CHARLESTON — Attorney General Patrick Morrisey today announced nearly $20 million in debt cancellation for West Virginia consumers as part of a settlement with a debt collector, known as Cavalry Investments and Cavalry Portfolio Services among other names.
The settlement requires Cavalry to forever cease efforts to collect $19.7 million in debt for 2,847 consumers, in addition to paying $350,000 to the State of West Virginia.
“This settlement provides significant relief directly to the affected consumers,” Attorney General Morrisey said. “Companies operating in our state must respect our laws.”
The settlement stems from an investigation into complaints alleging Cavalry engaged in debt collection practices without a West Virginia license and surety bond. Both are required by the state’s Collection Agency Act.
The investigation also revealed practices inconsistent with the state’s Consumer Credit and Protection Act. Those allegations included telephone abuse and harassment, along with a failure to identify the account owner in collection letters and in reporting alleged debts to consumer reporting agencies.
Cavalry agreed to delete all account information from the affected consumers’ credit records and release all liens filed against the consumers’ property. The company denied any allegation of wrongdoing as part of the settlement.
The Attorney General’s Office filed a lawsuit after issuing an investigative subpoena requesting Cavalry suspend all collection activities. Among those named defendants were Cavalry Portfolio Services LLC, Cavalry Investments, SPV I and SPV II, all headquartered in New York.
Unifund CCR Partners, a debt buyer, was in the business of purchasing large portfolios of charged-off debts from original debt holders in the hope of eventually collecting from the original debtors. Unifund asserted the right to judgment against defendant David Zimmer for charged-off debt in the amount of $2453.22, plus costs and statutory pre-judgment interest of 12% under 12 V.S.A. 2903, for a credit card account opened in defendant’s name with Citibank. Unifund also alleged that defendant was unjustly enriched in that amount “by virtue of non-payment on an account.” At trial, Unifund asserted that it was authorized to collect the debt by a series of limited assignments, from Citibank to Pilot Receivables Management, LLC (Pilot) on June 18, 2012, and from Pilot to Unifund CCR LLC (UCL) and UCL to Unifund, both on June 1, 2013. To establish standing to enforce the underlying debt, Unifund offered testimony of Brian Billings, who spoke in support of the assignment from Citibank to Pilot, and Elizabeth Andres, who spoke in support of the assignments from Pilot to UCL and UCL to Unifund. The trial court found these documents to be inadmissible as hearsay because Unifund had failed to establish the necessary foundation for their admission. The trial court also found that, even if the assignments were admissible as a business record under Rule 803(6), Unifund had failed to establish standing. Unifund raised four arguments on appeal: (1) that documents proffered to establish the assignment of defendant’s debt were not admissible as business records; (2) that the assignment of the right to collect is itself sufficient for standing; (3) that Unifund sufficiently established the terms of the contract between defendant and Citibank, including the contractual interest rate; and (4) that Unifund demonstrated a basis to recover for unjust enrichment. Finding no reversible error in the trial court’s analysis and judgment, the Supreme Court affirmed.
WASHINGTON, D.C. – The Consumer Financial Protection Bureau today against Citibank, N.A., two of its affiliates – Department Stores National Bank and CitiFinancial Servicing, LLC – and two debt collection law firms for altering affidavits filed in debt collection lawsuits. Citibank retained Faloni & Associates, LLC, of Fairfield, N.J., and Solomon & Solomon, P.C., of Albany, N.Y. to collect credit card debt on its behalf in New Jersey state courts.
Citibank filed sworn statements attesting to the accuracy of the debt allegedly owed. Citibank then provided the affidavits to their attorneys to file with New Jersey courts. The two firms retained by Citibank altered the dates of the affidavits, the amount of the debt allegedly owed, or both, after the affidavits were executed. This violated the Fair Debt Collection Practices Act.
In May 2011, Citibank learned that one of its law firms had altered affidavits and stopped referring new credit card accounts to it. At Citibank’s request, a New Jersey court dismissed actions pending as of Sept. 12, 2011 that Citibank identified as involving altered affidavits or incorrect information.
The CFPB’s order requires Citibank to comply with the New Jersey state court order, in which Citibank had to refund $11 million collected from consumers and stop collection of an additional $34 million in debts, both of which Citibank has done. Solomon & Solomon, P.C., must pay a $65,000 penalty to the Bureau’s Civil Penalty Fund. Faloni & Associates, LLC, must pay $15,000. Consistent with the Bureau’s Responsible Business Conduct bulletin, the CFPB did not impose civil money penalties on Citibank for this violation, especially in light of its efforts to recompense harmed consumers.
WASHINGTON, D.C. – The Consumer Financial Protection Bureau today took two separate actions against Citibank for illegal debt sales and debt collection practices. In the first action, the CFPB ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with inflated interest rates and for failing to forward consumer payments promptly to debt buyers. The second action is against both Citibank and two debt collection law firms it used that falsified court documents filed in debt collection cases in New Jersey state courts. The CFPB ordered Citibank and the law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.
“Citibank sent inaccurate information to buyers when it sold off credit card debt and it also used law firms that altered court documents,” said CFPB Director Richard Cordray. “Today’s action provides redress to consumers who were victimized by slipshod practices as part of our ongoing work to fight abuses in the debt collection market.”
Citibank, N.A., is a national bank with headquarters in New York, N.Y., that issues consumer credit cards. From 2010 to 2013, Citibank sold portfolios of charged-off credit card accounts. It typically provided debt buyers with information about the consumer and the debt, including the supposed annual percentage rate (APR). A “charged-off” account is one the bank deems unlikely to be repaid, but may sell to a debt buyer, usually for a fraction of face value. The debt buyer then can try to collect on those accounts.
Illegal Debt Sales Practices
Citibank broke the law when, from February 2010 until June 2013, it provided inaccurate and inflated APR information for almost 130,000 credit card accounts it sold to debt buyers. These buyers then used the exaggerated APR in debt collection attempts. Citibank also failed to promptly forward to debt buyers approximately 14,000 customer payments totaling almost $1 million. The CFPB found that Citibank violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act. Specifically, Citibank:
Overstated the annual percentage rate in accounts sold to debt buyers: Between February 2010 and June 2013, Citibank overstated the APR for 128,809 accounts it sold to 16 different debt buyers. For some accounts, Citibank claimed the APR was 29 percent when it was actually 0 percent. Consumers paid about $4.89 million to debt buyers who used an APR inflated by more than 1 percent in collection efforts.
Delayed sending consumer payments to debt buyers: From 2010 to 2013, Citibank delayed forwarding to debt buyers nearly 14,000 payments made by consumers, totaling almost $1 million. This delayed the updating of account balances and subjected consumers to collection efforts from debt buyers after they had already, in reality, paid off their account.
Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaged in unfair, deceptive, or abusive acts or practices. Under the CFPB’s order addressing illegal debt sales practices, Citibank must:
Refund an estimated $4.89 million to roughly 2,100 consumers: Citibank must refund all payments consumers made from Feb. 1, 2010 to Nov. 14, 2013 to debt buyers that referenced an inflated APR provided by Citibank in their collection efforts where the discrepancy was more than 1 percent.
Accurately document the debt it sells: Citibank must provide certain account documents when it sells debt, such as the credit agreement and recent account statements.
Stop selling debt it cannot verify: Citibank cannot sell debts if it cannot provide documentation, if the consumers notified Citibank of identity theft or unauthorized use, if consumers allege in writing that they do not owe the amount claimed, or if the account is within 150 days of the end of the statute of limitations.
Include certain protections in debt sales contracts: Citibank must include provisions in its debt sales contracts prohibiting the debt buyer from reselling the debt.
Provide consumers with basic information about the debt: When it sells a debt, Citibank must give consumers information about the debt, such as the name of the original creditor, the credit agreement, and recent account statements.
Pay civil money penalties: Citibank must pay a $3 million penalty to the CFPB’s Civil Penalty Fund.
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) filed a consent order in federal court that resolves a lawsuit against Frederick J. Hanna & Associates, a Georgia-based law firm, and its three principal partners, for operating an illegal debt collection lawsuit mill. The CFPB lawsuit had alleged that the defendants rely on deceptive court filings and faulty evidence to churn out lawsuits. The order bars the firm and its principal partners from illegal debt-collection practices, including filing lawsuits without being able to verify the consumers’ debt is owed, and intimidating consumers with deceptive court filings. The order also requires the firm and its principals to pay $3.1 million to the Bureau’s Civil Penalty Fund.
“The Hanna firm relied on deception and faulty evidence to coerce consumers into paying debts that often could not be verified or may not be owed,” said CFPB Director Richard Cordray. “Debt collectors that use the court system for purposes of intimidation should reconsider how their practices are harming consumers.”
The Hanna law firm focuses exclusively on debt collection litigation, and its three principal partners, Frederick J. Hanna, Joseph Cooling, and Robert Winter, play an active role in the company’s business strategies and practices. The firm performs debt collection activities on behalf of clients that include banks, credit card issuers, and companies that purchase and sell consumer debt. The Hanna law firm typically files lawsuits if its efforts do not lead to collections.
In July 2014, the CFPB filed suit against the firm and its principal partners in federal court in the Northern District of Georgia. The consent order resolves the case. In its complaint, the CFPB charged the law firm with violating the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on deceptive practices as well as the Fair Debt Collection Practices Act by:
Intimidating consumers with deceptive court filings: The CFPB alleged that the firm filed collection suits signed by attorneys when, in fact, there was no meaningful involvement of attorneys. The lawsuits were the result of automated processes and the work of non-attorney staff. The resulting lawsuits misrepresented to consumers that they were “from attorneys.” This process allowed the firm to generate and file hundreds of thousands of lawsuits. One attorney at the firm, for example, signed over 130,000 debt collection lawsuits over a two-year period.
Introducing faulty or unsubstantiated evidence: The CFPB alleged that the firm used sworn statements from its clients attesting to details about consumer debts to support its lawsuits. The firm filed these statements with the court even though in some cases the signers could not possibly have known the details they were attesting to. In a substantial number of cases, when challenged, the firm dismissed lawsuits. Between 2009 and 2014, the firm dismissed over 40,000 suits in Georgia alone, and the CFPB believes it did so frequently because it could not substantiate its allegations.
Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices, or that otherwise violate federal consumer financial laws. The CFPB’s proposed order, if approved by the court, would:
End illegal collection and intimidation tactics: The Hanna law firm and its principal partners would be prohibited from filing lawsuits or threatening to sue to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable.
Clean up attorney practices: Under the proposed order, the Hanna law firm and its partners would be prohibited from filing or threatening lawsuits unless they or their attorneys have reviewed specific documentation related to the consumer’s debt. The law firm would also be required to create a record of that review.
Prohibit deceptive court filings: The CFPB alleged that the firm files sworn statements from its clients with the court even though in some cases the signers could not possibly know the details they are attesting to. Under the proposed order, the defendants would not be permitted to use affidavits as evidence to collect debts unless the statements specifically and accurately describe the signer’s knowledge of the facts and the documents attached.
Pay a $3.1 million penalty: The firm and its principal partners would be jointly required to pay a $3.1 million penalty to the CFPB’s Civil Penalty Fund.
This action is part of the Bureau’s work to address illegal debt collection practices across the consumer financial marketplace, including companies who sell, buy, and collect debt.
Stipulated Final Judgment and Order
The consent order follows an earlier court order issued in July 2015 that rejected the defendants’ motion to dismiss the case. Among other things, that court ruling held that attorneys have an obligation to meaningfully review the facts of a lawsuit before filing it and that the CFPB has the authority to take action against attorneys engaged in illegal consumer debt-collection practices.
WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) took action against the nation’s two largest debt buyers and collectors for using deceptive tactics to collect bad debts. The Bureau found that Encore Capital Group and Portfolio Recovery Associates bought debts that were potentially inaccurate, lacking documentation, or unenforceable. Without verifying the debt, the companies collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents. The CFPB has ordered the companies to overhaul their debt collection and litigation practices and to stop reselling debts to third parties. Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio Recovery Associates must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.
“Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” said CFPB Director Richard Cordray. “Now, the two biggest debt buyers in the market must refund millions and overhaul their practices. We will continue to take action to protect consumers from illegal and obnoxious debt collection practices.”
Encore Capital Group, Inc. is headquartered in San Diego, Calif. Its subsidiaries also named in today’s action are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp. Together, they form the nation’s largest debt buyer and collector. Portfolio Recovery Associates is the nation’s second largest debt buyer and collector. Portfolio Recovery Associates is a Delaware for-profit corporation headquartered in Norfolk, Va. and is a wholly-owned subsidiary of PRA Group, Inc.
As debt buyers, Encore and Portfolio Recovery Associates purchase delinquent or charged-off accounts for a fraction of the value of the debt. Although they pay only pennies on the dollar for the debt, they may attempt to collect the full amount claimed by the original lender. Together, these two companies have purchased the rights to collect over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts.
The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers, or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. These practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Collecting Bad Debts
Encore and Portfolio Recovery Associates illegally attempted to collect debt that they knew, or should have known, may have been inaccurate or unenforceable. Specifically, the CFPB found that the companies:
Attempted to collect on unsubstantiated or inaccurate debt: Encore and Portfolio Recovery Associates stated incorrect balances, interest rates, and payment due dates in attempting to collect debts from consumers. The companies purchased large portfolios of consumer debt with balances that sellers claimed were “approximate” or that otherwise did not reflect the correct amount owed by the consumer. Sellers also warned the companies that some of the debts they were buying may not have the most recent consumer payments deducted from the balance. Some sellers also represented that documents were not available for some of the accounts. The companies continued purchasing from these sellers and then collecting on that debt without first conducting any investigation to determine whether the debts were accurate and enforceable.
Illegal Litigation Practices
Encore and Portfolio Recovery Associates collected debts through lawsuits and threats of legal action in unlawful ways. Specifically, the companies:
Misrepresented their intention to prove debts they sued consumers over: Encore and Portfolio Recovery Associates regularly attempted to collect on debts by suing consumers in state courts across the country. In numerous cases, the companies had no intention of proving these debts. They placed tens of thousands of debts with law firms staffed by only a handful of attorneys and in many cases made no effort to obtain the documents to back up their claims. Instead, the companies relied on consumers not filing a defense and winning the lawsuits by default.
Relied on misleading, robo-signed court filings to churn out lawsuits: Encore and Portfolio Recovery Associates filed affidavits that contained misleading statements in debt collection lawsuits across the country. For example, they both used affidavits that misrepresented that the affiants had reviewed original account-level documentation confirming the consumers’ debts when they had not. The companies also submitted affidavits with documents attached that they claimed were the consumers’ specific account contracts or records when they weren’t. These shortcuts allowed the companies to churn through lawsuits without doing the research and due diligence required to obtain a legitimate judgment.
Sued or threatened to sue consumers past the statute of limitations: From at least July 21, 2011 to March 31, 2013, Encore sent thousands of letters offering a time-limited opportunity to “settle” without revealing that the debt was too old for litigation. From January 2009 to March 2012, Portfolio Recovery Associates sent similar letters to consumers. Both of the companies also filed cases past the applicable statute of limitations.
Pressured consumers to make payments using misrepresentations: Encore and Portfolio Recovery Associates made other inaccurate statements to consumers to press them to make additional payments. Specifically:
Encore falsely told consumers the burden of proof was on them to disprove the debt: In sworn affidavits, Encore falsely told consumers and courts that the debt should be assumed to be valid because the consumer had not disputed it within a certain time period. In fact, Encore had the burden to first prove the debt was owed and accurate before the consumer had to challenge it.
Portfolio Recovery Associates falsely claimed an attorney had reviewed the file and a lawsuit was imminent: The company’s collectors, who identified themselves as from the “Litigation Department,” misrepresented to consumers that litigation against them was planned, imminent, or even underway. In reality, in many cases, an attorney had not reviewed the account and the company had not decided whether to file suit.
Other Illegal Collection Practices
Encore disregarded or failed to adequately investigate consumers’ disputes: If a consumer disputed their debt more than 45 days after Encore started collecting, Encore would require the consumer to produce specific documents or other “proof” to support their dispute or it would not conduct the legally-required investigation of the issues raised by the consumer.
Encore farmed out disputed debts to law firms without forwarding required information: In numerous instances, Encore assigned disputed debt to law firms and third-party debt collectors without informing them that the debt was disputed. As a result, law firms evaluating Encore accounts for litigation did not know which accounts were disputed.
Encore made harassing collection calls to consumers: Encore called consumers repeatedly or continuously with the intent to annoy, abuse, or harass them into paying. Encore’s subsidiary, Asset Acceptance, made thousands of calls to consumers before 8 a.m. or after 9 p.m. and called hundreds of consumers more than 20 times in a two-day period.
Portfolio Recovery Associates misled consumers into consenting to receive auto-dialed cell phone calls: For approximately a year, and ending in August 2013, Portfolio Recovery Associates told consumers that they could only prevent collection calls to their cell phones before 9 a.m. if they consented to receive calls on their cell phones from a dialer. The company penalized representatives who failed to adhere to this policy.
Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. Under the terms of the CFPB orders released today, Encore and Portfolio Recovery Associates are required to:
Stop reselling debts: The companies are prohibited from reselling the debts they buy to other debt collectors. This will protect consumers from the potential harm that results when debt collectors continue to sell and resell debts that may be inaccurate or lack the business records and information needed to collect them.
Refund millions of dollars to consumers:
Encore must pay up to $42 million in refunds: The company must provide refunds where it collected payments by misrepresenting that it could sue on a time-barred debt or by misrepresenting in court that a debt was assumed valid because the consumer did not previously dispute it.
Portfolio Recovery Associates must pay $19 million in refunds: The company must provide refunds where it collected payments by misrepresenting that an attorney had reviewed a debt or that collectors were calling on behalf of attorneys, and where it collected payments on judgments that it should not have obtained because they were barred by the statute of limitations from suing to collect the debt.
Cease collections on millions of dollars of debt:
Encore must stop collecting on $125 million of debt: The company must release or move to vacate all judgments and dismiss all lawsuits where it misrepresented that a debt was assumed valid, and stop any attempts to enforce or collect on these judgments. The face value of this debt is estimated at over $125 million.
Portfolio Recovery Associates must stop collecting on $3 million of debt: The company must release or move to vacate all judgments and dismiss all pending lawsuits it filed past the statute of limitations and stop any attempts to enforce or collect on those judgments, estimated to have a face value of $3.4 million.
Stop collecting debts they can’t verify: Encore and Portfolio Recovery Associates can’t collect unsubstantiated debt. Under the order, they must review original account-level documents verifying a debt before collecting on it when, for example, a consumer has disputed it, the seller didn’t promise it was accurate or valid, or the debt was part of a portfolio they knew included unsupportable or inaccurate information.
Ensure accuracy when filing lawsuits: The companies cannot file lawsuits to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable.
Provide consumers information before filing suit: Encore and Portfolio Recovery Associates must provide consumers with information about a debt, such as the name of the creditor and charge-off balance, and offer to provide consumers with original documents relating to the account before they are allowed to file a lawsuit or threaten to file suit to collect the debt.
Use accurate affidavits: The companies cannot use affidavits to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s knowledge of the facts and the documents attached.
Reform collection of older debts: Encore and Portfolio Recovery Associates are prohibited from suing or threatening to sue to collect on time-barred debt. They also cannot collect on such debt unless they disclose to consumers that they can’t sue to collect it.
Pay civil money penalties:
Encore must pay a penalty of $10 million to the CFPB’s Civil Penalty Fund.
Portfolio Recovery Associates must pay a penalty of $8 million to the CFPB’s Civil Penalty Fund.
NEW YORK – Attorney General Eric T. Schneiderman today announced that his office has obtained a settlement from Encore Capital Group, Inc. (“Encore”), a major debt buyer, for bringing improper debt collection actions against thousands of New York consumers. For years, Encore sued New York consumers and obtained uncontested default judgments against consumers who failed to respond to the lawsuits, even though the underlying claims were untimely under New York law. Under the settlement, Encore will seek to vacate more than 4,500 improperly obtained judgments totaling nearly $18 million. Encore will also reform its debt collection practices and pay civil penalties and costs in the amount of $675,000.
“New York has laws in place to ensure no one can prey on consumers, and debt collectors are required to follow those rules,” said Attorney General Schneiderman. “Today’s settlement ensures that thousands of New Yorkers will see millions in relief from debts that were not enforceable in the first place. We will continue to take action against any company that abuses the power of the court system at the expense of hardworking families.”
Encore is a debt buyer that purchases unpaid consumer debts such as credit card debts from the original creditor or from other debt buyers at deeply discounted prices. Encore’s subsidiaries, which include Midland Credit Management, then attempt to collect on the debt. Through its subsidiaries, Encore is one of the most active debt collection plaintiffs in New York State, filing tens of thousands of debt collection actions each year.
It is unlawful for a debt collector to bring suit against a consumer when the claims are outside of the applicable statute of limitations. Under New York law, in order for an action to be timely filed, it must be commenced not only within New York’s statute of limitations, but also within the statute of limitations of the state where the cause of action accrued, if other than New York. In debt collection actions, a cause of action accrues where the original creditor of the debt resides. For example, while New York’s statute of limitations to collect on a debt is generally six years, if the original creditor on the debt was located in Delaware, which has a three-year statute of limitations, the shorter statute of limitations would govern the action.
The Attorney General’s investigation found that, despite the clear requirements of New York law, Encore brought debt collection claims that were untimely under the statutes of limitations where the causes of action accrued. Because most consumers fail to respond when they are sued by a debt collector, Encore obtained default judgments in its favor based on these time-barred claims.
In addition to seeking to vacate more than 4,500 improperly obtained judgments and paying $675,000 in civil penalties and costs, Encore has agreed to several important reforms of its current practices in New York. These include:
Disclosing in written or oral communication about a debt that is outside the statute of limitations that the company will not sue to collect on the debt.
Disclosing in written or oral communications about a debt that is outside the date for reporting the debt provided for by the federal Fair Credit Reporting Act that, because of the age of the debt, the company will not report the debt to any credit reporting agency.
Alleging certain information relevant to the statute of limitations in any debt collection complaint, such as the name of the original creditor and the date of the consumer’s last payment on the debt.
In addition to filing time-barred debt collection actions, Encore was also engaged in a practice that is often referred to as “robosigning”: Encore employees signed hundreds of affidavits submitted in support of debt collection actions each day without reviewing the affidavits and without possessing personal knowledge, as alleged in the affidavits, about the claimed debts and the amounts owed. The settlement requires Encore to institute reforms to ensure that “robosigning” does not occur and to ensure that all sworn statements filed in debt collection actions are reviewed prior to execution.
This settlement is a part of the Attorney General’s continuing efforts to combat unlawful and abusive debt collection activity. In May 2014, Attorney General Schneiderman obtained settlements from two major debt buyers, Portfolio Recovery Associates and Sherman Financial Group, who filed time-barred debt collection cases. Those settlements resulted in the vacature of more than 3,000 improperly obtained judgments.
In addition, in September 2014, New York’s Court System adopted a comprehensive set of reforms related to consumer debt collection actions that incorporate many of the recommendations of the Attorney General’s Office. More information on those reforms is available here.
Consumers facing default judgments arising from debt collection actions brought by Encore or its subsidiaries (including Midland Credit Management) who believe that the default judgment was improperly obtained because the claim was time-barred should contact the Attorney General’s Office within ninety days. Such judgments may be eligible for vacature pursuant to the settlement.
This case was handled by Special Counsel Carolyn Fast, Special Assistant Attorney General Stephen Mindell, and Bureau Chief Jane Azia, all of the Consumer Frauds and Protection Bureau, and Executive Deputy Attorney General for Economic Justice Karla Sanchez.
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) and 13 state attorneys general obtained approximately $92 million in debt relief from Colfax Capital Corporation and Culver Capital, LLC, also collectively known as “Rome Finance,” for about 17,000 U.S. servicemembers and other consumers harmed by the company’s predatory lending scheme. Rome Finance lured consumers with the promise of no money down and instant financing. Rome Finance then masked expensive finance charges by artificially inflating the disclosed price of the consumer goods being sold. Rome Finance also withheld information on billing statements and illegally collected on loans that were void. Rome Finance and two of its owners are permanently banned from consumer lending.
“Rome Finance’s business model was built on fleecing servicemembers,” said CFPB Director Richard Cordray. “Rome Finance lured servicemembers in with the promise of instant financing on expensive electronics, then masked the finance charges with inflated prices in marketing materials and later withheld key information on monthly bills. Today, their long run of picking the pockets of our military has come to an ignominious end.”
Colfax, formerly known as Rome Finance Co., Inc., is a California consumer lending company and Culver is its wholly owned subsidiary, formerly known as Rome Finance LLC. The companies offered credit to consumers purchasing computers, videogame consoles, televisions, or other products. These products were typically sold at mall kiosks near military bases with the promise of instant financing with no money down. In some cases, Rome Finance was the initial creditor, and in other cases, Rome Finance provided indirect financing by agreeing to buy the financing contracts from merchants who sold the goods.
Servicemembers and other consumers would fill out a credit application at the kiosk and, if approved, sign financing agreements that did not accurately disclose the amounts they would have to pay for that financing. These contracts generated millions for Rome Finance while weighing down consumers with expensive debt. Rome Finance has been the subject of previous state and federal enforcement actions and Colfax is currently in Chapter 7 bankruptcy. The CFPB and state attorneys general uncovered substantial evidence that Rome Finance’s lending scheme violated several laws and that these illegal practices harmed approximately 17,000 consumers. The CFPB in its consent order found that Rome Finance:
Hid finance charges when marketing products: Rome Finance and merchants it worked with masked expensive finance charges by artificially inflating the disclosed price of the consumer goods being sold. As a result, they provided consumers with disclosures that had inaccurately low finance charges and annual percentage rates (APR). Consumers received disclosures, for example, indicating the APR was 16 percent when in fact the APR was 100 percent or more. That inaccurate information prevented consumers from making an informed decision about whether to take out credit.
Withheld required financial information from billing statements: Billing statements that Rome Finance sent to consumers failed to include certain disclosures required by law such as: the annual percentage rate, the balance that was subject to that interest rate, how that balance was determined, the closing date of the billing cycle, and the account balance on the closing date.
Deceptively, unfairly, and abusively collected debt that was not owed: Rome Finance was not licensed to provide consumer lending in any state and charged annual percentage rates higher than some states allowed, which voided or limited the collectable debt in some states under state lending law. Rome Finance deceived consumers in these states by failing to inform them that some or all of their debt was void or otherwise did not have to be repaid. As a result, many consumers were misled into thinking that they had to repay the entire loan balance and making those payments, when they did not have to.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices. The Truth in Lending Act also authorizes the CFPB to take action against creditors who do not accurately disclose the cost of credit and other credit terms to consumers. To address these violations, the CFPB’s consent order requires Rome Finance to:
Provide approximately $92 million in debt relief: All efforts to collect on any of the outstanding Rome Finance financing agreements must cease. Rome Finance still has approximately $60 million in contracts owed by about 12,000 consumers that it will no longer seek to collect. Separately, a liquidating trust created as part of Colfax’s bankruptcy plan will stop collections on approximately $32 million owed by more than 5,000 consumers for Rome Finance’s financing agreements. Servicemembers may keep the merchandise they purchased.
Update credit reporting agencies and notify servicemembers and other consumers of debt status: The Colfax Trustee must update the credit reporting agencies so that affected consumers are listed as having paid their debt. The Colfax Trustee must also notify all affected consumers that their debt will no longer be collected.
Rome Finance and their owners must cease consumer lending: Rome Finance and two of their owners, Ronald Wilson and William Collins, are permanently banned from conducting any business in the field of consumer lending.
Pay redress for hidden finance charges: Rome Finance was ordered to pay redress to compensate affected consumers for the amount of excess finance charges they paid. When Colfax’s Trustee has complied with certain provisions of the Consent Order, the requirement to pay redress will be suspended because Rome Finance has no ability to pay such redress.
Pay civil money penalty: For its inaccurate disclosures, and unfair, deceptive, and abusive practices, Colfax, through its bankruptcy trustee, will make a $1 penalty payment to the CFPB’s Civil Penalty Fund. The Bureau is not assessing a larger penalty because Colfax is bankrupt. With Colfax making a payment to the Civil Penalty Fund, Rome Finance’s victims may be eligible for relief from the Civil Penalty Fund in the future, although that determination has not yet been made.
Cooperate with servicemembers and other consumers who seek to vacate judgments: The Colfax Trustee is required until the Colfax bankruptcy case is closed to cooperate in executing any documents presented to him to vacate or satisfy any judgments against consumers relating to the financing agreements.