Today the Consumer Financial Protection Bureau is taking its first enforcement action under the Bureau’s new mortgage servicing rules. We are entering an order against Michigan-based Flagstar Bank for violating those rules by failing borrowers and illegally blocking them from trying to save their homes. Flagstar took excessive time to process borrowers’ applications, did not tell them when their applications were incomplete, denied loan modifications to qualified borrowers, and illegally delayed finalizing permanent loan modifications. These unlawful practices caused many consumers to lose the homes they had been trying to save. That is wrong and it is unacceptable.
Mortgage servicers play a central role in homeowners’ lives because they bear responsibility for managing the loans. They are the link between a mortgage borrower and a mortgage owner. They collect and apply payments, work out modifications to the loan terms, and handle the difficult process of foreclosure. Importantly, consumers cannot take their business elsewhere. Instead, they are stuck with their mortgage servicer, whether they are treated well or poorly.
In January 2014, the Consumer Bureau’s new mortgage servicing rules took effect. These new regulations establish specific rules of the road for handling loss mitigation applications. Since we first announced these rules almost two years ago, we have made clear that we expect full compliance to clean up the problems that had been pervasive in this industry and caused so many people to lose their homes. Consumers must not be hurt by illegal servicing any more. When mortgage servicers fail to treat people fairly, we will vigorously enforce the law.
Like many other servicers, Flagstar found that its volume of applications for loss mitigation rose sharply as a result of the foreclosure crisis. Our investigation found that Flagstar was simply not equipped to handle the influx. For a time, it took the staff up to nine months to review a single application. In 2011, Flagstar had 13,000 active loss mitigation applications but had only 25 full-time employees and a third-party vendor in India reviewing them. The Bureau found that in Flagstar’s loss mitigation call center, the average wait time was 25 minutes and the average call abandonment rate was almost 50 percent. Flagstar also had a heavy backlog of loss mitigation applications.
To make things worse, we found that Flagstar would clear its backlog of applications by closing those with expired documents – even though the documents had expired because Flagstar sat on them for so long. We also found that consumers would turn in loan modification applications but would not hear whether they were approved for many months. Flagstar was supposed to send “missing document” letters to consumers so they could provide any missing information, but it often delayed or did not send them at all.
We also concluded that when Flagstar did evaluate a completed application, it did a poor job. For example, we believe it routinely miscalculated the incomes of borrowers. Because loss mitigation programs are heavily dependent on the borrower’s income, this kind of miscalculation can have grave consequences for consumers. We determined that Flagstar’s failures led to wrongful denials of loan modifications.
Furthermore, when Flagstar denied an application, it did not give homeowners a specific reason why. Under the Consumer Bureau’s new rules, mortgage servicers must provide the specific reason why a complete application for a loan modification is rejected. This gives consumers a chance to fix the problem and either reapply or appeal the rejection. It also gives consumers more control over what is happening and provides them with critical information so they can make informed choices.
Another new mortgage servicing right for certain homeowners is the right to appeal the denial of a loan modification. But Flagstar has been wrongly telling borrowers that they only have the right to appeal if they live in certain states. That is not true. It does not matter what state the consumer lives in.
Finally, for those consumers lucky enough to get a trial loan modification, Flagstar kept them in a sort of “trial mod purgatory” for far too long. Indeed, Flagstar needlessly prolonged trial periods, causing some borrowers’ loan amount under the modified note to increase and, in some cases, jeopardizing the potential for a permanent loan modification.
Struggling homeowners paid a heavy price, including losing the opportunity to save their homes, as a result of Flagstar’s illegal actions. These problems were compounded because consumers have almost nowhere to turn. In the mortgage servicing market, they could not take their business elsewhere but were stuck with whatever treatment they received from Flagstar.
As we have seen for many years now – and I have seen it in local government, state government, and now the federal government – mortgage servicing failures hurt homeowners. In many cases, we believe Flagstar deprived people of the ability to make an informed choice about how to save or sell their home, causing borrowers to drop out of the process entirely and driving them into foreclosure. A former manager testified that when borrowers got to an advanced stage of delinquency, “You can feel that they’ve given up. There’s no hope left.” Another former manager recalled a borrower who told him, “You know what? My home can just go to foreclosure. I’m not faxing any documentation anymore.”
To remedy these wrongs, the Consumer Bureau is ordering Flagstar to halt any further violations of federal law. Flagstar must pay $27.5 million to consumers whose loans were being serviced by Flagstar and who were subject to its unlawful practices. At least $20 million of this amount will go to victims of foreclosure. Flagstar must also engage in outreach to affected borrowers who were not foreclosed on and offer them loss mitigation options. Flagstar must halt the foreclosure process, if one is happening, during this outreach and qualification process. Flagstar also is barred from acquiring servicing rights for default loan portfolios until it demonstrates that it is able to comply with the laws that protect consumers during the loss mitigation process. In addition, Flagstar will make a $10 million payment to the Bureau’s Civil Penalty Fund.
The Bureau has been clear that mortgage servicers must follow our new servicing rules and treat homeowners fairly. Today’s action signals a new era of enforcement to protect consumers against the cost of servicer runarounds. The financial crisis is still fresh in our minds and too many homeowners continue to feel its effects. We need all mortgage servicers to understand that they must step up and follow the law. We are working very hard to fulfill this objective. Thank you.
Another local payday operation nailed by the Feds.
Last week, the Federal Trade Commission filed a lawsuit against Tim Coppinger, Ted Rowland and the dozens of shell companies they allegedly used to defraud online payday-loan applicants out of millions and millions of dollars. The FTC filed the suit on September 5, but it was kept under seal until last Friday to allow investigators to halt the businesses and freeze the assets of Coppinger, et al.
Yesterday, a similar lawsuit was unsealed — also by a federal agency, also requiring asset freezes and the appointment of a receiver, and also against Kansas Citians accused of a payday-loan scheme.
This one was filed by the Consumer Financial Protection Bureau, on September 8. The defendants are Richard F. Moseley; his son, Richard F. Moseley Jr.; Christopher J. Randazzo; and a network of business entities they are said to have used to con U.S. consumers out of money.
The allegations are generally similar in nature to those in the FTC suit against Coppinger and Rowland’s businesses. Many of Moseley’s businesses (SSM Group, FSR Services, Rocky Oak Services, Hydra Financial, Piggback Online Holdings, and about 15 others) were organized in foreign countries like New Zealand and the Caribbean island of Nevis. But court documents allege that the scheme was conducted from a three-story office building in Waldo, at 2 East Gregory Boulevard.
More than 1,300 complaints have been filed by consumers against Moseley’s businesses since 2010. Some reported receiving an unauthorized deposit into their bank accounts. Some reported being harassed by debt collectors. And some reported consenting to a loan but being targeted with excessive withdrawals. State authorities in Pennsylvania, New Hampshire, Idaho and Illinois have issued cease-and-desist orders to Moseley’s companies since 2011.
As in the FTC-Coppinger suit, investigators pieced together their case by compelling banks to open up their books to the agency. In doing so, the CFPB tracked the byzantine path of money through shell companies and payment processors to US Bank accounts held by the defendants. As of August 31, 2014, $10.6 million was held in holding company accounts controlled by Moseley. “Because of Defendants’ ties to Nevis and New Zealand, Defendants are likely to move this money offshore upon notice of this action,” CFPB’s attorneys wrote in the filing. Hence the asset freeze.
What KC-based usurious lender is up next? Hard to say. There’s still a lot of fish left in the pond.
At the Federal Trade Commission’s request, a U.S. district court in Missouri has temporarily halted an online payday lending scheme that allegedly bilked consumers out of tens of millions of dollars by trapping them into loans they never authorized and then using the supposed “loans” as a pretext to take money from their bank accounts.
The court imposed a temporary restraining order that appoints a receiver to take over the operation. The court order gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.
“These defendants bought consumers’ personal information, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet. The Federal Trade Commission will continue to use every enforcement tool to stop these unlawful and harmful practices.”
Over one eleven-month period between 2012 and 2013, the defendants issued $28 million in payday “loans” to consumers, and, in return, extracted more than $46.5 million from their bank accounts, the FTC alleged.
In its complaint, the FTC alleges that Timothy Coppinger, Frampton (Ted) Rowland III, and a web of companies they owned or operated, used personal financial information bought from third-party lead generators or data brokers to make unauthorized deposits of between $200 and $300 into consumers’ bank accounts. Often, the scheme targeted consumers who had previously submitted their personal financial information – including their bank account numbers –to a website that offered payday loans.
After depositing money into consumers’ accounts without their permission, the defendants withdrew bi-weekly reoccurring “finance charges” of up to $90, without any of the payments going toward reducing the loan’s principal, the FTC alleged. The defendants then contacted the consumers by phone and email, telling them that they had agreed to, and were obligated to pay for, the “loan” they never requested and misrepresented the true costs of the purported loans. In doing so, the agency alleged, they often provided consumers with fake applications, electronic transfer authorizations, or other loan documents purporting to show the consumers had authorized the loan.
In many instances, if consumers closed their bank accounts to make the unauthorized debits stop, the defendants sold the supposed “loan” to debt buyers who then harassed consumers for payment, the FTC contends.
Consumers seeking more information on potential unfair and deceptive payday lending practices should see Online Payday Loans on the FTC’s website. The Commission also has new blog posts for consumers and businesses on payday lending services.
The Commission vote authorizing the staff to file the complaint was 5-0. It was filed under seal in the U.S. District Court for the Western District of Missouri, Western Division, on September 8, 2014 and the seal was lifted on September 12, 2014. On September 9, 2014 the court issued a temporary restraining order against the defendants, temporarily stopping their allegedly illegal conduct.
The complaint announced today was filed against: 1) CWB Services, LLC; 2) Orion Services, LLC; 3) Sand Point Capital, LLC; 4) Sandpoint, LLC; 5) Basseterre Capital, LLC (based in both Nevis and Delaware); 6) Namakan Capital, LLC; 7) Vandelier Group, LLC; 8) St. Armands Group, LLC; 9) Anasazi Group, LLC; 10) Anasazi Services, LLC; 11) Longboat Group, LLC, also doing business as (d/b/a) Cutter Group; 12) Oread Group, LLC, also d/b/a Mass Street Group; 13) Timothy A. Coppinger, individually and as a principal of one or more of the corporate defendants; and 14) Frampton T. Rowland, III, individually and as a principal of one or more of the corporate defendants.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
The Consumer Financial Protection Bureau has issued a bulletin in which the agency noted that it had found that mortgage servicers to which loans were transferred had failed to properly identify loans that were in a trial or
permanent modification with the prior servicer at time of transfer. In other exams, CFPB examiners found that servicers had failed to honor trial or permanent modification offers unless they could independently confirm that the prior servicer properly offered a modification or that the offered modification met investor criteria.
We have had similar experiences ourselves. For example, in one case a loan was modified from an adjustable rate loan to a fixed rate loan at a lower rate of interest, and the new servicer repeatedly sent out interest adjustment notices as if the loan had never been modified.
If servicing of your loan has been transferred and you are having difficulty with the new servicer honoring the terms of a loan modification, please contact us.
The Consumer Financial Protection Bureau has issued a bulletin warning of deceptive and/or abusive acts and practices in connection with solicitations that offer a promotional annual percentage rate (APR) on a particular transaction over a defined period of time. These transactions include, but are not limited to, convenience checks, deferred interest/promotional interest rate purchases, and balance transfers. The Bureau has observed that certain solicitations for these types of offers risk being deceptive if the marketing materials do not clearly and prominently convey that a consumer who accepts such an offer and continues to use the credit card to make purchases will lose the grace period on the new purchases if the consumer does not pay the entire statement balance, including the amount subject to the promotional APR, by the payment due date. In addition, depending on all of the facts and circumstances, a credit card issuer may risk engaging in abusive conduct if it fails to adequately alert consumers to this relationship.
Many credit card issuers offer consumers a grace period on new purchases. This means that a consumer who has paid his previous balance in full typically has a period of time after the close of each billing cycle to pay his full balance without incurring interest on the purchases made during the billing cycle. If the consumer fails to pay the entire balance for the billing cycle by the payment due date, the purchase amount that is not paid is subject to interest calculated from the date of purchase (or the first day of the current billing cycle, whichever is later), and the consumer will lose the grace period in the current and future billing cycles for all new purchases until the entire balance is paid in full.
Credit card issuers may periodically offer consumers the opportunity to transfer a credit card balance or make a purchase that will be subject to a low or zero percent APR for a stated period of time. (e.g., one year) These offers are often marketed as a way to save money by paying off higher-APR cards or to finance a large purchase over a period of time without incurring substantial interest charges. Issuers typically charge a transaction fee for accepting these offers; generally either a percentage of the transaction or a fixed dollar amount, whichever is higher.
CFPB supervisory experience has observed that some card issuers do not adequately convey in their marketing materials that a consumer who accepts such a promotional offer will lose his grace period on new purchases if he does not pay the entire statement balance, including the total amount subject to the promotional APR, by the payment due date. Affected consumers would be those who maintain a grace period on purchases by paying their full statement balance by the payment due date each month, accept the promotional offer, and then continue to make purchases using the credit card. Consumers may incur charges that they do not anticipate – and fail to save the money that they expect – if issuers fail to convey the effect of accepting the offer on the grace period.
Card issuers often market these promotional offers as a chance for the consumer to save money. Many solicitations emphasize the promotional rate associated with the offer, and that the promotional rate will last for a certain period of time – in some cases, well over a year. Depending on the facts and circumstances, the impression conveyed by these materials may be that the only cost of obtaining the promotional interest rate is the transaction fee set forth in the tabular disclosure required by Regulation Z, or that the promotional rate is the only rate at which the consumer will incur interest charges.
The Bureau has found that one or more card issuers created and failed to cure such false impressions. The card issuer or issuers did not adequately convey that the promotional rate offers come with an additional contingent cost that would be important to consumers who maintain a grace period on purchases. Specifically, a consumer who accepts the offer and continues to use the credit card to make new purchases in subsequent billing cycles will not be able to avoid paying interest charges on those new purchases unless he repays the entire balance (both the promotional balance and any new purchase balance) by the statement due date. As a result, the consumer will incur additional interest costs on later purchases until the grace period is restored after full payment. For such a consumer, those interest costs may represent a significant share of the total costs of accepting the offer.
The Bureau has observed that some issuers do not include any information about the loss of the grace period for affected consumers in promotional rate marketing materials. Other issuers may include information regarding the loss of the grace period, but the information is not prominently located in the marketing materials, or uses technical language that fails to clearly explain the full terms, risks, and potential costs of the offer. In the absence of clear language placed in a prominent location, a reasonable consumer’s net impression of the solicitations could be that the only cost of obtaining the promotional APR is the disclosed transaction fee, and that the consumer would only incur interest charges at the promotional rate because the only unpaid balance on his credit card would be subject to the promotional APR. This misleading net impression would be presumptively material because it pertains to a central characteristic of the product – its cost.
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If you believe that you are being unfairly treated by a credit card issuer, contact us.
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