On September 8, the CFPB issued a consent order to a national bank to resolve allegations that its employees opened deposit and credit card accounts for consumers without obtaining consent to do so. According to the CFPB’s consent order, the respondent implemented an incentive compensation program under which employees “engaged in Improper Sales Practices to satisfy goals and earn financial rewards.” The CFPB alleges that the bank’s employees’ Improper Sales Practices were unfair and abusive. Specifically, the consent order alleges that the employees, possibly without consumers’ knowledge or without their consent, (i) opened more than 1.5 million deposit accounts and subsequently transferred money from consumers’ existing accounts to fund the newly opened accounts; (ii) submitted approximately 565,000 credit card account applications on behalf of consumers, with consumers consequently incurring late, annual, and over-draft fees on such accounts; (iii) issued debit cards and created personal identification numbers to activate the cards; and (iv) enrolled consumers in online-banking services. Pursuant to the consent order, the bank, among other things, must pay a civil penalty of $100 million and an expected $2.5 million in consumer redress.
On September 13, the House Financial Services Committee approved by a 30-26 vote the Financial CHOICE Act, Congressman Jeb Hensarling’s (R-TX) legislative replacement to the Dodd-Frank Act. In his opening remarks, Hensarling claimed that the bill aims to end bailouts, support economic growth, and provide regulatory relief to community banks. House Democrats did not offer amendments to the bill, although many expressed adamant disapproval. Congresswoman Carolyn Maloney (D-NY) claimed that the “deeply disturbing” legislation “would take us back to the regulatory stone age.” Various Democrats referenced the CFPB’s recent enforcement action against a national bank to argue that the Financial CHOICE Act’s attempt to remove the CFPB’s authority over abusive practices was one of many reasons to oppose the bill. Democrats unanimously voted against the legislation, while all but one Republican, Congressman Bruce Poliquin (R-ME), voted in favor of moving the legislation forward.
FTC Resolves “Operation Collection Protection” Charges; Bans Companies from Debt Collection Business
On September 7, the FTC announced separate stipulated orders (here and here) against two groups of debt collectors to resolve November 2015 charges that their debt collection practices were deceptive, abusive, and unfair in violation of the FTC Act and the Fair Debt Collection Practices Act (FDCPA). According to the FTC, the first group of debt collectors (i) attempted to collect on debts consumers claimed they did not owe; (ii) failed to verify the debts; and (iii) impersonated law enforcement, threatened non-compliant consumers with arrests and lawsuits, and made accusations of bank fraud. In addition to barring the defendants from debt collection activities and from “misrepresenting material facts about any financial-related products or services,” the order imposes a judgment of more than $4.47 million. Regarding the second group of debt collectors, the FTC alleged that, in addition to threatening consumers with arrest if purported debts went unpaid and harassing friends, family members, and employees in an attempt to collect debts, they sent “alarming and deceptive text messages to trick consumers into contacting them, without identifying themselves as debt collectors.” Pursuant to the final judgment, the defendants must pay a judgment of approximately $27 million. The order imposes a separate judgment of $11,000 on the individually named defendant.
Filed in federal district court of New York, the actions were part of the FTC’s Operation Collection Protection, a federal-state-local initiative that has brought a total of 148 debt collection-related actions to date.
Recently, Representative Blaine Luetkemeyer (R-MO) introduced H.R. 5112, the Unfair or Deceptive Acts or Practices Uniformity Act, to make the authority of the CFPB and FTC more consistent and similar, and to encourage greater communication among regulators. Specifically, the Act would amend Section 1031 of the Dodd-Frank Act by removing the CFPB’s ability to regulate “abusive” conduct from its current authority to regulate “unfair, deceptive or abusive” acts or practices (UDAAP). In addition, the bill would insert the following language at the end of Section 1031: “[i]n prescribing any rule under this subsection, the Bureau shall comply with the requirements of section 18 of the Federal Trade Commission Act (15 U.S.C. 57a) applicable to the Federal Trade Commission when the Commission prescribes rules and general statements of policy under that section with respect to unfair or deceptive acts or practices in or affecting commerce.”
On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.