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First Investors Financial Services Group agreed to pay a $2.75 million penalty to regulators over accusations that it consistently gave giant credit reporting agencies like Experian and Equifax flawed reports about thousands of car buyers, the New York Times reported today. The reports, the Consumer Financial Protection Bureau said, exaggerated the number of times that borrowers fell behind on their bills, a mistake that could jeopardize their ability to find housing or even get jobs. First Investors, which is owned by a prominent New York private equity firm, did not acknowledge any wrongdoing. The action comes as regulators and prosecutors worry that some of the same lending abuses that plagued the mortgage market in the run-up to the financial crisis — and signs that some borrowers’ loan applications included false information about income and employment — are showing up in the subprime auto market.

The federal government has ordered a chain of 31 furniture and appliance stores located near military bases to stop what it claims are misleading and deceptive sales practices, NBC.com reported yesterday. The Consumer Financial Protection Bureau announced yesterday that it had fined USA Discounters Ltd. $50,000 for tricking thousands of military customers into paying fees for legal protections they already had and for services it did not provide. “Targeting service members with scams disguised as legal benefits is unconscionable, and we will not allow this injustice to continue,” said CFPB director Richard Cordray in a statement. The privately held company based in Norfolk, Va., was also ordered to refund more than $350,000 to military customers.

A trail of money that began with triple-digit loans to troubled New Yorkers and wound through companies owned by a former used-car salesman in Tennessee led New York prosecutors on a yearlong hunt through the shadowy world of payday lending, the New York Times DealBook Blog reported today. That investigation culminated yesterday with state prosecutors in Manhattan bringing criminal charges against a dozen companies and their owner, Carey Vaughn Brown, accusing them of enabling payday loans that flouted the state’s limits on interest rates in loans to New Yorkers. In the indictment, prosecutors outline how Brown assembled “a payday syndicate” that controlled every facet of the loan process — from extending the loans to processing payments to collecting from borrowers behind on their bills. The authorities argue that Brown, along with Ronald Beaver, who was the chief operating officer for several companies within the syndicate, and Joanna Temple, who provided legal advice, “carefully crafted their corporate entities to obscure ownership and secure increasing profits.”

While the federal government has outlawed most of the risky and deceptive mortgage lending practices that led to that financial crisis, it must now do the same with the auto lending industry, where the practice of luring people into loans that damage them financially is all too common, according to an editorial in Saturday’s New York Times. Predatory loans arranged by unscrupulous auto dealers have long been a source of hardship for low-income consumers who can least afford them, according to the editorial. But the problem has worsened since major banks entered the picture and began buying up car loans to package them in securities sold to pension funds, insurance companies and others. Banks that are scrambling to buy such loans have sometimes formed alliances with unscrupulous dealers, including one who was indicted on grand larceny charges that he defrauded two dozen buyers. Dealers who can offload loans to banks before the loans fail take the same rapacious approach that mortgage lenders took in the run-up to the recession. They prey on less sophisticated borrowers, falsifying the borrower’s income information and writing loans with astronomical interest rates and hidden fees that deliver a quick profit to the dealers.

A change in how the most widely used credit score in the U.S. is tallied will likely make it easier for tens of millions of Americans to get loans, the Wall Street Journal reported today. Fair Isaac Corp. said Thursday that it will stop including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. The San Jose, Calif., company also will give less weight to unpaid medical bills that are with a collection agency. The moves follow months of discussions with lenders and the Consumer Financial Protection Bureau aimed at boosting lending without creating more credit risk. Since the recession, many lenders have approved only the best borrowers, usually those with few or no blemishes on their credit report.

Basic errors are at the heart of a lawsuit that the three-year-old Consumer Financial Protection Bureau is bringing against Frederick J. Hanna & Associates P.C., Bloomberg News reported today. The bureau’s suit, filed on July 14, alleges that Hanna churns out hundreds of lawsuits each day — many against consumers who don’t owe money or owe a different amount. Hanna’s lawyers violated the law by filing suits throughout Georgia without verifying facts, the bureau alleges, relying instead on an automated system and hundreds of non-lawyer staff. The firm also submitted affidavits signed by individuals who said that they had “personal knowledge” of the amount and ownership of the debts, even when they didn’t, according to the CFPB complaint in federal court in Atlanta. Hanna disputes the allegations. Hanna’s methods, as the bureau describes them, represent the latest twist on robo-signing, the speed-processing behind many subprime loans and subsequent mass foreclosures. The bureau believes there are other firms that engage in similar, allegedly illegal practices and it will monitor them and take future action as necessary, said a CFPB spokeswoman, Moira Vahey.

Federal prosecutors have begun a civil investigation into the booming business of subprime auto lending, focusing on the packaging and selling of questionable loans to investors, the New York Times reported today. The inquiry is being undertaken amid worries among some regulators that checks and standards are being neglected as the subprime auto loan market surges, in a small, yet disturbing, echo of the subprime mortgage crisis. General Motors’ finance subsidiary disclosed in a securities filing yesterday that it had received a Justice Department subpoena for documents on the origination and the securitization of subprime loan contracts since 2007. The subpoena asks for the underwriting criteria and how the loans were represented to those who were pooling them and assembling securities to be sold to investors. U.S. attorney Preet Bharara is reviewing whether the lender sold questionable auto-loan investments to investors, and is focusing on whether the lender fully disclosed to investors the credit-worthiness of the borrowers whose loans made up the complex securities. In the inquiry, federal prosecutors are looking for potential violations of the Financial Institutions Reform, Recovery, and Enforcement Act. The law, known as Firrea, was passed after the savings and loan scandals in the late 1980s, and has been used recently by the government in investigations of the big banks’ sale of shoddy mortgage-backed securities before the financial crisis.

Consumer spending in the U.S. rose in June by the most in three months, ending the quarter on a strong note and signaling that continued job growth will bolster the world’s largest economy, Bloomberg News reported on Friday. Household purchases, which account for about 70 percent of the economy, climbed 0.4 percent after a 0.3 percent gain in May that was larger than previously estimated, Commerce Department figures showed. Friday’s consumption data showed that after adjusting consumer spending for inflation, which generates the figures used to calculate gross domestic product, purchases rose 0.2 percent after a 0.1 percent gain the previous month.

Sen. Sheldon Whitehouse (D-R.I.) slipped a potential gift for debt-laden graduates into his proposal to tweak the consumer bankruptcy rules: a provision allowing those with crushing medical bills to eliminate their student loan debts too, the Wall Street Journal reported on Friday. "The Medical Bankruptcy Fairness Act" introduced by Sen. Whitehouse would allow people to get rid of their student loan debt if they have paid more than $10,000 in medical bills during the three years prior to filing for bankruptcy. Prof. Daniel Austin of Northeastern University School of Law, co-author of ABI's Graduating with Debt, estimates that more than half of the people who file for bankruptcy today have enough medical debt to qualify for the student loan discharge. Prof. Austin’s past research shows that about 30 percent of people who file for bankruptcy with medical debt also have student loans. The bill's prospects for passage are currently unfavorable.

To read the bill text of S. 2471, the "Medical Bankruptcy Fairness Act of 2014," please click here.

To purchase a copy of ABI's Graduating with Debt: Student Loans under the Bankruptcy Code, please click here.

A U.S. financial regulator could upend the business model of law firms that file waves of cookie-cutter lawsuits to collect money from people who haven't paid their bills, the Wall Street Journal reported yesterday. The U.S. Consumer Financial Protection Bureau last month filed its first lawsuit against a debt-collection firm, Marietta, Ga.-based Frederick J. Hanna & Associates, accusing it of violating federal consumer-protection laws. The suit could signal the regulator's intent to target similar high-volume law firms over allegations that debt-collection claims can be out of date, incorrect in their amounts, lacking in documentary support or overlapping with claims filed against the same debtors. The CFPB's case accused Hanna & Associates of churning out more than 350,000 credit card collection complaints against consumers, some of whom may in fact owe nothing or owe less than is claimed. Lawyers for the firm typically spend less than a minute reviewing each suit, the CFPB alleged. Roughly 77 million Americans have debt in collections, according to a recent study published by the Washington, D.C., think tank Urban Institute. The vast majority of borrowers sued in such cases don't appear in court, so many cases end in a default judgment allowing the collector to garnish wages, freeze bank accounts or put a lien on property.