Oral argument in Midland v. Johnson was today. See the transcript here.
FTC Cracking Down on Dishonest Payday Lenders
The FTC has been going after fraudulent payday lending operations centered in Missouri and Kansas, with settlements as high as $1.266 billion.
In a press release dated January 9, 2017, the FTC announced charges against businessman, Joel Jerome Tucker, and his companies, SQ Capital LLC, JT Holding Inc., and HPD LLC, for selling portfolios made up of fake payday loans. According to the FTC, the loans listed in the portfolios were named phony lenders and debtors, including their social security and bank account numbers, and led to collection activities against consumers who had not taken out loans. The FTC previously brought actions against two debt collectors who used the fake portfolios.
In October 2016, the Kansas City Star reported that Joel Tucker’s brother, Missouri businessman and sometime racecar driver, Scott Tucker, was ordered to pay $1.266 billion to the FTC after Nevada federal judge, Gloria Navarro, determined that he and others ran a payday loan enterprise that engaged in deceit against its customers by failing to disclose terms and conditions of the loans and for charging usurious interest rates. Judge Navarro called the fraud “sustained and continuous.” Mr. Tucker attempted to evade state lending regulations by locating portions of his businesses on tribal lands, though the bulk of his operations were located in Overland Park, Kansas. Scott Tucker also has a pending criminal case against him in which he is accused of running a $2 billion payday loan enterprise that defrauded 4.5 million consumers. That case is scheduled for trial in April 2017.
In another case, a settlement was reached last summer between the FTC and payday lenders, Tim Coppinger and Ted Rowland, and their companies. Under the terms of that agreement the lenders paid almost $1 million with the threat of substantially greater judgments (up to $32 million) should they fail to honor the terms of the settlement agreement. The fraudulent activity included debiting money from the accounts of people who never requested loans but for whom the payday lender had obtained personal information. They would then charge interest and fees on those unauthorized loans. Joel Tucker had a hand in this operation through his company, eData Solutions, a “one-stop-shop” for assisting payday lenders in their start-ups and operations. eData’s involvement consisted of providing “customer/borrower leads, qualifying the leads, providing a loan management software system, and buying defaulted consumer loans to sell to third-party collectors.” Court-appointed Receiver, Larry Cook, is seeking to recover the entire $29.9 million that Coppinger and Rowland’s companies paid to eData Solutions for its services.
CFPB Sues over Deceptive Pension Advances
The Consumer Federal Protection Bureau and the New York Department of Financial Services are seeking to enjoin deceptive lending practices by two pension advance companies. CFPB v. Pension Funding LLC, No. 8:15-cv-01329 (C.D. Cal.). On August 20, 2015, the agencies filed suit against Pension Funding LLC and Pension Income LLC and managing members, Steven Covey, Edwin Lichtig, and Rex Hofelter, alleging that the individuals and companies were in “violation of federal and New York law through the offering of pension advance products that came with hidden fees and interest charges that were not properly disclosed to consumers.” Specifically, the complaint alleges that the companies engaged in a scheme under which elderly consumers would send them eight years’ worth of pension payments in exchange for a lump sum. Though the consumers would be promised little to no fees or interest, in fact, the transactions included a hidden effective interest rate of more than 28 percent and were in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act and New York usury laws.
The agencies moved for preliminary injunction and the companies responded that the transactions at issue were sales rather than loans and, therefore, the companies and individuals were not “lenders” over which the CFPB and DFS could exercise jurisdiction.
The agencies responded that “the facts establish that Defendants’ pension-advance transactions constituted loans under the CFPA, as consumers incurred debt and were granted the right to defer its payment, in this case typically over a period of eight years. That pension payments the consumers were entitled to receive were expected to be used to repay the debt does not change the fundamental character of the transaction, and Defendants’ arguments to the contrary are unavailing.”
A hearing on the motion for preliminary injunction is scheduled for December 18, 2015.
NCBRC Gains Support of the American College of Bankruptcy Foundation
The National Consumer Bankruptcy Rights Center (NCBRC) is honored to have received a 2015 Pro Bono Grant for $10,000.00 from the American College of Bankruptcy Foundation. NCBRC is a 501(c)(3) organization dedicated to protecting the integrity of the bankruptcy system and preserving the rights of consumer bankruptcy debtors. NCBRC advances these goals by assisting either through working directly with debtors’ attorneys or by filing amicus briefs in courts throughout the country.
Formed in 1989, the ACB is an honorary public service association of bankruptcy and insolvency professionals invited to join based on their established record of the highest standards of professionalism and public service to the profession. It is the largest financial supporter of bankruptcy and insolvency-related pro bono legal service programs in the United States. The ACB’s stated missions of: “sponsorship and encouragement of legal research, publications, and forums; establishment of scholarships; providing for the collection and maintenance of data and documents for scholarly research; and fostering the institution and maintenance of legal aid facilities for the indigent,” harmonize with those of NCBRC to support the bankruptcy bar and assist the most financially vulnerable members of society.
NCBRC’s Board of Directors is grateful to the American College of Bankruptcy Foundation for its confidence in our mission and support in our mutual goals of providing the best and broadest assistance to consumer debtors in their quest for a fresh start. Without the support of donors like the ACB Foundation, the assistance provided by NCBRC would not be possible.
CFPB Penalizes Two Largest Debt Buyers
In a September 9, 2015, press release, the CFPB announced that it took action against the nation’s two largest debt buyers and collectors: Encore Capital Group and Portfolio Recovery Associates. Encore’s subsidiaries, also named in the action, are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp. Together, the two companies have bought over $200 billion in defaulted loans.
The Bureau found that both companies 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 all-too-familiar list of wrongdoing includes attempts to collect on debts that they knew were inaccurate or unenforceable using meritless lawsuits that they expected to, and often did, win by default, in violation of the FDCPA and the Dodd-Frank Wall Street Reform and Consumer Protection Act. They lied to consumers about their legal burdens and threatened litigation that was, in fact, not being considered. They harassed consumers with phone calls before 8:00 a.m. and after 9:00 p.m. and, in some instances, made collection calls to the consumer over 20 times in two days.
The enforcement action consists of requiring both entities to stop reselling debts, stop collection efforts concerning unverified debts, ensure accuracy when filing lawsuits, provide information to consumers such as the name of the creditor and charge-off balance, provide original documentation of the debt, use accurate affidavits, and cease collections efforts on time-barred debts.
Encore was ordered to pay up to $42 million in refunds and to dismiss all pending lawsuits or cease collection efforts on judgments involving misrepresentation.
Portfolio was ordered to pay $19 million in refunds where it made similar legal claims and where it collected payments on default judgments for debts that were barred by the statute of limitations.
Finally, Encore was ordered to pay $10 million and Portfolio $8 million to the CFPB; ‘s Civil Penalty Fund.
The Encore consent order can be found at: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf
The Portfolio Recovery Associates consent order can be found at: http://files.consumerfinance.gov/f/201509_cfpb_consent-order-portfolio-recovery-associates-llc.pdf
NCBRC Grateful for the Support of the O. Max Gardner Foundation
The National Consumer Bankruptcy Rights Center (NCBRC) has been honored with a $12,500.00 first-time donation from the O. Max Gardner Foundation. NCBRC is a 501(c)(3) organization dedicated to protecting the integrity of the bankruptcy system and preserving the rights of consumer bankruptcy debtors. NCBRC advances these goals by assisting either through working directly with debtors’ attorneys or by filing amicus briefs in courts throughout the country. Without the support of donors like the O. Max Gardner Foundation, the assistance provided by NCBRC would not be possible.
The O. Max Gardner Foundation was established in 1943 by Oliver Max Gardner (1882 – 1947). Mr. Gardner had a varied career beginning with teaching organic chemistry and, after attending law school, ultimately entering politics. He served as the 57th Governor of North Carolina from 1929 to 1933. After his term ended, Mr. Gardner worked in the administrations of Franklin D. Roosevelt, as an informal advisor and speechwriter, and Harry S. Truman, as Under Secretary of the Treasury. Mr. Gardner founded the O. Max Gardner Foundation to promote all forms of educational and community service organizations for the citizens of North Carolina.
His grandson, O. Max Gardner III, is a familiar name in the field of bankruptcy law having devoted his professional life to the service of consumer debtors and the education of the bankruptcy bar in the intricacies of this challenging area of regulation. His efforts have gone a long way toward leveling the playing field between consumer debtors and the often predatory lenders, and unethical servicers and collectors, they face.
NCBRC’s Board of Directors is grateful to the O. Max Gardner Foundation for its confidence in our mission and support in our mutual goals of providing the best and broadest assistance to consumer debtors in their quest for a fresh start.
CFPB Takes Action Against Deferred-Interest Medical Credit Card
Following closely on the heels of the CFPB’s recent action against pay day lender Cash America, the CFPB has taken action against medical credit card company, CareCredit. CareCredit, a subsidiary of GE Capital Retail Bank, offers medical credit cards through over 175,000 offices of health care providers such as dentists and vision care professionals. In a consent order issued on December 10th, the CFPB ordered CareCredit to refund up to $34.1 million to more than one million patients who were deceptively enrolled for the medical credit card. [Read more…] about CFPB Takes Action Against Deferred-Interest Medical Credit Card
CFPB Takes Action against Payday Lender
In its first enforcement action against a payday lender, the Consumer Financial Protection Bureau (CFPB), ordered Cash America International, Inc. to refund consumers in the amount of $14 million and pay a fine of $5 million, as a result of its violations of consumer financial protection laws. Cash America, a publicly traded financial services company out of Fort Worth, Texas, is one of the largest short-term, small-dollar lenders in the country.
Deriving its authority from the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB began its oversight of payday lenders in January, 2012. The CFPB announced the action in a press release dated November 20, 2013, marking the Bureau’s first public enforcement action for failure to comply with the CFPB’s supervisory examination authority.
The violations include robo-signing by Cash America’s Ohio subsidiary, Cashland Financial Services, Inc. Cash America also extended payday loans to service members at a rate in excess of the 36 percent limit set by the Military Lending Act. Finally, Cash America was found to have impeded the CFPB routine examination by destroying records, deleting recorded phone calls with consumers, instructing employees to limit information provided to the CFPB, and withholding a report related to robo-signing.
As a result of its illegal practices, Cash America has voluntarily refunded approximately $6 million and has committed $8 million more to military borrowers and to Ohio victims who suffered from the robo-signing practices between 2008 and January 2013. Cash America has also dismissed pending lawsuits, terminated post-judgment collection activities, and cancelled all judgments in nearly 14,000 wrongful cases filed against consumers in Ohio. On top of these compensatory measures, Cash America has been ordered to pay a $5 million civil penalty. Finally, Cash America will develop and implement a plan to improve compliance with consumer financial protection laws.
CFPB Director, Richard Cordray, said of the action that it, “brings justice to the Cash America customers who were affected by illegal robo-signing, and shows that we will vigilantly protect the consumer rights that service members have earned. We are also sending a clear message today to all companies under our watch that impeding a CFPB exam by destroying documents, withholding records, and instructing employees to mislead examiners is unacceptable.”
New Filing Fee for Motions to Sell Property under Section 363(f)
The Judicial Conference for the United States has approved several changes to the federal court miscellaneous fee schedules including a new administrative fee for motions to sell property under section 363(f) of the Bankruptcy Code. Section 363(f) allows estate assets to be sold free and clear of liens and encumbrances. The committee rejected the idea of a sliding fee connected to the price of the property being sold, and settled on a flat fee of $176.00. The new fee will take effect December 1, 2013.
In instituting the new fee, the Judicial Conference is apparently taking advantage of the increasing trend in chapter 11 toward sale of businesses rather than restructuring. According to Jacqueline Palank of the Wallstreet Journal blog “Bankruptcy Beat,” this move comes in the face of a looming judicial budget crisis. A small percentage of operating funds comes from fees that the federal courts charge, and bankruptcy filing fees generate about 79% of the judicial operating funds that come from federal court fees in general. Where Congress appropriates most of the federal judiciary’s operating funds, recent government budget cuts negatively impact the judiciary. In his blog on the fee change, Cooley, LLP attorney, Robert L. Eisenbach, III, predicts that the new fee in this area could show significant revenue increase from chapter 11 cases. To a lesser extent, the change will impact chapter 7 as well.
CFPB Circumvents Rulemaking Process to Create A Bankruptcy Exemption in Servicing Rules
Without advance notice and with no opportunity to comment, the CFPB yesterday issued an interim final rule concerning the mortgage servicing regulations that take effect January 2014. The new rule now exempts servicers from the periodic statement requirement when the borrower is a debtor in bankruptcy. The CFPB states that the interim final rule “clarifies” its previous final rule on mortgage servicing, but the bankruptcy exemption is not a “clarification” of the previously issued rule. Rather, the new exemption marks a 180-degree reversal from its previous position. Previously, and rightly so, the CFPB found that the complexities of the bankruptcy scenario necessitated periodic statements for debtors. The rule allowed servicers to make changes in statements to reflect accurate payment obligations of the debtor, but put an end to servicers’ practice of stopping monthly statements to borrowers who filed for bankruptcy. Without statements, it is more difficult for homeowners to remain current on their mortgages post-petition. In developing the original rule the CFPB carefully considered input from various stakeholders and rejected a bankruptcy exemption for periodic statements. Since the CFPB sidestepped the notice and comment procedure in its recent about face on periodic statements and bankruptcy, it can only be presumed that the CFPB relied upon less public input in reversing its previous “carefully considered” decision. Shame on the CFPB!