CFPB Files Suit Against Nation’s Largest Student Loan Company

On January 18, the CFPB initiated an enforcement action against the nation’s largest student loan servicer based upon alleged violations of the CPA, FCRA, and FDCPA. In a complaint filed with the Middle District of Pennsylvania, the Bureau charged that the student lender “systemically and illegally” created “obstacles to repayment” and “cheated” many borrowers out of their rights to lower repayments, causing them to pay much more than they had to for their loans. The CFPB “seeks to obtain permanent injunctive relief, restitution, refunds, damages, civil money penalties, and other relief.”

Later that day, the lender issued a statement categorically rejecting the CFPB’s charges, explaining: “[T]he suit improperly seeks to impose penalties [] based on new servicing standards applied retroactively and applied only against one servicer. The regulator-asserted standards are inconsistent with Department of Education regulations, and will harm student loan borrowers, including through higher defaults.” The company also noted that “the timing of this lawsuit—midnight action filed on the eve of a new administration—reflects their political motivations.”

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CFPB Orders Medical Debt Collection Law Firms to Refund $577,135 to Consumers

On January 9, the CFPB entered into a Consent Order and Stipulation against two medical debt-collection law firms and their president for alleged violations of the FDCPA and FCRA. Based on these allegations, the CFPB ordered the Respondents to provide $577,135 in relief to affected consumers, correct their business practices, and pay a $78,800 civil money penalty. According to the allegations set forth in the consent order, between January 2012 and August 2016, debt collectors working for the firms violated the FDCPA by giving the false impression that the firm’s “Demand Letters were from an attorney or that the firm’s attorneys were meaningfully involved in reviewing the consumer’s case or had reached a professional judgment that sending a Demand Letter or making a collection call was warranted.” The Bureau also found that the firms notarized consumer affidavits for use in debt-collection lawsuits without properly verifying the truth of the signature. The CFPB also alleged that the firms violated FCRA’s Regulation V by failing to establish, implement, and periodically review and update reasonable written policies and procedures regarding the accuracy and integrity of consumer information furnished to consumer reporting agencies.

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Legislators Appeal to CFPB Regarding Payday Loan Proposal

In a letter sent to CFPB Director Richard Cordray on December 1, a group of Republican members of Congress expressed concern about the Bureau’s proposal regarding payday, vehicle title, and certain high-cost installment loans. The letter observes that CFPB’s proposal “attempts to further regulate an industry that is already highly regulated by nearly a dozen federal laws including the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and the Electronic Funds Transfer Act.” Specifically, the letter contends that the CFPB’s framework will effectively preempt existing statutory and regulatory frameworks and/or eliminate regulated small dollar credit products from the market, thereby leaving consumers without access to credit or forcing them to seek “riskier, illegal” forms of credit.

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

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.

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Eleventh Circuit Reverses District Court Ruling in FCRA Case

On July 11, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a decision from the District Court for the Southern District of Georgia, concluding that the district court had erred in dismissing the plaintiff’s claims under Section 1681s-2(b) of the FCRA. Hinkle v. Midland Credit Mgmt., Inc. et al., No. 15-10398 (11th Cir. July 11, 2016). Pursuant to 15 U.S.C. § 1681s-2(b), after receiving notice of a dispute, furnishers of information are required to either verify disputed information via investigation or to notify the credit reporting agencies (CRAs) that the disputed information cannot be verified. At issue in Hinkle was whether the debt buyer’s search of its internal records was a reasonable investigation to verify debt accounts when the plaintiff disputed their validity. The debt buyer argued that, “once it compared the information the CRAs possessed with its own internal records and confirmed a match, it was entitled to report the accounts as having been ‘verified.’” The plaintiff maintained that, without obtaining account-level information beyond its internal records, the debt buyer should have reported the results of its reinvestigation to the CRAs as “cannot be verified.” The court agreed with the plaintiff, determining that a reasonable jury could find that the debt buyer’s failure to attempt to consult account-level documentation to confirm that it was seeking to collect the debts from the right person, was an unreasonable investigation on the facts of this case.

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