sale of gift cards in Arizona that are subject to fees or certain expiration dates. Arizona previously allowed gift cards to be subject to an expiration date, a fee, or both as long as the relevant information was clearly and conspicuously disclosed to the consumer before the purchase was made. SB 1264 prohibits gift cards from begin subject to a fee and prohibits the underlying money on a gift card from being subject to an expiration date. The law allows an expiration date with respect to the card, code, or device associated with a gift card, only if the gift card contains a clear and conspicuous disclosure that the underlying monies associated with the card do not expire and the consumer may obtain a replacement. The prohibition on gift card fees and expiration dates does not apply to (i) gift cards that are sold below face value or donated to nonprofit or charitable organizations; (ii) gift cards distributed pursuant to an awards, loyalty, or promotion program when the consumer has given no money or other property in exchange for the card; and (iii) cards for prepaid telecommunications services, electronic funds transfer cards, bank-issued debit or general purpose reloadable prepaid cards not marketed or labeled as gift cards or gift certificates. The law becomes effective 91 days after the end of the legislative session.
On April 12, the FTC and the Florida Attorney General announced an $85 million settlement with three individuals who allegedly sold fake debt relief services. As previously covered by InfoBytes, in May 2017, the FTC and the Florida Attorney General filed a complaint against the individuals for allegedly violating the FTC Act, the FTC’s Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. According to the complaint, consumers, after collectively paying hundreds or thousands of dollars a month for promised debt-consolidation services marketed by the individuals, discovered their debts were unpaid, their accounts had defaulted, and their credit scores damaged. Under the proposed orders (here and here), all three marketers are restrained and enjoined from “advertising, marketing, promoting, offering for sale, selling” credit repair products and services, debt relief products and services, and financial products and services. The $85 million judgment is held jointly and severally against each of the individuals with a suspended judgment for two if all material assets are surrendered. The judgment for the third individual, considered the ringleader of the operation, is not suspended and the individual is still required to surrender all material assets.
On March 28, the DOJ filed a complaint in the Central District of California against a California-based indirect auto lending company (defendant) for allegedly repossessing servicemembers’ vehicles in violation of the Servicemembers Civil Relief Act (SCRA). The allegations stem from an investigation into the defendant’s practices after an Army Private submitted a complaint to the DOJ in 2016. The DOJ’s investigation concluded that the defendant repossessed the vehicle without obtaining a court order or confirming whether the servicemember was SCRA-protected. According to the DOJ’s complaint, its investigation revealed that the defendant allegedly failed to have policies or practices in place to verify borrowers’ military status before repossessing vehicles. As such, the DOJ believes that the defendant may have repossessed vehicles of other servicemembers without obtaining the necessary court others or verifying military status. The DOJ contends that the defendant’s conduct was “intentional, willful, and taken in disregard for the rights of servicemembers.” In addition to monetary damages, the DOJ seeks civil monetary penalties and injunctive relief.
On March 20, the CFPB and the FTC issued an annual report to Congress on the agencies’ collective actions to combat illegal debt collection practices based on their shared enforcement responsibilities under the FDCPA. The report was released pursuant to a 2012 Memorandum of Understanding between the CFPB and the FTC that provides for coordination in enforcement, supervision, and consumer education. According to the report, the agencies’ actions against debt collectors include:
- CFPB. In addition to handling approximately 84,500 debt collection complaints in 2017, the CFPB reports it resolved one FDCPA enforcement case (previously covered by InfoBytes here) and filed two other complaints alleging FDCPA violations (previously covered by InfoBytes here and here). The Bureau also notes it uncovered a number of actions that the agency’s examiners deemed to be violations of the FDCPA, such as impermissible communications with third parties and implying authorized users are responsible for debt on the account. As for the Bureau’s pending FDCPA rulemaking, the report notes that the CFPB is still considering feedback from stakeholders regarding the July 2016 outline of proposals under consideration.
- FTC. The agency reports it obtained more than $64 million in judgments based on alleged violations of the FDCPA or the FTC Act and emphasized the FTC’s specific focus on phantom debt actions. In addition to working to educate consumers about their rights with regard to debt collection, the FTC emphasized multiple permanent injunctions, which prevent companies and individuals from working in the debt collection field again. As for research, the agency highlighted its July 2017 Military Consumer Financial Workshop, which covered debt collection as an issue faced by the military community (previously covered by InfoBytes here).
FTC and New York Attorney General announce orders banning debt collection operations from related activities
On March 22, the New York Attorney General’s office and the FTC announced settlements with the operators of an allegedly abusive debt collection scheme, resolving lawsuits filed in 2015. (See previous InfoBytes coverage here.) According to the FTC, the operators and associated companies allegedly violated the FTC Act, the Fair Debt Collection Practices Act, and New York state laws prohibiting deceptive acts and practices by using abusive language and making false threats that consumers would be arrested or sued in order to collect the supposed debts. The stipulated final orders impose combined judgments of over $48.7 million to be partially suspended upon the surrender of certain assets, including more than $1 million in corporate and individual assets. In addition to barring the operators from the debt collection business and from buying or selling debt, the orders further prohibit them from misrepresenting financial products and services or benefiting from consumers’ personal information collected in connection with the challenged practices.
- Valerie L. Hletko to discuss "Forecasting litigation and settlement trends in the mortgage servicing and fair lending context" at the American Conference Institute National Forum on Residential Mortgage Regulatory Enforcement & Litigation
- Michelle L. Rogers and Jonice Gray Tucker to discuss “Building a govt affairs program; Government investigations” at the TechGC National Summit
- Tina Tchen to deliver keynote address at the American Bar Foundation Montgomery Summer Research Diversity Fellowship 30th Anniversary Celebration
- Douglas F. Gansler to discuss "Privacy, security and protection of your assets in contracts; Security exercises and tactical measures" at the TechGC National Summit
- H Joshua Kotin will discuss federal regulatory developments in mortgage lending and servicing at the Mortgage Bankers Association of Arkansas Fall Conference
- Kate Shrout to discuss "Conducting workplace investigations" at the TechGC National Summit
- Kathryn R. Goodman to discuss "HECM servicing policies and updates" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Fredrick S. Levin to discuss "Reverse mortgage litigation trends" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Melissa Klimkiewicz to speak at the "Digital marketing compliance roundtable" at the National Reverse Mortgage Lenders Association Annual Meeting & Expo
- Hank Asbill to discuss "The role of the media in white collar criminal investigations and the Mueller probe" at the American Bar Association White Collar Crime Town Hall
- John C. Redding to discuss "Regulatory compliance update" at PowerSports Finance
- Matthew P. Previn to discuss "Enforcement trends: Who is doing what and how?" at the Cambridge Forums Inc. Forum on Consumer Finance Litigation & Enforcement
- Jonice Gray Tucker to discuss "Protect yourself from a CFPB investigation" at the National Association of Settlement Purchasers Conference
- Tina Tchen to deliver keynote address at the American Bar Association Professional Success Summit
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference