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.
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.
Today, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit in a federal district court against a Georgia-based firm, Frederick J. Hanna & Associates, and its three principal partners for operating a debt collection lawsuit mill that uses illegal tactics to intimidate consumers into paying debts they may not owe. The Bureau alleges that the Hanna firm churns out hundreds of thousands of lawsuits that frequently rely on deceptive court filings and faulty or unsubstantiated evidence. The CFPB is seeking compensation for victims, a civil fine, and an injunction against the company and its partners.
“The Hanna firm relies on deception and faulty evidence to drag consumers to court and collect millions,” said CFPB Director Richard Cordray. “We believe they are taking advantage of consumers’ lack of legal expertise to intimidate them into paying debts they may not even owe. Today we are taking action to put a stop to these illegal debt collection practices.”
The Hanna 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 and typically files lawsuits if those efforts do not lead to collections.
The CFPB alleges that the firm operates like a factory, producing hundreds of thousands of debt collection lawsuits against consumers on behalf of its clients, which mainly include banks, debt buyers, and major credit card issuers. Between 2009 and 2013 the firm filed more than 350,000 debt collection lawsuits in Georgia alone. The CFPB further alleges the defendants collected millions of dollars each year through these lawsuits, often from consumers who may not actually have owed the debts.
The CFPB alleges that the defendants violated the Fair Debt Collection Practices Act (FDCPA). Among other things, the FDCPA prohibits making misrepresentations to consumers, and specifically prohibits misrepresenting to a consumer that a communication is from an attorney. The CFPB also alleges that the defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection Act, which prohibits deceptive acts or practices in the consumer financial marketplace.
Violations alleged in the CFPB’s complaint include:
Intimidating consumers with deceptive court filings: The firm files collection suits signed by attorneys when, in fact, the lawsuits are the result of automated processes and the work of non-attorney staff, without any meaningful involvement of attorneys. The resulting lawsuits misrepresent to consumers that they are “from attorneys.” This process allows 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 firm uses sworn statements from its clients attesting to details about consumer debts to support its lawsuits. The firm files these statements with the court even though in some cases the signers could not possibly know the details they are attesting to. In a substantial number of cases, when challenged, the firm dismissed lawsuits. Since 2009, the firm has dismissed over 40,000 suits in Georgia alone, and the CFPB believes it does so frequently because it cannot substantiate its allegations.
Through this lawsuit, the Bureau seeks to stop the alleged unlawful practices of the Hanna firm and its three principal partners. The Bureau has also requested that the court impose penalties on the company and its partners for their conduct and require that compensation be paid to consumers who have been harmed.
WASHINGTON, D.C. – Today, the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) announced a joint public enforcement action with an order requiring Discover Bank to refund approximately $200 million to more than 3.5 million consumers and pay a $14 million civil money penalty. This action results from an investigation started by the FDIC which the CFPB joined last year. The joint investigation concerned deceptive telemarketing and sales tactics used by Discover to mislead consumers into paying for various credit card “add-on products” – payment protection, credit score tracking, identity theft protection, and wallet protection.
The agencies jointly determined that Discover engaged in deceptive telemarketing tactics to sell the company’s credit card add-on products. Payment Protection was marketed as a product that allows consumers to put their payments on hold for up to two years in the event of unemployment, hospitalization, or other qualifying life events. Discover also sold its Credit Score Tracker, designed to allow a customer unlimited access to his or her credit reports and credit score. The third product was Identity Theft Protection, which was marketed as providing daily credit monitoring. Lastly, Discover’s Wallet Protection product was sold as a service to help a consumer cancel credit cards in the event that his or her wallet is stolen.
Discover’s telemarketing scripts contained misleading language likely to deceive consumers about whether they were actually purchasing a product. Discover’s telemarketers also often downplayed key terms and spoke quickly during the part of the call in which the prices and terms of the add-on products were disclosed. Because of the misleading language in the scripts and the actions of Discover’s telemarketers, consumers were:
Misled about the fact that there was a charge for the products: Discover’s telemarketing scripts often used language implying that the products were additional free “benefits,” rather than products for which a fee would be applied to their accounts.
Misled about whether they had purchased the products: The telemarketing scripts frequently suggested that consumers would not be charged for the products until after having a chance to review printed materials from Discover. Discover, however, did not provide consumers with the information until after Discover had already initiated the consumer’s purchase of a product.
Enrolled without their consent: Discover representatives processed the add-on product purchases without some consumers’ consent. These consumers were then charged for the product on their Discover card.
Withheld material information about eligibility requirements for certain benefits: Discover’s telemarketers typically did not disclose critical eligibility requirements for certain payment protection benefits, such as exclusions for pre-existing medical conditions and certain limitations concerning employment.
Under the order, Discover has agreed to:
Stop deceptive marketing: Discover is required to institute certain changes to its telemarketing of these products that are designed to ensure that these unlawful acts do not occur again. Discover has also agreed to submit a compliance plan to the CFPB and the FDIC for approval, and to take specific corrective actions related to the products.
Pay restitution to consumers who purchased the products: Discover will pay approximately $200 million in restitution to more than 3.5 million consumers who were charged for one or more of the products between December 1, 2007 and August 31, 2011. All consumers affected by Discover’s deceptive practices regarding these products, except those who affirmatively made use of Payment Protection, will receive restitution with amounts varying depending on when they purchased, and how long they held, the add-on products. All consumers will receive at least 90 days’ worth of fees paid (minus any refunds they have already received), with approximately 2 million consumers receiving full restitution of all of the fees they paid.
Provide refunds or credits without any further action by consumers: Consumers are not required to take any action to receive their credit or check. If an affected consumer is still a Discover customer, he or she will receive a credit to his or her account. If an affected consumer is no longer a Discover credit card holder, the consumer will receive a check in the mail or have any outstanding balance reduced by the amount of the refund.
Submit to an independent audit: Compliance with the restitution terms of the order will be assured through the work of an independent auditor, who will report to the CFPB and FDIC on Discover’s compliance with the joint CFPB-FDIC Consent Order.
Pay a $14 million penalty: The CFPB and the FDIC imposed civil money penalties of $14 million. Discover will pay $7 million of that penalty to the U.S. Treasury and $7 million to the CFPB’s Civil Penalty Fund.
WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) announced its first public enforcement action with an order requiring Capital One Bank (U.S.A.), N.A. to refund approximately $140 million to two million customers and pay an additional $25 million penalty. This action results from a CFPB examination that identified deceptive marketing tactics used by Capital One’s vendors to pressure or mislead consumers into paying for “add-on products” such as payment protection and credit monitoring when they activated their credit cards.
“Today’s action puts $140 million back in the pockets of two million Capital One customers who were pressured or misled into buying credit card products they didn’t understand, didn’t want, or in some cases, couldn’t even use,” said CFPB Director Richard Cordray. “We are putting companies on notice that these deceptive practices are against the law and will not be tolerated.”
Through the supervision process, CFPB’s examiners discovered Capital One’s call-center vendors engaged in deceptive tactics to sell the company’s credit card add-on products. These products included “payment protection,” which allows consumers to request that the bank cancel up to 12 months of minimum payments – roughly one percent of their credit card balance – if they encounter certain life events like unemployment and temporary disability. It also provides debt forgiveness in the event of death or permanent disability. Another product was “credit monitoring,” with services such as identity-theft protection, access to “credit education specialists,” and, in some cases, daily monitoring and notification.
Consumers with low credit scores or low credit limits were offered these products by Capital One’s call-center vendors when they called to have their new credit cards activated. As part of the high-pressure tactics Capital One representatives used to sell these add-on products, consumers were:
Misled about the benefits of the products: Consumers were sometimes led to believe that the product would improve their credit scores and help them increase the credit limit on their Capital One credit card.
Deceived about the nature of the products: Consumers were not always told that buying the products was optional. In other cases, consumers were wrongly told they were required to purchase the product in order to receive full information about it, but that they could cancel the product if they were not satisfied. Many of these consumers later had difficulty canceling when they called to do so.
Misled about eligibility: Although most of the payment protection benefits kicked in when consumers became disabled or lost a job, some call center representatives marketed and sold the product to ineligible unemployed and disabled consumers. Despite paying the full fees, they could not get all the benefits of payment protection; some later filed claims that were denied because their “loss” (e.g. loss of job or onset of disability) occurred prior to enrollment.
Misinformed about cost of the products: Consumers were sometimes led to believe that they would be enrolling in a free product rather than making a purchase.
Enrolled without their consent: Some call center vendors processed the add-on product purchases without the consumer’s consent. Consumers were then automatically billed for the product and often had trouble cancelling the product when they called to do so.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to issue Consent Orders and take action against institutions engaging in unfair, deceptive, or abusive practices. To ensure that all affected consumers are repaid and that consumers are no longer subject to these misleading and high-pressure tactics, Capital One has agreed to:
End deceptive marketing: Capital One has ceased all marketing of these products, and will not resume doing so until Capital One submits a compliance plan, acceptable to the Bureau, which helps ensure these unlawful acts do not occur in the future.
Complete repayment, plus interest, to two million consumers: Capital One will pay approximately $140 million to all of the estimated two million consumers who either initially enrolled in a product on or after August 1, 2010, or who tried to cancel a product on or after August 1, 2010, but were persuaded to keep the product after speaking with a call center representative. In addition to the amount paid for the product, cardmembers will receive a refund of the associated finance charges, any over-the-limit fees resulting from the charge for the product, and interest.
Pay claims denied based on ineligibility at enrollment: For any of these eligible consumers whose payment protection claims were previously denied because their loss occurred prior to enrollment (because of unemployment, disability, etc.), Capital One will pay their claims as if they had been eligible, if that amount is greater than the refund for that consumer.
Convenient repayment for consumers: If the consumers are still Capital One customers, they will receive a credit to their accounts. If they are no longer a Capital One credit card holder, they will receive a check in the mail. Consumers are not required to take any action to receive their credit or check.
Independent audit: Compliance with the terms of this agreement will be assured through the work of an independent auditor, who will determine if Capital One has complied with the CFPB’s Consent Order.
$25 million penalty: Capital One will make a $25 million penalty payment to the CFPB’s Civil Penalty Fund.
Today’s action is being taken in coordination with the Office of the Comptroller of the Currency (OCC), which is separately ordering restitution of approximately $150 million from Capital One. This amount includes the same $140 million refund to be paid to the approximately two million customers harmed by the deceptive marketing practices identified by the CFPB’s examiners. The OCC’s order also includes separate restitution for additional consumers harmed by unfair billing practices taking place between May 2002 and June 2011 in violation of Section 5 of the Federal Trade Commission (FTC) Act. For the combined activity, the OCC is assessing a $35 million civil money penalty against Capital One.
In conjunction with today’s enforcement action, the Bureau is releasing two Consumer Advisories. One advisory is intended to make Capital One customers aware of today’s action and the other serves as a general warning to consumers who may encounter such deceptive practices.
Complaints received by the CFPB indicate – and the Bureau’s supervisory experience confirms – that other consumers have been misled by the marketing and sales practices associated with credit card add-on products. To further protect consumers, the Bureau is issuing a compliance bulletin that puts other institutions on notice that the CFPB will not tolerate deceptive marketing practices, and institutions will be held responsible for the actions of their third-party vendors. Companies engaging in deceptive practices will be expected to refund fees paid by consumers and, particularly where practices are widespread, pay an appropriate penalty.