%1

State regulators are redoubling efforts to shield vulnerable Americans from short-term loans with interest rates that can exceed 300 percent, the New York Times reported today. The crackdown gained momentum on Tuesday when the Illinois attorney general, Lisa Madigan, accused All Credit Lenders of misleading borrowers into taking out expensive loans that come with insurance products that they do not need or cannot use. In a lawsuit against All Credit Lenders, Madigan contends the company, which has storefronts in Illinois, South Carolina and Wisconsin, deceived borrowers into buying a product pitched as a way to protect them from falling behind on payments in the event of a job loss. But those protections never materialize, the lawsuit said. In fact, the fee is actually a way to raise interest rates that circumvent the state’s usury cap of 36 percent.

Buying a car is expensive, but the government wants to make sure that you are not paying more than the next guy just because the dealer has that discretion, The Washington Post> reported yesterday. As a result, Ally Financial, one of the nation's largest auto lenders, handed the government $98 million in December to settle allegations that it allowed dealers to charge minorities more for car loans. Dealers have since rallied around new industry recommendations to end discriminatory pricing, but the government is not backing down on its investigations. Dealers have the discretion to mark up the interest rate on car loans they arrange through lenders. A 2011 study by the Center for Responsible Lending found that the average dealer mark-up on a car loan was about 2.5 percentage points, or $714 in additional interest payments on an average 60-month loan. Researchers at the National Automobile Dealers Association contend that the rate is closer to 1 percentage point for new cars and 0.7 for used vehicles. Advocacy groups have long warned of disparities in the number of black and Latino borrowers hit with higher interest rates, and have questioned whether mark-ups breed fair-lending violations.

PNC Financial Services Group Inc. has received a subpoena from the U.S. Department of Justice concerning its relationships with merchants for payment-processing services, the Wall Street Journal reported yesterday. The company made the disclosure as it faces ongoing mortgage probes by prosecutors. In the filing, PNC said the DOJ asked for information on the "return rate" for certain "merchant and payment processor customers with whom PNC has a depository relationship." The DOJ and other regulators have been probing the role that banks play in providing payment-processing services to merchants that have been accused of charging customers for certain services, such as debt-relief programs, that have generated fraud complaints from consumers. PNC also said Monday that it is cooperating with ongoing investigations related to other subpoenas concerning mortgage-lending practices. The bank said Monday that it has received three subpoenas from prosecutors, including two from the U.S. attorney's office for the Southern District of New York regarding the practices of National City Bank, a Cleveland-based lender PNC acquired in 2008.

The Federal Trade Commission has sued a group of affiliated collection agencies and their owners for using the words "Federal," "American," "U.S.," or "State" in their names and for collection tactics such as threatening to arrest customers, CollectionsCreditRisk.com reported yesterday. Federal Check Processing Inc., of Amherst, N.Y., is the lead defendant. "Since at least May 2010, and continuing thereafter, defendants have used abusive, unfair, and deceptive tactics to pressure consumers into making payments on purported debts, often with respect to loans that the consumers have challenged in part or in whole,” according to the FTC’s lawsuit. “Defendants regularly have contacted consumers via repeated telephone calls and have threatened consumers with dire consequences — including arrest — if consumers fail to make immediate payments to the defendants.” The defendants have collected millions of dollars through misrepresentations, the FTC claims. In many cases, the defendants contacted consumers by telephone repeatedly and asserted that the consumer has committed check fraud or another criminal act.

Steven Antonakes, the Consumer Financial Protection Bureau's deputy director, said that mortgage servicers have had more than a year to prepare for a reform rule that took effect last month and suggested that the CFPB would move quickly and harshly against violators, American Banker reported yesterday. Antonakes acknowledged that the agency has previously suggested that it would be tolerant of mortgage servicing companies so long as they were making a "good-faith effort" to comply with the rule, but he warned that such allowances only extend so far. "A good-faith effort, however, does not mean servicers have the freedom to harm consumers," Antonakes said. The new mortgage servicing rule that went into effect on Jan. 10 requires clearer monthly statements and stricter timelines in responding to borrowers. It also bans servicers from dual tracking loan modifications and foreclosure procedures, as well as using force-placed insurance as a regular practice rather than a last resort.

Federal prosecutors are trying to thwart the easy access that predatory lenders and dubious online merchants have to Americans’ bank accounts by going after banks that fail to meet their obligations as gatekeepers to the U.S. financial system, the New York Times reported today. The Justice Department is weighing civil and criminal actions against dozens of banks, sending out subpoenas to more than 50 payment processors and the banks that do business with them, according to government officials. In the new initiative, called “Operation Choke Point,” the agency is scrutinizing banks both big and small over whether they, in exchange for handsome fees, enable businesses to illegally siphon billions of dollars from consumers’ checking accounts, according to state and federal officials briefed on the investigation. The crackdown has already come under fire from congressional lawmakers, including Representative Darrell Issa (R-Calif.), who heads the House Oversight Committee, accusing the Justice Department of trying to covertly quash the payday lending industry. In the first action under Operation Choke Point, Justice Department officials brought a lawsuit this month against Four Oaks Bank of Four Oaks, N.C., accusing the bank of being “deliberately ignorant” that it was processing payments on behalf of unscrupulous merchants — including payday lenders and a Ponzi scheme. As a result, prosecutors say, the bank enabled the companies to illegally withdraw more than $2.4 billion from the checking accounts of customers across the country.

Online lender Western Sky Financial LLC has agreed to pay a $1.5 million fine and refund interest payments to borrowers under an agreement reached with New York Attorney General Eric Schneiderman, the Wall Street Journal reported today. Schneiderman had accused the Timber Lake, S.D.-based firm, along with affiliates CashCall Inc. and WS Funding LLC, of charging triple-digit interest rates, a violation of New York's lending laws. The settlement, which comes amid a multistate crackdown on "payday" lenders offering short-term, high-rate loans over the Internet, requires the firms to stop collecting interest on loans to residents and refund to borrowers any interest above the 16 percent state limit, which could result in as much as $35 million in relief for New York consumers, a spokesman for Schneiderman's office said yesterday.

JPMorgan Chase & Co. lost a bid to throw out a lawsuit by the California attorney general alleging that the largest U.S. bank by assets illegally tried to collect debt from about 100,000 credit-card borrowers, Bloomberg News reported yesterday. California Superior Court Judge Jane L. Johnson in Los Angeles on Monday rejected the bank’s argument that the attorney general’s unfair competition claims were precluded by California legal authority. California Attorney General Kamala Harris sued New York-based JPMorgan in May, alleging that the bank’s Chase unit engaged in “wide-spread and illegal robo-signing” and other unlawful practices against credit-card borrowers. Chase used the judicial system as a mill to obtain default judgments, according to the attorney general.

Nearly seven years after the Military Lending Act came into effect, government authorities say that the law has gaps that threaten to leave hundreds of thousands of service members across the country vulnerable to potentially predatory loans — from credit pitched by retailers to pay for electronics or furniture, to auto-title loans to payday-style loans, the New York Times reported on Friday. The law, the authorities say, has not kept pace with high-interest lenders that focus on servicemen and women, both online and near bases. The short-term loans not covered under the law’s interest rate cap of 36 percent include loans for more than $2,000, loans that last for more than 91 days and auto-title loans with terms longer than 181 days. While it is difficult to determine how many members of the military are struggling with loans not covered by the law, interviews with military charities in five states and more than two dozen service members — many of whom declined to be named for fear that disclosing their identity would cost them their security clearances — indicate that the problem is spreading. “Service members just get trapped in an endless cycle of debt,” said Michael S. Archer, director of military legal assistance for the Marine Corps Installations East. Shouldering the loans can catapult service members into foreclosure and imperil their jobs, as the military considers high personal indebtedness a threat to national security.
http://dealbook.nytimes.com/2013/11/21/service-members-left-vulnerable-…

For more on protections afforded to members of the military and to find out more about financial relief extended to service members, be sure to pick up a copy of ABI’s Bankruptcy and Debt under the Servicemembers Civil Relief Act in the ABI Bookstore.

The government is imposing tougher restrictions on banks that offer short-term, high-interest loans that have been blamed for trapping some Americans in a cycle of debt, the Washington Post reported today. The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. issued identical guidance to limit the risks of loans tied to consumers’ paychecks, government benefits or other income directly deposited into their bank accounts. Critics say that these products carry the same abusive high interest rates and balloon payments as the payday loans offered by storefront and online operators. But industry groups contend that placing strict constraints on banks will only push people with limited access to credit into the arms of less-regulated vendors. “The OCC encourages banks to offer responsible products that meet the small-dollar credit needs of customers,” Comptroller of the Currency Thomas J. Curry said. “However, deposit advance products . . . pose significant safety and soundness and consumer protection risks.” Curry said that the guidance is meant to clarify the agency’s expectations for banks to understand and manage those risks. Neither the OCC nor the FDIC will bar banks from deposit-advance loans, but their policies could radically alter the operations of the handful of banks that offer the product. At least 15 states have already banned the service, while several others have imposed strict laws to limit the interest rates and the number of loans that can be made.