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Can you stop debt collectors from harassing and suing?

BY CHARLES PEKOW · AUGUST 9, 2014 ·

Collectors call again and again in the middle of dinner. They call the wrong person. They threaten. They take advantage of the latest technology to embarrass people. Often, they violate the law. Debt collectors will go to all sorts of legal and illegal means to intimidate people who owe or allegedly owe money. Collection has become a multi-billion dollar business, especially in the last few years as the slow economy had caused people to fall behind on payments.

About 30 million Americans were saddled with debt or alleged debt in collection in 2012, averaging about $1,500 according to the Consumer Financial Protection Bureau (CFPB).

Law has fallen behind technology and the extent of the problem.

Realizing this, Congress created CFPB and granted it limited authority to write rules to govern part of the problem under the Dodd-Frank Act in 2010.  Four years later, CFPB collected public comments on the problem over the winter. It plans to survey consumers this summer about their experience and knowledge of their rights.

“I used to be harassed by debt collection agency for a debt that was not my own. I used to have a different phone number. I had to change it because I kept on getting calls from a collection agency that were intended for the prior owner of the phone number. It did not matter how much I told them that they were calling the wrong number. I still got calls,” wrote Dylan Tate, a citizen responding to CFPB.

“What amazes me more than anything else is the impossibility of getting a wrongful debt removed from the record. I was a straw man in real estate and the person who stole my identity was arrested, tried and found guilty and sentenced and served time – YET – more than 15 years later I am still receiving calls from debt collectors for forged name documents and statements on my credit report for properties I never owned. How can this be stopped or cleared up?” wrote Gerald Elgert of Silver Spring, Md.

Though the slow economy exacerbated the problem, an improving one may not help. “Debt collection agencies will experience renewed demand,” as people regain ability to pay, Market research firm IBISWorld reported last November.

Medical debt – the largest source of unpaid bills. Medical bills and educational loans are eclipsing the traditional mortgages and auto loans as the fastest growing categories of debt in collection.

But CFPB’s new authority extends to only the largest companies – it estimates its proposed rules would cover about 175 firms. IBISWorld counted 9,599 firms in the business last fall.

The Federal Trade Commission (FTC) has historically taken the lead role in the issue. The FTC “receives more complaints about debt collection than any other specific industry and these complaints have constituted around 25 percent of the total number of complaints received by the FTC over the past three years,” James Reilly Dolan, acting associate director of the FTC’s Division of Financial Practices said in July Senate testimony. The FTC got 199,721 collection complaints in 2012, up from 142,743 complaints in 2011 and 119,609 in 2009. Almost 40 percent of disputes about national credit reporting agencies concern collection. (FTC figures don’t include other complaints it gets that might include debt collection but it codes as identity theft or do-not-call grievances.)

So who is annoying the most people with repeated phone calls, threats, obscenity and other obnoxious tactics to collect debt? Largely major banks and collection agencies they hire.

In response to a Freedom of Information Act (FOIA) request, the FTC provided a list of the companies getting the most complaints over a 28-month period. They had, by and large, already gotten into legal trouble but that didn’t stop them from continuing to bother people.

1. NCO Financial Systems, Inc, a Horsham, PA collection agency (now Expert Global Solutions), with 6,223 complaints. In 2004, NCO paid the FTC $1.5 million, at the time a record debt collection fine. But last July, it broke its own record and paid the largest ever civil penalty in a debt collection case, $3.2 million. “It’s the one we get the most complaints about,” said consumer lawyer Craig Kimmel. Its “dialing system is otherworldly in its sophistication to keep calling people….They will keep calling until somebody pays and people will pay just to get rid of them.” Vaughn’s Summaries, a general reference website, called it “the worst debt collection agency.”
2. Allied Interstate, Inc., part of iQor, a privately-owned conglomerate. Allied wracked up 4,934 complaints covering everything from repeated phone calls to falsely representing alleged debts to calling at inappropriate hours. Allied paid $1.75 million in 2010 to the FTC to settle charges of telephone harassment – the second largest fine of its kind at the time. While Citibank, the nation’s third largest bank, doesn’t show up on the list of top violators, that doesn’t mean it’s not profiting from questionable tactics. Another division of parent company Citigroup owns a large stake in iQor. “I draw two conclusions,” stated Sen. Sherrod Brown (D-OH) at a recent Senate hearing. “Citigroup and other banks think debt collection is a lucrative business. There’s a reputational risk to associating with those companies. Citigroup probably does not want their name on an aggressive means so they have iQor or Allied Interstate or something.”
3. Portfolio Recovery Associates (PRA) with 4,481 cases, more than 1,000 of them charging callers with failing to identify themselves. The Norfolk, Va.-based company specializes in buying debt, especially of bankrupt people for a fraction of the value and trying to collect the entire sum. PRA is subject to at least five class action and multiple individual suits for alleged wrongdoing such as calling cellphones without permission. PRI denied to us that it breaks laws.
4. Capital One Bank, an Allied client, with 3,054 accusations, including calling repeatedly and continuously, at inappropriate times, not sending written notices, refusing to verify debt, and profanity. Kimmel sued Capital One for harassing and demanding almost $287 million from a woman over a debt of less than $4,000.
5. Deceptive trade practices and violating a 2009 order. The state charged that the bank continued to “mislead consumers with false promises” that they would not foreclose on homeowners while simultaneously foreclosing. Nevada also charged BofA with a litany of other misrepresentations including “falsely notifying consumers or credit reporting agencies that consumers are in default when they are not.” BofA paid penalties and agreed to change tactics.
6. Midland Credit Management (MCM), a national debt buyer that use several names, including Encore Capital Group and Ascension Capital Group, with 1,778. MCM’s parent company reported to the Securities & Exchange Commission that it bought $8.9 billion in credit card debt during the first half of 2012 for about 4 cents on the dollar. The company specializes in suing debtors. MCM paid nearly $1 million in fines to Maryland in 2009 for alleged violation of state and federal laws, including operating without proper licensing. Though CFPB officially opened a complaint line in July about collectors, it got 750 such gripes in the first quarter of 2013, according to information received under FOIA. Consumers complained by far the most about Midland – 44 times, or six percent of the total.
7. I.C. System at 1,767, mostly for calling “repeatedly or continuously.” The Minnesota Dept. of Commerce fined I.C. $65,000 for violating a variety of state laws, including failure to screen job applicants properly, hiring felons and not notifying the state that it dismissed at least 10 employees for using profanity. The U.S. Better Business Bureau received 807 complaints about I.C. in the last year.
8. Similar name) at 1,644. The company went out of business after five state attorneys general sued it. NCS was acting on behalf of Hollywood Video, the movie rental service that went bankrupt in 2010. NCS was filing negative credit reports on consumers and threatening to sue them if video renters didn’t pay up. The problem stemmed from movie watchers who tried to return videos at stores that closed, said company founder Brett Evans. Though customers followed instructions to leave videos in a bin, their returns weren’t recorded and NCS tried to collect late fees.
9. JP Morgan Chase, an NCO client, with 1,522. The Office of the Comptroller of the Currency (OCC) last September issued a Consent Cease and Desist order against Chase for multiple “unsafe and unsound practices” in its collection work, including filing misleading documents in court, not properly notarizing forms and not properly supervising its employees and contractors.

California’s attorney general sued the bank last year for allegedly routinely suing consumers for non-payment without following proper procedures. Unless otherwise noted, the companies either declined to address the charges or did not respond to inquiries. Mark Schiffman, spokesperson for ACA International, the largest collector trade group, said “they’ve made it pretty darn easy to complain in the first place. It’s not fair to say that the (FTC files) are a bellwether, that this is a horrible industry.”

The FTC got one of its largest settlements, $2.8 million, from West Asset Management last year. West didn’t show up on the above list as many people named their creditor, not the collection agency, when complaining. The Omaha, NB-based West agreed not to engage in tactics the FTC accused it of, including calling the same individuals multiple times a day, using “rude and abusive language” and disclosing information to third parties.

But West was making plenty of the calls that led to trouble for the banks. West said on its website that its clients include “seven of the top 10 credit card issuers, and other Fortune 500 companies.” The top five include four of the biggest sources of complaints: Chase, Capital One, Citigroup and BofA, according to Card Hub, an online search tool.

Only 15 lawsuits in nearly four years. It lacks the resources to handle every complaint so it focuses on the most serious abusers or cases that can establish a legal precedent. While CFPB is now taking complaints and can write rules, its small staff won’t be able to make more than another dent in the problem.

An FTC report on the issue said “based on the FTC’s experience, many consumers never file complaints with anyone other than the debt collector itself. Others complain only to the underlying creditor or to enforcement agencies other than the FTC. Some consumers may not be aware that the conduct they have experienced violates (the Fair Debt Collection Practices Act, or FDCPA ). For these reasons, the total number of consumer complaints the FTC receives may understate the extent to which the practices of debt collectors violate the law.”

And much lies out of FTC jurisdiction. FDCPA, for instance, does not apply to banks, on the theory that banks are less likely to annoy their customers than an outside collector. If a bank harasses people, the victims can contact OCC or Federal Deposit Insurance Corporation. But if a bank hires a collection agency, the consumers can go to the FTC. Judging by a look at the FTC complaint database, people are confused. “We do get a lot of complaints” about banks, said Tom Pahl, who served as assistant director of the FTC Bureau of Consumer Protection (BCP) before becoming CFPB’s managing regulatory counsel. William Lund, superintendent of the Maine Bureau of Consumer Credit Protection, said at a CFPB forum that people are so baffled that he gets many complaints from out of state.

What are consumers complaining about? The FTC log said that about half of debtors or alleged debtors simply complained of harassment. Thirty percent said they never even got a required written notice before calls came. A quarter said they got threats of civil or criminal action ranging from garnishing wages to seizing property, harming credit ratings and getting forced out of jobs. And 23 percent said the callers didn’t even identify themselves as debt collectors.

About 16 percent complained of obscenity, eleven percent said collectors were violating the law by calling before 8 am or after 9 pm. and four percent cited threats of violence. Ten percent griped of efforts to collect unauthorized money (interest, late fees, court costs). People also complained about everything from overstating debt, calling at work, continuing to call after getting a written notice not to, and not verifying debt when asked in writing or misrepresenting the law. (Many complaints alleged multiple violations.)

And 22 percent of the complaints regarded collectors bothering third parties, such as an alleged debtor’s family, friends, coworkers, employers and neighbors. By law, collectors may only contact other people to locate an alleged debtor. The FTC reported that collectors “have used misrepresenting as well as harassing and abusive tactics in their communications with third parties, or even have attempted to collect from the third party.”

And when you die, your debt doesn’t die with you and neither do collections. Collectors have often called relatives to ask if they’re the one who opens mail or paid for the funeral. If someone said “yes,” collectors have taken that as proof they’re the ones responsible and then asked about assets. So last year, the FTC decreed that collectors may inquire as to who has been designated the estate executor, and then only communicate with that person – and not try to collect debts before they locate the executor. Estates retain rights to contest claims.

Congress wrote FDCPA in 1977 – when collectors used rotary phones as the chief weapon to annoy people. So nothing in the law stops collectors from sending texts, emails and misleading Facebook friend requests to those they want to collect from. Collectors post messages on social network sites of friends and relatives. At a workshop on the issue, BCP Director David Vladeck said that though “using these communications media to collect debts isn’t by itself necessarily illegal, the potential for harassment or other abusive practices is apparent.”

The law gives the FTC no authority to write rules. The law prohibiting contact before 8 am or after 9 pm was intended to apply to telephones and it’s not clear whether it applies to after-hours email.  And FDCPA includes no criminal penalties.

Two years ago, an FTC report stated “neither litigation nor arbitration currently provides adequate protection for consumers. The system for resolving disputes about consumer debt is broken.” Arbitration efforts flopped. Three years ago, the Minnesota Attorney General sued the National Arbitration Forum, citing fraud, deceptive trade practices and false advertising – the forum didn’t tell people of its financial ties to the industry. The forum settled and stopped arbitrating.

Consumers also get confused because of the growing debt buying business. Companies specialize in buying debts usually for between five and ten cents on the dollar, then trying to collect the whole shebang. (The nation’s 19 largest banks sell about $37 billion a year in credit card debt, according to OCC.) So people hear from a company they’ve never heard of claiming they owe money. Almost no one engaged in this practice in 1977 so it’s not clear how FDCPA affects debt buyers. People can pay their original creditor after it sold the debt and think they’ve settled the matter, only to face continued collection efforts from the buyer.

OCC said it is working on guidance and “has raised its expectations for banks” in this regard. “Selling debt to third party debt collectors carries particular compliance, reputational, and operational risks,” OCC said in a statement given in July to Brown adding “it is evident these risks are gaining increasing prominence.” Brown said that “OCC has historically been more friendly to banks than to consumers.”

Kim Phan, a lawyer for debt buyer trade association DBA International, said the organization is working on guidance for the industry.

Collectors do more than call and harass. They sue. The New Economy Project (NEP), a New York community advocacy center, recently released a report stating “debt collection lawsuits — particularly those filed by debt buyers — wreak havoc across New York State, depriving hundreds of thousands of New Yorkers of due process and subjecting them to collection of debts that in all likelihood could never be legally proven.”

In 2011, collectors – mostly buyers – filed 195,105 lawsuits against New Yorkers. Almost two-thirds of the time, plaintiffs win default judgments but seldom win on the merits when cases go to trial, NEP said. “A lot of the debt that we see that’s charge-off by banks is debts that they’ve sold off for pennies on the dollar with very little documentation so the banks aren’t held accountable for that debt and the collectors who are trying to collect…are doing so with very limited information and sometimes don’t have sufficient proof and therefore rely on robosigning and other abusive tactics,” declared Alexis Iwanisziw, NEP research and policy analyst, speaking at a July CFPB forum.

Congress has ignored legislation introduced in recent years to modernize the law. In previous years, senators Charles Schumer (D-NY), Al Franken (D-MN) and Carl Levin (D-MI) conducted hearings and introduced bills but failed to move them. They dropped the issue in the current Congress. Their offices did not respond to inquiries.

Brown, however, examined the issue at a July hearing of his Senate Banking, Housing & Urban Affairs Subcommittee on Financial Institutions and Consumer Protection. Brown said in an interview “I don’t know about a legislative solution” and that recent events gave him “hope we may be able to do something (but) we won’t reopen Dodd-Frank in a major way.”

Collection Complaints Tracked for Full Year

BY DARREN WAGGONER

AUG 20, 2014 2:17am ET Collections & Credit Risk

Complaints against debt collectors filed with the Consumer Financial Protection Bureau edged lower in July compared with June – 3,269 from 3,390, according to data reported Tuesday.

July marks one year since the CFPB began fielding complaints against the collection industry. In July 2013, there were only 901 complaints filed as the CFPB ramped up the program. Those numbers jumped the next month. WebRecon, a data tracking firm based in Grand Rapids, Mich., pulled the data from the CFPB, along with lawsuit totals filed at U.S. district courts.

There were a total of 717 debt collectors complained about in July. Editor’s Note: More information on the types of complaints can be found at the bottom of this story.

On the statutory front, consumers filed 828 Fair Debt Collection Practices Act lawsuits, of which 9.9% are class actions. Year-to-date, FDCPA lawsuits through July 31 totaled 5,701, down 12.4% from 6,406 filed in July 2013.

Telephone Consumer Protection Act and Fair Credit Reporting Act lawsuits showed some volatility in July compared with July. TCPA cases fell nearly 8% (to 196 from 211) and FCRA lawsuits rose more than 15% (to 202 from 171) from the previous month.

Of the FCRA lawsuits, 21 (10.4%) are class actions. Of the 196 TCPA lawsuits, 19 (9.7%) are class actions.

Year-to-date both TCPA and FCRA lawsuits are significantly higher. TCPA cases are up 33.6% (1,525 compared with 1,012 last year); FCRA cases are up 11.6% (1,376 compared with 1,217 last year).

Some 855 different collection agencies and creditors were sued in July. Of the cases, there were an estimated 1,146 unique plaintiffs. Of the plaintiffs, approximately 365 (or 32%) previously sued under consumer statutes. Combined, those plaintiffs have filed approximately 1,564 lawsuits since 2001.

Attorneys Sergei Lemberg and David Michael Larson were the most active attorneys in July, filing 30 and 25 lawsuits respectively. Lemberg (323 lawsuits) and Larson (162 lawsuits) also top the year-to-date list.

The types of debt behind the complaints were:

•    886 Other (phone, health club, etc.) (27%)
•    712 Unknown (22%)
•    679 Credit card (21%)
•    407 Medical (12%)
•    263 Payday loan (8%)
•    105 Mortgage (3%)
•    87 Auto (3%)
•    74 Non-federal student loan (2%)
•    56 Federal student loan (2%)

The breakdown of complaints:
•    1,347 Continued attempts to collect debt not owed (41%)
•    653 Communication tactics (20%)
•    563 Disclosure verification of debt (17%)
•    268 False statements or representation (8%)
•    239 Taking/threatening an illegal action (7%)
•    199 Improper contact or sharing of info (6%)

The top 10 states complaints were filed from are:
•    441 Complaints: California
•    288 Complaints: Texas
•    254 Complaints: Florida
•    173 Complaints: New York
•    164 Complaints: Georgia
•    138 Complaints: Ohio
•    116 Complaints: New Jersey
•    115 Complaints: Illinois
•    113 Complaints: Pennsylvania
•    106 Complaints: Virginia

The status of the month’s complaints are as follows:
•    2,225 Closed with explanation (68%)
•    573 Closed with non-monetary relief (18%)
•    241 In progress (7%)
•    114 Closed (3%)
•    75 Untimely response (2%)
•    41 Closed with monetary relief (1%)

Consumer Default Rates Fall to 10-Year Low

BY DARREN WAGGONER

AUG 19, 2014 12:30pm ET Collections & Credit Risk

Default rates fell slightly in July to the lowest mark in more than 10 years, according to the S&P/Experian Consumer Credit Default Indices released Tuesday.

The national composite default rate posted 1.01% in July, down one basis point from June. After declining for nine consecutive months, the first mortgage default rate fell to 0.88%. The bank card rate declined 16 basis points to 2.86%.

Auto saw its rate remain unchanged at 0.96% and is only four basis points above its historical low.

“Consumer credit default rates dipped slightly below last month’s rate,” says David M. Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. “At just above 1%, default rates remain at historical lows. Mortgage default rates have been trending down while auto and bank card are a bit higher than their historical lows set in April and March. Driven by mortgages, household debt decreased in the second quarter of 2014. Non-housing debt rose slightly in the second quarter. In the latest Federal Reserve survey of lending standards, a small portion of banks reported some easing of standards while most banks reported no change.”

Among large cities, Blitzer said Los Angeles dropped to its record lowest default rate of 0.66% and Dallas saw its default rate fall by seven basis points to only a few points away from its historical low set in May.

“Chicago and Miami are at their lowest default rates since 2006. Miami continues to maintain the highest default rate of 1.51% while Los Angeles posted the lowest default rate of 0.66%. All five cities – Chicago, Dallas, Los Angeles, Miami and New York – remain below default rates seen a year ago,” he said.

High-level data through July shows:

•    The national composite default rate remains the lowest in over 10 years of history at 1.01%, down one basis point from last month.
•    After nine consecutive months of declines, the first mortgage default rate fell to 0.88%.
•    Auto saw its rate remain unchanged at 0.96% and is only four basis points above its historical low. Bank card rate declined 16 basis points to 2.86%.
•    All five cities – Chicago, Dallas, Los Angeles, Miami and New York – remain below default rates seen a year ago.
•    Miami continues to maintain the highest default rate of 1.51% while Los Angeles posted the lowest default rate of 0.66%
•    Chicago and Miami are at their lowest default rates since 2006.

Credit Card Late Payment Rate Drops to Seven-Year Low

BY DARREN WAGGONER

AUG 26, 2014 9:42am ET

The rate of credit card payments overdue by at least 90 days dropped to 1.16% in the second quarter ending June 30, the lowest level in at least seven years, TransUnion reported Tuesday.

The report indicates consumers are doing a better job of making timely payments even as lenders extend credit more often to people with troubled credit histories.

The late-payment rate peaked in the first quarter of 2009 at 3.12%, TransUnion officials said. The credit bureau’s data dates to 2007, drawn from information culled from nearly every U.S. consumer who uses credit.

Average card debt per borrower rose slightly in the second quarter, up about 0.2% to $5,234. It increased 1.4% from the first quarter of this year.

The second-quarter credit card delinquency rate is down from 1.27% from the same period last year and 1.37% from the first three months of this year.

Credit card borrowing began rising again in 2011, but the increases have lagged far behind other types of debt, including auto and student loans, according to TransUnion. Overall, U.S. credit card debt has increased 1.3% over the past year, reaching $873.1 billion in June, according to the Federal Reserve.

Lenders are showing more generosity in the amount of credit they extend to cardholders. The average credit limit on new bankcard accounts has risen steadily, up 29.4% to $5,230 over the three-year period ended March 31, TransUnion said. The data lag by a quarter, so those latest TransUnion figures cover the January-March period.

The increase in credit card limits indicates lenders are feeling they can take on more risk while giving consumers a bigger credit cushion, said Tony Guitart, TransUnion’s director of research and consulting.

The number of new credit card accounts opened in the January-March period by consumers rose 17.8% to about 11.7 million versus the same period a year earlier.

The share of cards issued to borrowers with less-than-perfect credit increased to 31.2%, compared with 27.3% a year earlier. That remains far below the roughly 45% share of cards going to non-prime borrowers before the recession.

In the VantageScore credit rating scale, consumers with a score lower than 700 on a scale of 501-990 are considered non-prime borrowers.

Debt Collection Litigation & CFPB Complaint Statistics, July 2014

Quick analysis: July is a milestone month for CFPB complaints against debt collectors, if only because we have reached the one-year mark for complaint reporting and can begin benchmarking year-over-year comparisons.

Having said that, month #1 for CFPB complaints against debt collectors (July 2013) was pretty tame with only 901 complaints filed – a number that we all know dramatically rises in the months to follow it.

July 2014 saw a strong 3269 complaints filed, though that was down a bit from the previous month with 3390 complaints filed in June (up from the reported 3336 a month ago)

On to the statutory horse race, We saw a second straight month of FDCPA gains, but the overall rate is still down double-digits YTD, at 12.4% below 2013.

FCRA and TCPA both showed a bit of volatility last month, with FCRA up over 15% and TCPA down almost 8% from July. Both are still significantly up YTD though, FCRA at 11.6% and TCPA up 33.6% over 2013.

Of the 828 FDCPA cases filed, 82 (9.9%) of them are class actions. Of the 202 FCRA lawsuits filed, 21 (10.4%) are class actions. And of the 196 TCPA lawsuits filed, 19 (9.7%) are class actions.

Finally, 32% of the consumers who filed litigation in July are considered repeat filers, having filed similar litigation in the past.

Comparisons:	Current Period:	Previous Period:		Previous Year Comp:
Jul 01 – 31, 2014	Jun 01 – 30, 2014		Jul 01 – 31, 2013
CFPB Complaints	3269	3390	-3.7%	901	-262.8%
FDCPA lawsuits	828	815	1.6%	886	-7.0%
FCRA lawsuits	202	171	15.3%	176	12.9%
TCPA lawsuits	196	211	-7.7%	143	27.0%
YTD CFPB Complaints	23794	901	96.2%
YTD FDCPA lawsuits	5701	6406	-12.4%
YTD FCRA lawsuits	1376	1217	11.6%
YTD TCPA lawsuits	1525	1012	33.6%

Complaint Statistics:

3269 consumers filed CFPB complaints against debt collectors and about 1146 consumers filed lawsuits under consumer statutes in Jul 2014. Here is an approximate breakdown:

• 3269 CFPB Complaints
• 828 FDCPA
• 196 TCPA
• 202 FCRA

Litigation Summary (scroll down for CFPB data):

• Of those cases, there were about 1146 unique plaintiffs (including multiple plaintiffs in one suit).
• Of those plaintiffs, about 365, or (32%), had sued under consumer statutes before.
• Combined, those plaintiffs have filed about 1564 lawsuits since 2001
• Actions were filed in 160 different US District Court branches.
• About 855 different collection firms and creditors were sued.

The top courts where lawsuits were filed:

• 74 Lawsuits: Illinois Northern District Court – Chicago
• 56 Lawsuits: Pennsylvania Eastern District Court – Philadelphia
• 46 Lawsuits: Colorado District Court – Denver
• 44 Lawsuits: California Central District Court – Los Angeles
• 33 Lawsuits: California Southern District Court – San Diego
• 33 Lawsuits: New York Eastern District Court – Brooklyn
• 31 Lawsuits: Michigan Eastern District Court – Detroit
• 26 Lawsuits: Georgia Northern District Court – Atlanta
• 25 Lawsuits: Florida Middle District Court – Tampa
• 22 Lawsuits: Florida Southern District Court – Fort Lauderdale

The most active consumer attorneys were:

• Representing 30 Consumers: SERGEI LEMBERG
• Representing 25 Consumers: DAVID MICHAEL LARSON
• Representing 23 Consumers: TODD M FRIEDMAN
• Representing 20 Consumers: KRISTINA N KASTL
• Representing 20 Consumers: VICKI PIONTEK
• Representing 20 Consumers: MICHAEL P DOYLE
• Representing 20 Consumers: PATRICK M DENNIS
• Representing 19 Consumers: CRAIG THOR KIMMEL
• Representing 17 Consumers: ANGIE K ROBERTSON
• Representing 17 Consumers: DAVID J PHILIPPS

Statistics Year to Date:

7401 total lawsuits for 2014, including:

• 5701 FDCPA
• 1376 FCRA
• 1525 TCPA

Number of Unique Plaintiffs for 2014: 7335 (including multiple plaintiffs in one suit)

The most active consumer attorneys of the year:

• Representing 323 Consumers: SERGEI LEMBERG
• Representing 162 Consumers: DAVID MICHAEL LARSON
• Representing 116 Consumers: JOHN THOMAS STEINKAMP
• Representing 112 Consumers: TODD M FRIEDMAN
• Representing 107 Consumers: MICHAEL ANTHONY EADES
• Representing 104 Consumers: ADAM JON FISHBEIN
• Representing 103 Consumers: DAVID J PHILIPPS
• Representing 100 Consumers: ANGIE K ROBERTSON
• Representing 85 Consumers: CRAIG THOR KIMMEL
• Representing 80 Consumers: MARY ELIZABETH PHILIPPS

——————————————————————————————————-

CFPB Complaint Statistics:

There were 3269 complaints filed against debt collectors in Jul 2014.

Total number of debt collectors complained about: 717

The types of debt behind the complaints were:

• 886 Other (phone, health club, etc.) (27%)
• 712 Unknown (22%)
• 679 Credit card (21%)
• 407 Medical (12%)
• 263 Payday loan (8%)
• 105 Mortgage (3%)
• 87 Auto (3%)
• 74 Non-federal student loan (2%)
• 56 Federal student loan (2%)

Here is a breakdown of complaints:

• 1347 Cont’d attempts collect debt not owed (41%)
• 653 Communication tactics (20%)
• 563 Disclosure verification of debt (17%)
• 268 False statements or representation (8%)
• 239 Taking/threatening an illegal action (7%)
• 199 Improper contact or sharing of info (6%)

The top five subissues were:

• 829 Debt is not mine (25%)
• 405 Debt was paid (12%)
• 396 Not given enough info to verify debt (12%)
• 385 Frequent or repeated calls (12%)
• 209 Attempted to collect wrong amount (6%)

The top states complaints were filed from are:

• 441 Complaints: CA
• 288 Complaints: TX
• 254 Complaints: FL
• 173 Complaints: NY
• 164 Complaints: GA
• 138 Complaints: OH
• 116 Complaints: NJ
• 115 Complaints: IL
• 113 Complaints: PA
• 106 Complaints: VA

The status of the month’s complaints are as follows:

• 2225 Closed with explanation (68%)
• 573 Closed with non-monetary relief (18%)
• 241 In progress (7%)
• 114 Closed (3%)
• 75 Untimely response (2%)
• 41 Closed with monetary relief (1%)

This includes 3132 (96%) timely responses to complaints, and 137 (4%) untimely responses.

Of the company responses, consumers accepted 0 (0%) of them, disputed 414 (13%) of them, and 2855 (87%) were N\A.

The top five days for complaints were:

• 174 Complaints: Mon, 07/07/2014
• 158 Complaints: Thu, 07/10/2014
• 157 Complaints: Thu, 07/24/2014
• 156 Complaints: Mon, 07/14/2014
• 155 Complaints: Wed, 07/09/2014

Fed Survey Reviews Consumer Debt Trends

BY DARREN WAGGONER

SEP 5, 2014 2:30pm ET

The income gap between wealthy and average consumers in the U.S. is growing while overall debt held by consumers dropped, according to the Federal Reserve’s September survey on consumer finances.

The Fed reports that interest rates on most types of consumer debt, along with families’ overall debt, decreased between 2010 and 2013. Much of the decline in debt can be explained by a large drop in the fraction of families with home-secured debt, down from 47% to 42.9%. This is, in part, explained by the much smaller drop in homeownership from 2010 to 2013.

Overall, debt obligations fell in the three-year period, according to the Fed. Median debt is down 20%, and mean debt dropped 13% for families with debt.

The percentage of families with credit card debt also declined. Median and mean balances for families with credit card debt declined 18% and 25%, respectively, and the amount of families that pay their complete credit card balances every month has increased.

Contrary to other forms of debt measured in the survey, education debt increased significantly between 2010 and 2013.

The survey compared information about family incomes, net worth, credit use and other financial resources. Nationwide, the Fed reports that the real gross domestic product increased at an annual rate of 2.1% from 2010 to 2013 and the unemployment rate fell from 9.9% from 7.5%.

“Although aggregate economic performance improved substantially relative to the period between 2007 and 2010 surveys, the effect on incomes for different types of families was far from uniform,” according to the Fed.

In the three-year period, the overall average family income rose 4% in real terms, but median income dropped 5%, consistent with rising income concentration during the period.

In 2013, medical debt (hospitals, physician groups and clinics) ranked as the largest debt category in the U.S., accounting for nearly 38% of all debt collected. Student loan debt trailed medical debt with more than a quarter of all debt collected, followed by credit card debt (approximately 10% of the total), according to findings from a survey by ACA International and Ernst & Young.

Third-party debt collectors recovered $55.2 billion last year for creditor and government clients, returning an estimated $45 billion to them and keeping some $10.4 billion in commission and fees.

The survey showed that the health of national and state economies relies on the recovery of consumer debt, according to ACA, the largest association for collection agencies. It also indicates that only a small percentage of outstanding consumer debt actually was recovered in 2013. Ernst & Young surveyed an estimated 300 collection agencies and used public data from the U.S. Census and The North American Industry Classification System.

Half A Million More Americans Are In Default On Their Student Loans Than A Year Ago

BY ALAN PYKE POSTED ON AUGUST 6, 2014 AT 3:15 PM

The default rate on federal student loans has risen by about 5 percent in the past year and 500,000 more borrowers have slipped into default, according to new statistics from the Department of Education (DOE). More than one in eight total outstanding loans is in default, and more than one in five borrowers who should actually be repaying their loans are a year or more behind.

The overall default rate on taxpayer-funded student loans rose from 12.8 percent to 13.5 percent over the past year, the new data show. The effective default rate, which can be calculated by removing loans to students who are still in school or otherwise not expected to be making payments at this time, rose from 21.2 percent to 21.9 percent. The majority of defaulted loans come from a defunct lending system known as FFEL that used private banks as middle men in lending to students. But because that program was shut down in 2010, all of the increase in defaults comes from the DOE’s direct loan program. The number of direct loan recipients in default rose from 2.1 million to 2.5 million over the past year, the data show.

The same data release shows an encouraging jump in enrollment in federal programs that let workers repay their student loans more gradually. The number of borrowers using income-based repayment (IBR) programs such as Pay-As-You-Earn has doubled in the past year, reflecting a push to publicize the programs by the Obama administration. But while 10.5 percent of borrowers who are actively repaying their loans are now enrolled in one of these programs that links monthly payments to monthly earnings, there is substantial reason to think that the programs remain under-enrolled. Defaults still outnumber IBR enrollees by more than three-and-a-half to one.

“We know that the rising cost of higher education and growing levels of student debt hit home for millions of Americans,” DOE Assistant Press Secretary Denise Horn said in an email. “In addition to expanding income-based repayment options and reaching out to struggling borrowers to make them aware of the flexible options available to repay their debt, the Department has also created tools such as the College Scorecard and Financial Aid Shopping Sheet so that students and families can understand their options and choose the college that provides them with the best value. In addition, we are also focusing on keeping college costs down by developing a college ratings system that will push innovations and systems changes that will benefit students and families.”

Numerous other policy proposals could help address the broken college financing system for future generations and cancel out some of the race and class advantages that tilt the educational playing field. The simplest would be to pay for every American to go to public universities — an idea that may seem starry-eyed but which would cost less than what the government spends now on the current system of college subsidies. Sen. Elizabeth Warren (D-MA) has proposed slashing student loan interest rates dramatically. Other, less radical approaches to financing higher education for future Americans include small savings accounts that have been proven to drastically increase a kid’s chances of getting to college.

But those forward-looking solutions wouldn’t necessarily do much for those who the system is failing today. The generation that owes more than a trillion dollars in student loans today and is defaulting at higher and higher rates need more immediate solutions.

What’s more, rising default rates are only part of the picture. Millions more student loan borrowers are delinquent on their loans, meaning they are 90 days behind on payments but not yet in default. The official delinquency rate vastly understates the real shape of delinquencies, according to a Federal Reserve Bank of New York study published in April.

The “effective delinquency rate” calculated in that study intentionally excludes those still in school, in post-graduation “grace periods,” and graduates enrolled in IBR programs. By ruling out those categories of borrowers who are not expected to be actively reducing their outstanding loan balances, the effective delinquency rate provides a more accurate picture of the success or failure of graduates who should be paying down their loans if the system is functioning properly. The study’s findings indicate that the system is badly broken: Over 30 percent of borrowers who should be repaying their loans are delinquent, as compared to the 17 percent delinquency rate shown in official data.

The Fed data includes private loans as well as those charted by the newly-released federal numbers, so trying to draw direct comparisons to the new default and IBR statistics for taxpayer-funded loans would be tricky. But taken together, the 30 percent effective delinquency rate overall and the rising default rate reported by the DOE illustrate that the system by which people who borrow to finance their educations are supposed to be able to climb out of debt is not working for a very large and growing share of Americans.

The debt overhang those borrowers face doesn’t only hurt them. The student loan crisis is also preventing millions of people from buying houses and cars and cell phones. The economy as a whole would benefit from taking some of the pressure off of these graduates.

One idea proposed by Center for American Progress experts is to start enrolling students in IBR programs automatically rather than waiting for the programs to continue their steady, gradual progress. Another is to set up a public-private partnership between the federal government and banks that would refinance existing loans at more affordable rates and even forgive some of the outstanding principal.

But the most immediate relief that lawmakers could offer to the 7 million people currently in default on their loans might be to let them declare bankruptcy. Years of legal maneuvering by debt collections companies has made it impossible to discharge student loan debt in bankruptcy, making educational debt more dangerous than credit card debt, mortgage debt, and most other forms of borrowing. If lawmakers restored borrowers’ ability to restructure or eliminate student debt in bankruptcy, they could unleash trillions of dollars in pent-up consumer spending that might reinvigorate the economic recovery.

LENDERS TARGET UNDERBANKED

By PYMNTS

7:00 AM EDT July 28th, 2014

According to a new survey by KPMG LLP, nearly a quarter of bankers believe that “underbanked” customers—those who use only basic checking services—represent the biggest growth opportunity for their firms.  This result nearly doubles results from one year ago, when only 12 percent of bankers polled reported such enthusiasm for underbanked customers, reports The Wall Street Journal.

Underbanked consumers consist of young banking service users, such as high school and college students or recent grads, and low-income customers with limited access to credit.  Around 10 million U.S. households are entirely unbanked, while around 24 million (20.1 percent) are underbanked, according to data from the FDIC.

Underbanked customers spend more money on fees than average doing standard features such as cashing checks or using ATMs.

“Banks are getting more creative and thoughtful about how they target unbanked and underbanked customers,” said Judd Caplain, KPMG’s Advisory Industry Leader for Banking and Diversified Financials, reports The Journal.

Caplian also noted that banks hope to bridge the gap between themselves and this consumer segment by attempting to customize and make more widely accessible product offerings.

Consumer Behavior

A Culture of Unaccountability Regarding Consumer Debt

Joann Needleman August 12, 2014 Inside ARM

The recent report issued by the Urban Institute and the Consumer Credit Research Institute titled Delinquent Debt in America (July 2014) made a stunning statement about the American consumer’s financial health: over 35 percent of the U.S. population has at least one debt account in third-party collections.

The major media outlets reported only that one-third of Americans are in debt. The blogosphere and viral comments were equally bland: no commentary, no analysis, just “it is what it is.” The lead article in one online publication stated, “Americans Are Really Terrible at Paying Their Bills.” Nonetheless, despite a great title, the only conclusion drawn by the author was that more regulation was needed.

Welcome to the Culture of Unaccountability. There are approximately 318 million people in the United States and 75 to 100 million of them have completely refused to communicate with their original lender or to the entity to which they may owe money. This Urban Institute Report was not about whether the debts were legitimate or not, but rather that 35 percent of the U.S. population is not doing anything about the debts they owe.

The intent of the report was certainly not to criticize those who happen to get into debt in the first place. Nor did it offer solutions to foster financial responsibility. However, whether intentional or not, what this report does show is that burying one’s head in the sand has become socially acceptable.

A Need for Communication

Turning over an account to a third-party debt collector or even to a collection attorney is not the preferable choice of any originator, lender or creditor; quite the opposite. The decision to depart with an account where money is owed, and outsource it to another third party to collect, rests in no small part on the fact that the consumer refuses to communicate in order to resolve the account. The creditor is now resigned to the fact that it will not recover what the debtor promised to pay.

The level of communication between debtor and creditor certainly does not increase once the delinquent debt is handed over to a third party. The National Association of Retail Collection Attorneys reports that continued failure to communicate as well as increased barriers to communication make it 81 percent more likely that a consumer ultimately will be sued for the debt.

This Urban Institute data really comes as no surprise. The advent of enhanced debt collection regulation and with more federal rules coming soon, federal regulators have vowed to protect, and impliedly encourage, this growing trend of financial “moral hazard.”

Last year the CFPB issued “action letters,” providing consumers with a plan to shut down communications with creditors, regardless of whether the debt was valid. Last month a New York state judge suggested it might be OK not to come to court if served with a summons on a debt collection case. Fostering a culture that encourages and rewards broken financial promises may be among the reasons we have experienced a weakened economy, feeble growth in employment and restrictive access to credit for many Americans.

Encourage Resolving Delinquent Debt

Creditors, collection agencies and collection attorneys are ready, willing and able to work with consumers to resolve their debts. But doing so requires dialogue between creditors and debtors. Shutting down communication and avoiding difficult, but solvable financial problems is not a solution. Recent comments by the ACA International found that as much as 99 percent of all debt in collection is not disputed by consumers, a fact the Urban Institute and the Consumer Credit Research Institute report did not point out. The overwhelming majority of delinquent debts are ripe for resolution.

Addressing the problem of delinquent debt can be difficult. But resolving poor finances benefits consumers, creditors and the nation’s well-being. Encouraging 35 percent of the population to stick their heads in the sand when it comes to their credit future is not consumer protection – it is a recipe for financial distress. Fostering this culture of unaccountability will likely leave consumers with a weakened, if not irreparable financial future. An America where thirty-five percent of our neighbors suffer long-term financial distress is a far greater harm than the alleged problems posed by the debt collection industry.

FTC Action Halts Payday Loan Scheme That Bilked Tens of Millions From Consumers By Trapping Them Into Supposed “Loans” They Never Authorized

September 17, 2014

At the Federal Trade Commission’s request, a U.S. district court in Missouri has temporarily halted an online payday lending scheme that allegedly bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed “loans” as a pretext to take money from their bank accounts.

The court imposed a temporary restraining order that appoints a receiver to take over the operation. The court order gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.

“These defendants bought consumers’ personal information, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet. The Federal Trade Commission will continue to use every enforcement tool to stop these unlawful and harmful practices.”

Over one eleven-month period between 2012 and 2013, the defendants issued $28 million in payday “loans” to consumers, and, in return, extracted more than $46.5 million from their bank accounts, the FTC alleged.

In its complaint, the FTC alleges that Timothy Coppinger, Frampton (Ted) Rowland III, and a web of companies they owned or operated, used personal financial information bought from third-party lead generators or data brokers to make unauthorized deposits of between $200 and $300 into consumers’ bank accounts. Often, the scheme targeted consumers who had previously submitted their personal financial information – including their bank account numbers –to a website that offered payday loans.

After depositing money into consumers’ accounts without their permission, the defendants withdrew bi-weekly reoccurring “finance charges” of up to $90, without any of the payments going toward reducing the loan’s principal, the FTC alleged. The defendants then contacted the consumers by phone and email, telling them that they had agreed to, and were obligated to pay for, the “loan” they never requested and misrepresented the true costs of the purported loans. In doing so, the agency alleged, they often provided consumers with fake applications, electronic transfer authorizations, or other loan documents purporting to show the consumers had authorized the loan.

In many instances, if consumers closed their bank accounts to make the unauthorized debits stop, the defendants sold the supposed “loan” to debt buyers who then harassed consumers for payment, the FTC contends.

This case, part of the FTC’s continuing crackdown on scams that target consumers from every community in financial distress, alleges that the defendants violated the FTC Act, the Truth in Lending Act (TILA), and the Electronic Funds Transfer Act (EFTA). The FTC is seeking a court order to permanently stop the defendants’ unlawful practices.

Consumers seeking more information on potential unfair and deceptive payday lending practices should see Online Payday Loans on the FTC’s website. The Commission also has new blog posts for consumers and businesses on payday lending services.

The Commission vote authorizing the staff to file the complaint was 5-0. It was filed under seal in the U.S. District Court for the Western District of Missouri, Western Division, on September 8, 2014 and the seal was lifted on September 12, 2014. On September 9, 2014 the court issued a temporary restraining order against the defendants, temporarily stopping their allegedly illegal conduct.

The complaint announced today was filed against: 1) CWB Services, LLC; 2) Orion Services, LLC; 3) Sand Point Capital, LLC; 4) Sandpoint, LLC; 5) Basseterre Capital, LLC (based in both Nevis and Delaware); 6) Namakan Capital, LLC; 7) Vandelier Group, LLC; 8) St. Armands Group, LLC; 9) Anasazi Group, LLC; 10) Anasazi Services, LLC; 11) Longboat Group, LLC, also doing business as (d/b/a) Cutter Group; 12) Oread Group, LLC, also d/b/a Mass Street Group; 13) Timothy A. Coppinger, individually and as a principal of one or more of the corporate defendants; and 14) Frampton T. Rowland, III, individually and as a principal of one or more of the corporate defendants.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

Bureau of Consumer Protection

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Online lender CashCall must repay $1.5M to Iowans

Monday, October 06, 2014 2:49 PM Business Record

Iowa Superintendent of Banking Jim Schipper today revoked the Iowa license of a California-based online lender that had charged Iowans triple-digit interest rates, and he ordered the company to pay more than $1.5 million in restitution to Iowa residents.

The settlement with CashCall Inc., negotiated with the assistance of the Iowa attorney general, requires the company to stop lending to Iowans and to pay restitution for than 3,400 illegal loans it made to Iowa borrowers.

According to a 2013 amended statement of charges filed with the Iowa Superintendent of Banking, an examination conducted by the Banking Division showed that CashCall charged borrowers interest rates of up to 169 percent, far exceeding the maximum rate that Iowa law allows.  State law caps the annual interest rate at 36 percent, depending on the loan amount.

CashCall asserted that its lending activity, which originated through a company called Western Sky Financial LLC, is beyond Iowa’s jurisdictional reach. CashCall claimed that Western Sky independently originated the loans on the Cheyenne River Indian Reservation in South Dakota and is subject solely to the laws and jurisdiction of the Cheyenne River Sioux Tribe.

Approximately 20 states and the U.S. Treasury Department’s Consumer Financial Protection Bureau have pursued lawsuits or regulatory actions against CashCall, alleging unfair debt collection practices, and charging and collecting excessive interest rates. In a pending federal lawsuit filed in December 2013,  the CFPB alleged that CashCall collected money that consumers didn’t owe.

According to the Consumer Financial Protection Bureau, in September 2013 Western Sky stopped making loans and began to shut down its business after several states began investigations and court actions. However, CashCall and its collection agency continued to take monthly installment payments from consumers’ bank accounts or have otherwise sought to collect money from borrowers.

The company has provided the state with a list of borrowers who will receive restitution under the settlement.  Over the next few months, the state will send notices to affected Iowa borrowers.  Borrowers do not need to contact the Iowa Division of Banking or the attorney general’s office to make a restitution claim.

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ARM Law Firm Files Motion to Dismiss CFPB’s FDCPA Enforcement Action

Patrick Lunsford InsideARM September 15, 2014

Debt collection law firm Frederick J. Hanna & Associates filed a motion Friday to dismiss an enforcement action initiated by the Consumer Financial Protection Bureau. The CFPB’s lawsuit accused the firm of filing too many collection lawsuits, which it said was a violation of the FDCPA.

In July, the CFPB accused the law firm and its three principal partners of operating “like a factory,” producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, mainly major credit card-issuing banks and debt buyers.

The CFPB said that communications, and even the debt collection lawsuits themselves, could not have come “from attorneys” due to the volume of lawsuits compared to the number of attorneys on staff. Hanna’s lawsuits, therefore, were the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys, a violation of the FDCPA and other provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Bureau’s enforcement action seeks unspecified compensation for victims, a civil fine, and an injunction against the company and its partners.

When the CFPB announced its lawsuit, the Hanna firm strongly denied the allegations and vowed to fight the lawsuit. The firm made good on that promise Friday with its 51-page motion filed in a U.S. district court in Georgia.

The central issue, according to Hanna, is the authority – or lack thereof – the CFPB has to regulate the practice of law. Since the CFPB’s allegations exclusively involve the firm’s actions in filing suits and supporting the suits with affidavits, the CFPB does not have the proper standing to regulate the actions.

Furthermore, the firm points out that that the “meaningful involvement” provision of the FDCPA has become a legal standard relating to collection letters, not to actual debt collection suits filed in court.

The CFPB has seen its authority to regulate certain businesses challenged recently. In early 2014, it won a ruling from a federal court that rejected a Constitutional challenge to the CFPB’s structure and right to exist. The CFPB had sued Morgan Drexen for actions it took in the debt relief industry. That particular case, and the court decision in January, was noted in Hanna’s motion filed Friday.

Hanna said that “Unlike the claims against Morgan Drexen, the Bureau’s claims in this case are based solely on conduct—filing lawsuits—that is unquestionably ‘the practice of law’ under any possible meaning of that phrase.”

Hanna is being represented by financial services defense firm Ballard Spahr and by co-counsel firm Balch & Binghan, which boasts a former Attorney General of Georgia as one of its partners.

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Payday lender, fired executive exchanging blame for lender’s regulatory woes

by Ted Carter Mississippi Business Journal

Published: September 19,2014

Lawyers for payday lender All American Check Cashing and a fired executive of the Madison company are trading accusations of criminal activity.

All-American blames the former executive for the hot water it is in with state regulators; the out-of-work executive alleges the company fired him for not participating in illegal activities that included under-the-table payments to state legislators.

Hattiesburg lawyer Daniel Waide alleged in a July letter to All American Check Cashing’s attorney Dale Danks Jr. that the statewide payday lender tried to force former chief administrative officer/compliance officer Alan Crancer to take part in making illegal cash payments to Mississippi legislators in return for “favorable legislation.” Waide further claims All American asked Crancer to participate in making cash payments to owner Michael Gray to help Gray avoid paying taxes.

Waide has offered to drop further legal action in exchange for Crancer receiving two years of salary and medical insurance as severance.

Danks countered that Waide and Crancer “have conspired to actively engage in the criminal act of attempting to extort benefits, both monetary and otherwise, from my clients.”

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CFPB Civil Investigative Demands

 

The CFPB has a number of weapons in its arsenal that it can use to exercise supervisory authority.  Over the last few years, and especially recently, its favorite has been Civil Investigative Demands (CIDs) issued through its Office of Enforcement.

The purpose of this post is to review the CFPB’s CID power and how companies can prepare for a CID.

What is a CID?

A CID is the primary fact-gathering tool of the CFPB, and CIDs can be issued to both banks and nonbank entities.  While the FTC has had the ability to issue CIDs for many years, the CFPB’s statutory mandate is more expansive.  Also, the manner in which the CFPB is using its CID power is particularly concerning for many in the industry.

The CFPB has the ability to request a significant amount of information regarding company practices.  Specifically, this includes documents, tangible items, written reports, answers to interrogatories and/or testimony.  Because of the broad list of items that can be requested, the CFPB uses its CID authority as the basis for determining whether to bring an enforcement action.

The CFPB generally uses its CID authority in two ways. The most common use occurs when the company receiving the CID is the target of an enforcement investigation.  Alternatively, the CFPB may issue a CID to a company if it believes that the company has information about another company under investigation. The CID need not indicate whether the company is the primary target, so every CID must be dealt with as if the company is under investigation.

Why are CIDs so disruptive to business?

The prospect of receiving a CID is particularly concerning because of the manner in which the CFPB is using this tool.

A CID is typically issued before a formal enforcement action, so the company may receive the CID with no prior notice.  This is compounded by the remarkably short timeframe in which a company must respond.  Typically, the CFPB requires an initial meeting, called a meet-and-confer, to discuss and attempt to resolve the CID within 10 days.  This means that if a company receives a CID on a Friday, it essentially has one week to prepare for the initial meeting with the CFPB.  It is extremely difficult to review and analyze enough information in such a short time period to be able to have a meaningful discussion with the CFPB. Extensions of these timeframes are disfavored, so the CFPB is unlikely to grant an extension.

Additionally, the scope of the CID may be very broad.  Federal law requires the CFPB to advise regarding the “nature of the conduct constituting the alleged violation that is under investigation and the provisions of law applicable to such violation”.  However, some companies that have received CIDs allege that the CFPB is using overly broad language in an effort to uncover as much information as possible.  For example, in the CID that AIG received in 2012, the notification of purpose was “[T]o determine whether mortgage lenders and private mortgage insurance providers or other unnamed persons have engaged in, or are engaging in, unlawful acts and practices in connection with residential mortgage loans…”  The CID will also specify the types of information that must be produced and a timeframe for producing the information.

Can a CID be challenged?

The law allows a company to challenge a CID, but winning the challenge is unlikely. Moreover, there are consequences to a challenge.

A company can petition the Director of the CFPB to modify or set aside a CID after engaging in the meet-and-confer process.  This poses three specific problems. First, the petition to modify or set aside must be filed within 20 days of receiving the CID, and the company must still go through the initial meet-and-confer process.  This means that a company has 10 days to analyze whether to comply or challenge the CID. This may not be long enough to truly consider the scope and potential impact of the CID. Second, the Director of the CFPB is the ultimate decision-maker, so he would have to second guess his enforcement staff to grant a petition to amend or modify.  Also, the appellate standard gives the CFPB enforcement staff significant discretion in issuing the initial CID.  Third, and most notably, while a CID is confidential, a petition to modify becomes public record unless the petitioner shows good reason why it should remain confidential.  So a company is forced to decide between keeping the information private from the general public or filing a petition to modify or set aside.  Not surprisingly, it appears that the CFPB has not yet granted a petition to modify or set aside.

It is worth noting that a CID is not self-executing, meaning that the CFPB would have to sue a company in federal court if the company refused to comply. That being said, we expect that most federal courts would not look favorably on a company that refuses to comply with a CID.

There is a silver lining.  While the CFPB is unlikely to agree to a petition to modify or amend, those who have been through the process have indicated that the CFPB is willing to compromise and negotiate over production schedules and the scope of information covered by the CID.  The key is to have a good reason, present a narrow request, and comply to the extent possible.

How can a consumer finance company prepare for and deal with a CID?

Preparation is the name of the game when it comes to dealing with a CID.  Because the initial response timeframes are so short, there is absolutely no time to waste in “getting your ducks in a row.” This means that if and when a CID arrives, the company must begin working on the response and collecting the information on day one.

The problem with being completely prepared is that there is no way to predict the scope of a CID; and, of course, the content will largely dictate the response.  However, a company should preemptively adopt CID response procedures which will establish the framework for dealing with a CID.

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Banks can force arbitration in payday loan suit

From Westlaw Journal Bank & Lender Liability:

A group of regional banks can force a customer into arbitration to resolve her accusation they used an electronic debiting network to fraudulently collect payday loan payments, a Florida federal judge has ruled.

U.S. District Judge Robert N. Scola Jr. of the Southern District of Florida granted the defendants’ motion to compel arbitration, saying that the arbitration clauses of Patricia Gunson’s payday loan agreements barred her from filing suit to resolver her claims.

The defendants named in the suit are BMO Harris Bank, First Premier Bank, Missouri Bank & Trust, Four Oaks Bank & Trust Co. and Mutual of Omaha Bank.

According to Gunson’s suit, she took out several payday loans — short-term, high-interest loans — with different lenders between 2012 and 2014.

All the loan agreements permitted the defendants, the banks of the lenders, to initiate debits of Gunson’s bank account using the Automated Clearing House network, a national electronic debiting network.  The banks are known as the “originating depository financial institutions” for purposes of the transaction and they act as middlemen between the lender and borrower.

Gunson alleges the defendants knowingly participated in an illegal scheme with payday lenders by making debits from borrowers’ accounts using the ACH network on behalf of the lenders and by providing the lenders access to the network.

The lawsuit alleged the banks violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c); Florida Usury Law, Fla. Stat. § 687.01; Florida Deferred Presentment Act, Fla. Stat. § 560.401; and Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201.

The banks argued that Gunson agreed to arbitrate any dispute arising from the payday loans.  Gunson countered that the defendants were not signatories to the payday loan agreements.

Judge Scola granted the motion to compel arbitration.  He said that although the banks were not signatories to the agreements, they can compel arbitration under the doctrine of equitable estoppel.

Equitable estoppel can force a signer to an agreement containing an arbitration clause to participate in arbitration at the request of a non-signer if the signer’s claims make reference to the agreement or the signer’s allegations relate to the conduct of the non-signatory and the other signer.

Here, the claims relate to the payday loan agreements, and the lenders’ conduct is part of Gunson’s allegations, Judge Scola said.

The agreements included authorizations by Gunson to receive payment via electronic transfers and she expressly authorized a third party to perform the ACH debiting actions, the judge said.

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Aggressive Campaign Targeting Payday Lenders Launched as CFPB Considers New Regulations And Encourage Consumer Financial Protection Bureau to Crack Down

by VW Staff September 24, 2014, 1:20 pm

WASHINGTON, DC – A new campaign launching today will aggressively target the payday and installment lending industry, calling attention to its predatory practices that line the pockets of lenders by trapping customers in a cycle of mounting debt.

The campaign, launched by Americans for Payday Lending Reform, a project of National People’s Action, will include a significant investment in digital advertising and a new online hub featuring a weekly series highlighting payday “predators of the week,” breaking news in the fight for reform, and other research related to the industry, its players, and practices.

As the Consumer Financial Protection Bureau (CFPB) considers how best to address rampant and longstanding issues with the payday lending industry, the campaign will highlight the need for tough new federal rules that protect consumers from systematic abuse and exploitation that are strong enough to keep payday lenders from avoiding accountability as they have done time and time again.

“The payday lending industry is the worst of the worst — using predatory practices to take advantage of their customers,” said Liz Ryan Murray, policy director at National People’s Action. “Creditors should help build wealth for working families, but payday lenders get rich by profiting off the most vulnerable. Our campaign will expose the ruthless greed and predatory nature of this industry.”

Across the country, 35 states authorize payday lending in some form. While some states and cities have worked to pass local laws capping interest rates, federal laws still largely allow payday lenders to prey on vulnerable communities and benefit from borrowers’ financial hardship.

Payday lenders have been known to use tactics like threats, harassment and intimidation in order to push customers to take out more loans. Earlier this summer, the Texas-based payday lender ACE Cash Express paid $10 million to settle allegations by the CFPB that it had bullied payday borrowers into a debt trap.

Background On Payday Lenders:

• Each year, payday lenders make more than $10 billion in fees by trapping an estimated 12 million consumers in a cycle of debt and making it difficult for them escape.
• Payday lenders use threats, harassment, and intimidation to get customers to take out more loans when they are having trouble paying back their previous loan.
• Payday lenders use shady tactics to get around laws designed to protect consumers and promote industry accountability.
• Payday lenders have paid fines for defrauding and harassing their customers.
• There are now nearly as many payday lending storefronts in America as McDonald’s Corporation (NYSE:MCD) and Starbucks Corporation (NASDAQ:SBUX)… combined. And many of these locations are in close proximity to communities of color.

1st Predator: Ted “Watergate” Saunders Of Community Choice Financial

William E. Saunders Jr. has been the Chief Executive Officer of payday lender Community Choice Financial, Inc. since June 2008. Saunders has long fought to block regulation of the payday lending industry and recently equated a supposed federal crackdown on payday lenders with Watergate and called it “government overreach.” He also equated closing payday lending stores with closing hospitals.

“Twelve million hardworking Americans fall victim to the underhanded business practices of payday lenders every year.

It’s an industry that takes in more than $10 billion dollars in fees annually. Its CEOs get filthy rich by deliberately trapping customers in an endless cycle of debt.

Payday lenders have even been sued for defrauding and harassing their own customers.

These hard-working families need Washington to act. Visit PaydayLendingReform.org to learn more and take action.

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Judicial Watch Sues DOJ for Operation Choke Point Records

DOJ Program Pressures Banks to Cut Ties With Law Abiding Businesses; House Financial Services Committee Chair Warns Enforcement Could Be Used as “a Pretext for the Advancement of Political Objectives…”

WASHINGTON, DC — (Marketwired) — 10/16/14 — Judicial Watch announced today that on September 4, 2014, it filed a Freedom of Information Act (FOIA) lawsuit against the Department of Justice (DOJ) to obtain records relating to Operations Choke Point (OCP), the Obama administration’s controversial new program to pressure banks to shut down merchant accounts of legal businesses. The program, initiated by the DOJ in the early part of 2013 in coordination with the Federal Deposit Insurance Commission (FDIC) and the Consumer Financial Protection Bureau (CFPB), can force banks and other financial service providers to cut off services to businesses that have not been found guilty of or even charged with breaking the law. The suit was filed in the United States District Court for the District of Columbia (Judicial Watch v U.S. Department of Justice(No. 1:14-cv-01510)).

The FOIA lawsuit, filed pursuant to a May 1, 2014, FOIA request to the DOJ, seeks the following:

• Any and all records regarding, concerning or related to the legal basis for the targeting of legal business entities under Operation Choke Point.
• Any and all records depicting the criteria for businesses and/or industries to be targeted for any type of scrutiny and/or enforcement or regulatory action under Operation Choke Point.
• Any and all records depicting the business types and/or industries targeted for any type of enforcement or regulatory action under Operation Choke Point.

The Operation Choke Point program emerged from President Barack Obama’s 2009 executive order creating the Financial Fraud Enforcement Task Force, led by outgoing Attorney General Eric Holder. Enforcement actions arising out of the Task Force have been criticized for pursuing abusive political and retaliatory legal actions to force banks and other financial sector business to settle for billions without any proof of wrongdoing.

In initiating the Operation Choke Program, the FDIC listed on its website 30 merchant categories that had been targeted as “high risk,” including coin dealers, credit repair services, dating and escort services, firearms and fireworks sales, mailing lists, lottery sales, payday loans, pharmaceutical sales, travel clubs, and tobacco sales. In a 2011 bulletin, the FDIC warned banks that associating with any of these merchants could expose the banks to “reputational risk.” Under the OCP program, if a bank does not shut down a questionable account when directed to do so, it can be penalized even if the “high risk” merchant has broken no laws. Though in July 2014, the FDIC removed the merchant list from its website, it still insisted that the merchants continuing to be targeted had been associated with “higher-risk activity.”

In August 2013, thirty-one members of Congress sent a letter to Attorney General Eric Holder and FDIC Chairman Martin Gruenberg requesting a briefing of congressional staff members on the project. At the time, according toBreitbart.com, “the details of which were so obscure they did not yet know it had obtained the status of a federal initiative and was called ‘Operation Choke Point.'” In response to that letter, according to the Breitbart report, “a Department of Justice official met with congressional staff members at the Capitol in late September, but refused to answer any questions about the project.”

In an April 24, 2014, op-ed in the Wall Street Journal, American Banking Association president Frank Keating accused the Obama Justice Department of “compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties.” He added:

“Justice is pressuring banks to shut down accounts without pressing charges against a merchant or even establishing that the merchant broke the law. It’s clear enough that there’s fraud to shut down the account, Justice asserts, but apparently not clear enough for the highest law-enforcement agency in the land to prosecute.”

While the DOJ claims OCP was set up to combat massive consumer fraud, a May 29, 2014, report from the House Committee on Oversight and Government Reform strongly suggests that the primary target of OCP is the short-term lending industry, an entirely legal operation. And in a letter to Janet Yellen, the Chair of the Federal Reserve, sent that same week, House Financial Services Committee Chairman Jeb Hensarling warned: “The introduction of subjective criteria like ‘reputation risk’ into prudential bank supervision can all too easily become a pretext for the advancement of political objectives.”

“The highly secretive Operation Choke Point program is another abuse of power by the Obama administration. The federal government has no business forcing private sector banks and companies to choke off legitimate businesses that have broken no laws or have been charged with no crimes. President Obama cannot get Congress to target businesses on his political hit list, so he’s allowed his appointees to abuse their authority by choking off companies that offend liberal sensibilities,” said Judicial Watch President Tom Fitton. “Ironically, one of the ‘high risk’ indicators of fraud is a lack of transparency and non-disclosure. The Department of Justice won’t obey the Freedom of Information Act and disclose basic information as required about Operation Choke Point. Indeed, Attorney Eric Holder has turned his Justice Department into an agency that is one of the worst violators of FOIA. Maybe the Obama administration should stop strong-arming banks, and focus on policing its own well-deserved ‘reputational risk’ for fraud.”

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Rep. Jim Jordan examines whether the feds made banks drop accounts of disfavored businesses

Champaign County GOP Rep. Jim Jordan has asked the Federal Reserve Board and Comptroller of the Currency to provide his subcommittee with documents on “Operation Choke Point.” (Sabrina Eaton, The Plain Dealer)

On Friday, Jordan and Committee Chairman Darrell Issa of California asked Federal Reserve Chair Janet Yellen and Comptroller of the Currency Thomas Curry to provide the committee with documents to help it determine whether they improperly cracked down on legitimate businesses as part of a program called “Operation Choke Point.“WASHINGTON, D.C. — Rep. Jim Jordan and the House Oversight and Government Reform Committee are probing whether the federal government inappropriately asked banks to terminate accounts of legal businesses it considers objectionable.

The Justice Department says its “Operation Choke Point” program protects consumers by cutting fraudulent businesses off from bank payment systems. It says it is targeting payday lenders and operators of mass-marketing schemes, as well as banks that ignore signs of fraud.

Critics of the program say many other categories of legitimate businesses have been targeted, including firms that sell firearms, coins, tobacco, lottery tickets, and pharmaceuticals.

“The government is compelling banks to deny service to unpopular but perfectly legal industries by threatening penalties,” American Bankers Association CEO Frank Keating said in a Wall Street Journal column. “This puts them in a difficult business position.”

The CEO of Community Choice Financial Inc. — the Ohio-based parent of several payday lending and check cashing businesses — told Columbus Business First that several banks stopped doing business with his company because of “Operation Choke Point.”

“It’s a bigger abuse of power than Watergate,” CEO Ted Saunders told the publication.

Issa and Jordan cite a February 2013 letter from the Federal Deposit Insurance Corporation’s Chicago office that criticizes an unnamed Ohio bank’s decision to process transactions on behalf of an unnamed payday lender. The name of the bank and payday lender were redacted from the document that Issa and Jordan released.

“It is our view that payday loans are costly and offer limited utility for consumers, as compared to traditional loan products,” said the letter to the bank’s board of directors. “Furthermore, the … relationship carries a high degree of risk to the institution, including third-party, reputational, compliance and legal risk, which may expose the bank to individual and class actions by borrowers and local regulatory authorities.”

An FDIC spokesman told American Banker the letter doesn’t reflect its current policies. He said those policies were set out in a a September 2013 statement that said banks operating with appropriate safeguards ” are neither prohibited nor discouraged from providing payment processing services to customers operating in compliance with applicable” state and federal laws.

Letters that Jordan and Issa sent to Yellen and Curry say their agencies may be “operating in a similar manner” to the FDIC office that sent the letter to the Ohio bank.

The letters from Jordan and Issa cite an Aug. 8 announcement that Sun Trust Bank will stop serving payday lenders, pawn shops and dedicated check-cashers “due to compliance requirements.”

Jordan and Issa said the Federal Reserve Board and Comptroller of the Currency’s “enforcement of a compliance regime that forces banks to sever all relations with legal and legitimate customers is totally unacceptable.”

They ask both agencies to give their committee any documents and communications that relate to “Operation Choke Point,” and financial institutions’ relationships with businesses including pawn shops, short-term lenders, and money service, tobacco, firearms and ammunition related businesses.

The agencies have until Oct. 30 to produce the records. Jordan is a Republican from Champaign County who chairs the Oversight Subcommittee on Economic Growth, Job Creation and Regulatory Affairs.

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