California Governor Gavin Newsom (D) last Friday signed twelve bills to protect consumers from financial predators and abusive business practices, according to the Sierra Sun Times reported. Central to the package is A.B. 1864, a law that significantly expands the state’s ability to protect Californians against abusive and predatory financial products and services. The bill establishes the Department of Financial Protection and Innovation (DFPI), adding 90 positions over the next three years to transform the agency into California’s version of the federal Consumer Financial Protection Bureau. Other bills signed by Governor Newsom today protect students from abusive practices. A.B. 376 creates the Student Borrower Bill of Rights and provides borrowers with enforceable protections against abusive lending practices. A.B. 70 prevents for-profit colleges from using shell non-profit corporations to skirt state student protections and state regulations.
Tens of thousands of former students at ITT Technical Institute, a for-profit chain that collapsed four years ago, will not have to repay $330 million in private student loans that prosecutors called “reckless” and deceptive, under a settlement deal announced yesterday, the New York Times reported. The agreement, involving a federal regulator and attorneys general from 47 states, covers debts incurred through ITT’s Peaks loan program, which was often used by students who had maxed out their federal student loans. The program’s loans carried high interest rates and trapped borrowers in debts that ITT knew they would be unable to repay, according to a complaint filed by the Consumer Financial Protection Bureau. In some cases, financial aid officers sometimes signed loan documents without the borrower’s knowledge or permission. “Many students were pushed into Peaks Loans, did not understand the terms of their Peaks Loans, or did not realize they had taken out loans at all,” the bureau wrote in its filing in the U.S. District Court for the Southern District of Indiana. The settlement agreement, which requires a federal judge’s approval to be enacted, covers about 35,000 borrowers, many of whom have been left with high debts and ruined credit. The deal requires the loans’ owners to cancel all outstanding loan balances and cease collection efforts. Trusts set up by Deutsche Bank made the loans, but ITT effectively controlled them. The loans were sold off to investors, but the high default rate — about 80 percent — and ITT’s bankruptcy mean those investments haven’t been performing. ITT abruptly closed and filed for bankruptcy in 2016 after a government crackdown on schools that deceived students about the quality of their educational programs and their graduates’ career prospects. Hundreds of thousands of ITT’s former students are still saddled with loan debts for degrees that many said they found virtually worthless. The settlement announced yesterday mirrors one the consumer bureau reached last year with the operators of another ITT loan program, Student CU Connect CUSO, to eliminate $168 million in private student debts. But so far, the federal government — the nation’s largest student lender — has so far refused to cancel much of the debts ITT students owe to it, despite findings by Education Department officials that ITT engaged in “flagrant” and “pervasive” fraud. Tens of thousands of federal loan borrowers who have sought relief through a government program have been denied; even those whose claims were approved were in some cases told that none of their debt would be eliminated.
The Consumer Financial Protection Bureau (CFPB), in partnership with the New York Attorney General (NYAG), yesterday filed suit against a network of five different companies based outside of Buffalo, New York, two of their owners, and two of their managers, for their participation in a debt-collection operation using illegal methods to collect debts, according to a press release. The company defendants are: JPL Recovery Solutions, LLC; Regency One Capital LLC; ROC Asset Solutions LLC, which does business as API Recovery Solutions; Check Security Associates LLC, which does business as Warner Location Services and Orchard Payment Processing Systems; and Keystone Recovery Group. The individual defendants are Christopher Di Re and Scott Croce, who have held ownership interests in some or all of the defendant companies, and Brian Koziel and Marc Gracie, who are members of Keystone Recovery Group, and have acted as managers of some or all of the defendant companies. The complaint alleges that from at least 2015 through the present, the defendants have participated in a debt-collection operation that has used deceptive, harassing, and improper methods to induce consumers to make payments to them in violation of the Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Act (CFPA).
The Consumer Financial Protection Bureau (CFPB) issued a consent order yesterday against PHLoans.com, Inc. (PHLoans), a California corporation that is licensed as a mortgage broker or lender in about 11 states, according to a CFPB press release. Until at least April 2019, PHLoans was known as Pacific Home Loans, Inc. PHLoans offers and provides mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). PHLoans’s principal means of advertising VA-guaranteed loans is through direct-mail advertisements sent primarily to U.S. military servicemembers and veterans. The Bureau found that PHLoans sent consumers numerous mailers for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts and practices, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. The consent order requires PHLoans to pay a civil money penalty and imposes requirements to prevent future violations. Yesterday’s action is the fourth case stemming from a CFPB sweep of investigations of multiple mortgage companies that use deceptive mailers to advertise VA-guaranteed mortgages. On July 24, 2020, the CFPB announced consent orders against Sovereign Lending Group, Inc., and Prime Choice Funding, Inc., and on August 21, 2020, the CFPB announced a consent order against Go Direct Lenders, Inc., for similar violations. The Bureau commenced this sweep in response to concerns about potentially unlawful advertising in the market that the VA identified. Accurate and legally compliant advertising provides consumers with valuable information about the different types of mortgages and terms available so they can effectively shop for products that best meet their needs.
Students at some for-profit career schools could find themselves paying hefty interest charges when using a credit line offered by PayPal, a group of consumer watchdog groups warned last week. More than 150 small career schools and technical programs, most of which aren’t accredited and are loosely regulated, offer students the option to pay tuition using PayPal Credit, a digital credit line marketed by PayPal Holdings and issued by Synchrony Bank, the groups found. The line, similar to a credit card but without the plastic, currently has an interest rate of about 24 percent, and is typically promoted with a six month, no-interest period. Borrowers are charged interest retroactively if the entire balance isn’t paid by the end of the promotion, a feature known as “deferred interest,” the groups said in a letter to federal regulators. PayPal mainly promotes the credit account for shopping online, but also makes it available to schools offering short-term certificate programs that are generally ineligible to offer lower-cost federal student loans, according to the consumer groups. In some examples cited by the groups, a disclosure stating that the card carries no interest “if paid in full in six months” appears prominently, but is hard to find on others. In addition to a double-digit interest rate, PayPal Credit charges late fees of up to $40 per missed payment. PayPal also follows “aggressive” collection practices, the groups found.
The Consumer Financial Protection Bureau (CFPB) on Friday issued a consent order against Go Direct Lenders, Inc. (Go Direct), a California corporation that is licensed as a mortgage broker or lender in about 11 states, according to a CFPB press release. Go Direct offers and provides mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). Go Direct’s principal means of advertising VA-guaranteed loans is through direct-mail advertisements sent primarily to United States military servicemembers and veterans. The Bureau found that Go Direct sent consumers numerous mailers for VA-guaranteed mortgages that contained false, misleading, and inaccurate statements or that lacked required disclosures, in violation of the Consumer Financial Protection Act’s (CFPA) prohibition against deceptive acts and practices, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. The consent order requires Go Direct to pay a civil money penalty and imposes requirements to prevent future violations. The Bureau found that Go Direct disseminated advertisements that contained false, misleading, and inaccurate statements or that failed to include required disclosures. For example, Go Direct advertisements misrepresented the credit terms of the advertised mortgage loan by stating credit terms that the company was not actually prepared to offer to the consumer, including advertising a lower annual percentage rate than it was prepared to offer.
The recent U.S. Supreme Court decision confronting the leadership structure of the Consumer Financial Protection Bureau emboldened companies in long-running litigation against the agency, forcing federal judges to weigh whether the regulator can press forward with enforcement actions that were initiated under an unlawfully appointed leader, the National Law Journal reported. In the 5-4 decision, the high court in June struck down the CFPB’s single-director design as unconstitutional, ruling that the president must be freely able to remove the agency’s leader at will and not just for cause. The divided decision resolved a constitutional question that had hung over the agency since its founding in the wake of the financial crisis, just as it created a new cloud of uncertainty over actions the CFPB took before the ruling. Many of those enforcement actions will now be tested anew. A week after the Supreme Court’s ruling, in the case Seila Law v. CFPB, the agency’s Trump-appointed director, Kathy Kraninger, took steps to protect regulations the agency had finalized in the past year. Kraninger issued a blanket “ratification” to provide industry with certainty that rules remained valid in light of the Supreme Court decision. With enforcement actions, Kraninger has taken a piecemeal approach, giving the endorsement of a “ratification” to lawsuits on a case-by-case basis. Those moves have quickly met resistance in the courts, namely in some of the CFPB’s highest-profile lawsuits. In July, Kraninger moved to protect the CFPB’s yearslong case against Navient, a leading student loan servicing company that was sued just days before President Donald Trump’s inauguration in 2017. Kraninger, who was confirmed to lead the CFPB in 2018, said in a court filing that she “considered the basis for the decision to file the complaint in this proceeding, and has ratified that decision.” Navient quickly contested the ratification as invalid. In a court filing on Wednesday arguing for the case’s dismissal, the company’s defense lawyers argued that the three-year statute of limitations for the CFPB’s claims had already run by the time Kraninger ratified the lawsuit.
In the spring of 2018, bank regulators trained to spot discriminatory lending detected something alarming at Bank of America. The bank was offering fewer loans to minority homebuyers in Philadelphia than to white people in a way that troubled examiners from the Office of the Comptroller of the Currency, according to two people directly involved in the probe and internal documents reviewed by ProPublica and The Capitol Forum. The officials suspected the second-largest bank in the U.S. was “redlining,” or deliberately turning its back on minority homebuyers, the people said. But after complaints from Bank of America, the OCC’s investigation stalled by September 2018. The OCC, which is part of the U.S. Treasury Department, never sanctioned the bank. Since President Donald Trump took office, the OCC has quietly shelved at least six investigations of discrimination and redlining, according to internal agency documents and eight people familiar with the cases. Flagstar Bank, a leading lender in Michigan, wrongly charged Black homeowners more through a network of mortgage lending affiliates, OCC officials concluded in 2017. That same year, agency examiners found that Colorado Federal Bank, an online lender, was doing the same to female borrowers. Another inquiry by OCC officials concluded that Chicago-based MB Financial, a lender acquired by Fifth Third Bank last year, charged Latinos too much on mortgage loans. Cadence Bank, a lender in several Southern states, was turning away minority borrowers in Houston, according to an OCC investigation. Fulton Bank, a lender based in Pennsylvania, had been discriminating against minorities in parts of Richmond, Virginia, and its home state, regulators concluded.
The Consumer Financial Protection Bureau (CFPB) yesterday revoked rules that required lenders to ensure that potential customers could afford to pay the potentially staggering costs of short-term, high-interest payday loans, The Hill reported. The bureau yesterday released the final revision to its 2017 rule on payday loans, formally gutting an initiative with roots in the Obama administration that was aimed at protecting vulnerable consumers from inescapable debt. The initial rule, released shortly before President Trump appointed new leadership at the CFPB, effectively banned lenders from issuing a short-term loan that could not be paid off in full by a borrower within two weeks. The measure required payday lenders to determine whether the customer had the “ability to repay” the loan with an underwriting process similar to what banks use to determine whether a customer can afford a mortgage or other longer-term loan. The CFPB has now issued a new version of the regulation that scraps those underwriting requirements, in line with a proposal released in February 2019. The new regulation leaves in place the original regulation's restrictions on how frequently a payday lender can attempt to withdraw funds from a customer's bank account.
