On September 9, the CFPB ordered the two largest U.S. debt buyers and collectors to pay a combined total of nearly $80 million in civil penalties and consumer restitution related to their debt collection practices. The CFPB alleged that both companies, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining important documentation or information about the debt, or verifying to ensure the debts were accurate and enforceable before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The other company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of over $3 million. In addition, both companies are also generally prohibited from reselling consumer debt. In prepared remarks announcing the enforcement action, CFPB Director Richard Cordray noted, “the terms of the orders will help reform and improve the tactics and approaches” within the debt collection market. The CFPB’s action comes as the industry anticipates the CFPB’s issuance of new debt collection rules.
On September 15, the CFPB announced a preliminary injunction obtained against World Law Group and its senior leaders for allegedly running a debt-relief scheme that charged consumers costly and illegal upfront fees. According to the CFPB, “the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts.” Specifically, the complaint alleges that defendants charged consumers upfront fees before providing debt-relief services in violation of the Telemarketing Sales Rule. The complaint also alleges that World Law Group falsely promised legal representation to consumers who did not receive the promised legal representation. The underlying lawsuit remains pending following the granting of the preliminary injunction.
On August 25, BuckleySandler secured a substantial victory in a putative class action in the Northern District of Illinois. McGann v. PNC, No. 11-c-6894 (N.D. Ill. Aug. 25, 2015). The suit alleged that a major mortgage servicer failed to convert Home Affordable Modification Program (HAMP) Trial Period Plans (TPPs) into permanent modifications. The Seventh Circuit Court of Appeals, with jurisdiction over the Northern District of Illinois, has allowed similar claims to survive dismissal. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012). And the Ninth Circuit has allowed such claims to go forward on a classwide basis. See Corvello v. Wells Fargo Bank, N.A., Nos. 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013).
Despite this potentially adverse precedent relevant to the pleadings stage, BuckleySandler secured summary judgment in its client’s favor following extensive discovery by extracting key admissions from Plaintiff. These admissions established that the servicer “repeatedly told her either that her application was being reviewed or that it had been rejected but would be reinstated. A promise to review or even to reinstate an application is not a promise that the application will result in a permanent loan modification . . . she still had to meet HAMP’s requirements. That was clear from the TPP agreement itself.” Opinion at 9. The Court further held that even if these statements led Plaintiff to a subjective belief that the loan would be modified, Plaintiff could not show any actions she took in reliance, nor that any reliance would be reasonable. Opinion at 11.
Finally, the Court also held that the servicer did not engage in any unfair conduct under Illinois’ UDAAP statute, the Illinois Consumer Fraud and Deceptive Business Practices Act. The plaintiff in the matter was not a borrower on the note, but rather a non-borrower mortgagor, for whom HAMP was not available during the time in question. The Court agreed the servicer complied with HAMP guidelines in denying the permanent modification. Opinion at 16-17. And the Court went on to hold that the servicer was entitled to summary judgment for the additional reason that the evidence in discovery established that the cause of the plaintiff’s injuries was her non-qualification for HAMP, her inability to pay the mortgage, and the resulting foreclosure of the home, none of which was proximately caused by any wrongful conduct of the servicer. Opinion at 15-16.
CFPB & NYDFS File Suit Against Two Pension Advance Lenders Over Misleading Consumers Related to Costs, Risks Associated to Advance Payments
On August 20, the CFPB, along with the New York Department of Financial Services (NYDFS), filed a joint complaint in federal court against two pension advance lenders and three of their managers for allegedly misleading consumers regarding the costs and risks associated with the companies’ pension advance loans. The CFPB and NYDFS contend that both companies coerced consumers into borrowing against their pensions by marketing the product as a sale rather than a loan, and misrepresented or failed to disclose interest rates and fees on lump-sum cash advances offered for agreeing to redirect the full or partial amount of the consumer’s pension payments over an extended period. In separate allegations, the NYDFS contends that both companies violated New York state specific laws related to usury and deception, and unlawfully transmitted money without a proper license. The complaint follows guidance issued earlier this year highlighting three business practices consumers should avoid when conducting business with pension advance lenders.
On July 30, the CFPB ordered a Texas-based mortgage servicer to pay $1.5 million in restitution and $100,000 in civil money penalties for allegedly engaging in faulty servicing practices, according to a settlement announced by the CFPB. The CFPB alleged that, beginning in 2009, the mortgage servicing firm failed to honor “in-process” modifications—trial modifications that were pending when a loan was transferred to the company—until it determined that the prior servicer should have agreed to the trial modification. In addition, the CFPB alleged that the servicing firm provided inaccurate account statements to borrowers related to their loan balance, interest rates, payment due dates, and the amount available in escrow accounts. The CFPB further contends that, in certain instances, the servicing firm coerced consumers into waiving certain legal protections as a condition to being allowed to pay off delinquent payments in installments. Under the terms of the consent order, the servicing firm agreed to, among other things, (i) provide $1.5 million in restitution to consumers whose loan modifications were not acknowledged; (ii) pay a $100,000 civil money penalty; (iii) mitigate the impact of its allegedly unlawful practices by, for example, converting “in-process” loan modifications to permanent modifications and stopping foreclosure processes for certain borrowers; and (iv) honor loss-mitigation agreements entered into by prior servicers and “in-process” loan modifications and engage in outreach to contact borrowers and offer them loss-mitigation options.
On July 21, the CFPB announced a nearly $700 million settlement against a leading financial institution and its subsidiaries. According to the consent order, the Bureau alleges that the entities engaged in deceptive marketing, billing, and collection practices related to various credit card ancillary products, including debt protection and credit monitoring services. Specifically, the Bureau alleges that the institution or its vendors marketing practices, consisting of telemarketing calls, online enrollment, point-of-sale application, and direct enrollment at retailers, mislead consumers into enrolling for certain ancillary products. The Bureau further alleges that, in some instances, telemarketers failed to accurately disclose the cost and fees associated with the ancillary products. With respect to the unfair billing allegations, the Bureau contends that the institution or its vendors improperly charged consumers, without authorization, for services that were not rendered, and failed to provide full product benefits of the services marketed to consumers. In addition, the Bureau alleges that the institution misrepresented payment fee information to consumers by failing to disclose the actual purpose of the fee associated with making payments by phone on delinquent credit card accounts. Under terms of the settlement, the institution and its subsidiaries agreed to (i) provide $479 million in consumer relief related to its marketing practices; (ii) pay roughly $220 million in restitution related to its payments collection practices and for consumers not receiving the full benefits of services promised; and (iii) pay a $35 million civil money penalty.
In a parallel enforcement action, the OCC imposed a separate $35 million civil money penalty against the institution for engaging in similar practices, and requires the institution to strengthen its oversight of third-party vendors and develop a comprehensive risk management program for ancillary products marketed or sold by the bank.
Today, the CFPB filed proposed consent orders against two credit card add-on product vendors for allegedly billing consumers for credit monitoring and identity theft protection services they did not receive. Under the proposed consent orders, one vendor will provide nearly $7 million in restitution to the holders of approximately 73,000 accounts, and pay a $1.9 million civil money penalty. The other vendor will provide almost $55,000 in restitution to consumers who were incorrectly billed for identity theft or credit monitoring services, and pay a $1.2 million civil money penalty. The Bureau specifically noted that today’s announcement is the “first time the Bureau has brought actions directly against the companies” that market or administer ancillary products.
CFPB and Florida AG Obtain Judgment Against Law Group and Corporate Affiliates for “Mass-Joinder” Foreclosure Relief Scam
On May 29, a final order was entered against a law group and its corporate affiliates in an action brought by the CFPB and the State of Florida. The July 2014 complaint alleged that the law group and its affiliates violated Regulation O, or the Mortgage Assistance Relief Services Rule, and Florida state law by convincing consumers to participate in “mass-joinder” lawsuits against their mortgage lenders with the false promise that the suits would result in mortgage modifications or foreclosure relief. More specifically, the defendants’ Regulation O violations included: (i) charging consumers advance fees before obtaining loan modifications for them; (ii) misrepresenting success rates of receiving a loan modification; (iii) deceiving consumers into believing that they would receive legal representation; and (iv) discouraging consumers from making their loan payments and/or communicating with their lenders or servicers. The final order, which follows a temporary restraining order and an asset freeze against the defendants, requires that the defendants pay redress to victims and a total of $16 million in civil and state penalties and cease all business operations. Final orders were issued against the three named individuals in the suit as well.
The Department of Education is set to propose new regulations which could change how financial institutions provide services on college campuses, according to a NPRM to be published in the Federal Register on May 18. The new rules, part of a nearly 300-page “Program Integrity and Improvement” package, are intended to among other things (i) ensure that students have convenient access on their Title IV funds, (ii) do not incur unreasonable and uncommon financial account fees, and (iii) are not led to believe they must open a particular account from a financial institution to receive Federal student aid. The proposed regulations also update other provisions in the cash management regulations, clarify how previously passed coursework is treated with respect to Title IV funds eligibility, and streamline the requirements for converting clock hours to credit hours. Public comments on the proposed rulemaking will be due 45 days after date of publication in the Federal Register.
CFPB Tackles Payment Processor for Charging Servicemembers Hidden Fees, Orders Over $3 Million in Consumer Relief
On April 20, the CFPB announced an enforcement action against a Kentucky-based third-party processor of military allotments and its subsidiary – together “Respondents” – for allegedly charging servicemembers millions of dollars in hidden fees. According to the Bureau, servicemembers set up allotment arrangements with the Respondents, and the Respondents were to pay creditors – auto lenders, installment lenders, and retail merchants – on behalf of deployed servicemembers. The Bureau alleges that from 2010 to 2014, the company violated UDAAP provisions of the Consumer Financial Protection Act by failing to (i) adequately disclose information about various fees associated with the Respondents’ services; and (ii) inform servicemembers when they were being charged residual-balance fees. The consent order requires that the Respondents pay approximately $3.1 million in relief to the affected servicemembers.
CFPB and Navajo Nation Partner in UDAAP Action Against Companies Involved in Alleged Tax Refund Scheme
On April 14, the CFPB along with the Navajo Nation jointly announced an enforcement action against two companies and their respective owners (Defendants) for running an alleged tax-refund scheme, marking the CFPB’s “first enforcement action taken in conjunction with a tribal government.” According to the complaint, the Defendants operated several tax-refund franchises in New Mexico and in the Navajo Nation territory in which clients were offered short-term, triple-digit APR loans secured by the consumer’s anticipated tax refund, also known as refund anticipation loans (“RALs”). The CFPB and Navajo Nation contend, among other things, that the Defendants (i) steered low-income and vulnerable consumers toward high-cost RALs; (ii) understated the APR of the RALs in disclosure agreements to consumers; and (iii) failed “to disclose that consumers’ tax refunds had been received and would soon be available, but instead persuaded consumers to take out additional RALs.” Under the terms of the proposed consent order, the Defendants would, among other things, (i) pay approximately $438,000 in total consumer redress, which consists of $256,267 in redress fees in addition to roughly $184,000 that has already been paid to affected consumers; (ii) incur $438,000 in civil money penalties; and (iii) be barred, for five years, from offering products associated with tax refunds. The consent order also would prohibit the Defendants from investing, financing, or working for an entity that offers tax refund products.
On March 17, the CFPB announced a Request for Information (RFI) seeking public comment on key aspects of the credit card market. This RFI is a part of a review mandated by the Credit Card Accountability, Responsibility, and Disclosure Act (the CARD Act)—a law passed in 2009 that requires the CFPB to conduct a review of the credit card market every two years. The review seeks feedback on how the credit card market has functioned over the last two years and the impact new credit card protections have had on consumers. Specifically, the review solicits input on the changing patterns of credit card agreement terms, unfair or deceptive practices within the credit card market, the use of third-party debt collection agencies, and how consumers understand credit card reward products. Information obtained from the review will culminate in a public report to Congress.
CFPB Orders Nonbank Mortgage Lender to Pay $2 Million Penalty for Deceptive Advertising and Kickbacks
On February 10, the CFPB announced a consent order with a Maryland-based nonbank mortgage lender, ordering the lender to pay a $2 million civil money penalty, in part for allegedly failing to disclose its financial relationship with a veteran’s organization to consumers. According to the consent order, the CFPB alleged that the lender, whose primary business is originating refinance mortgage loans guaranteed by the VA, paid a veteran’s organization a fee to be named the “exclusive lender” of the organization and that failing to disclose this relationship in marketing materials targeted to the organization’s members constituted a deceptive act or practice under the Dodd-Frank Act. The CFPB further alleged that, because the veteran’s organization urged its members to use the lender’s products in direct mailings from the lender, call center referrals, and through the organization’s website, the monthly “licensing fee” and “lead generation fees” paid to the veteran’s organization and a third party broker company as part of marketing and referral arrangements constituted illegal kickbacks in violation of RESPA. In addition to the civil penalty, the consent order requires the lender to end any deceptive marketing, cease deceptive endorsement relationships, submit a compliance plan to the CFPB, and comply with additional record keeping, reporting, and compliance monitoring requirements.
On December 17, the CFPB announced it filed suit against a Texas-based company for allegedly deceiving consumers into paying fees to sign up for a “sham” credit card. According to the complaint filed in the Northern District of Texas, the CFPB alleges that the company falsely advertised a general-use credit card that, in actuality, could only be used to buy products from the company. The CFPB further alleges that the company deceptively implied an affiliation with unions by, among other things, using pictures of nurses, firefighters, and other public servants in its advertising. The complaint seeks compensation for consumers, a civil penalty, and an injunction against the company.
Special Alert: CFPB Takes Enforcement Action Against “Buy-Here, Pay-Here” Auto Dealer for Alleged Unfair Collection and Credit Reporting Tactics
On November 19, the CFPB announced an enforcement action against a ‘buy-here, pay-here’ auto dealer alleging unfair debt collection practices and the furnishing of inaccurate information about customers to credit reporting agencies. ‘Buy-here, pay-here’ auto dealers typically do not assign their retail installment sale contracts (RISCs) to unaffiliated finance companies or banks, and therefore are subject to the CFPB’s enforcement authority. Consistent with the position it staked out in CFPB Bulletin 2013-07, in this enforcement action the CFPB appears to have applied specific requirements of the Fair Debt Collection Practices Act (FDCPA) to the dealer in its capacity as a creditor based on the CFPB’s broader authority over unfair, deceptive, or abusive acts practices.
The CFPB charges that the auto dealer violated the Consumer Financial Protection Act, 12 U.S.C. §§ 5531, 5536, which prohibits unfair, deceptive, or abusive acts or practices, by (i) repeatedly calling customers at work, despite being asked to stop; (ii) repeatedly calling the references of customers, despite being asked to stop; and (iii) making excessive, repeated calls to wrong numbers in efforts to reach customers who fell behind on their auto loan payments. Specifically, the CFPB alleges that the auto dealer used a third-party database to “skip trace” for new phone numbers of its customers. As a result, numerous wrong parties were contacted who asked to stop receiving calls. Despite their requests, the auto dealer allegedly failed to prevent calls to these wrong parties or did not remove their contact information from its system.
In addition, the CFPB alleges that the auto dealer violated the Fair Credit Reporting Act by (i) providing inaccurate information to credit reporting agencies; (ii) improperly handling consumer disputes regarding furnished information; and (iii) not establishing and implementing “reasonable written policies and procedures regarding the accuracy and integrity of the information relating to [customers] that it furnishes to a consumer reporting agency.” Specifically, the CFPB alleges that, since 2010, the auto dealer did not review or update its written furnishing policies, despite knowing that conversion to its third-party servicing platform had led to widespread inaccuracies in furnished information. Also, the consent order alleges that the auto dealer received more than 22,000 credit disputes per year, including disputes regarding the timing of repossessions and dates of first delinquency for charged-off accounts, but nevertheless furnished inaccurate information. Read more…