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    Phone: 312-739-4200
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    CFPB Finds 90 Percent of Private Student Loan Borrowers Who Applied for Co-Signer Release Were Rejected

    Friday, June 19th, 2015

    CFPB Finds 90 Percent of Private Student Loan Borrowers Who Applied for Co-Signer Release Were Rejected

    Industry Inquiry Reveals Problems for Consumers Seeking to Prevent Auto-Defaults

    WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) Student Loan Ombudsman released a report finding high rates of consumers are being rejected for co-signer release on their private student loans, based on its review of industry practices. The Bureau uncovered problematic industry practices that may be disqualifying some consumers from securing a co-signer’s release from their loans. When student borrowers and co-signers seek a co-signer release but are unable to obtain it, the co-signer can suffer from damage to their credit or be subject to higher rates on other forms of credit. This can also result in serious financial distress for the borrower if a company triggers an auto-default when a co-signer dies or goes bankrupt.

    “Parents and grandparents put their financial futures on the line by co-signing private student loans to help family members achieve the dream of higher education,” said CFPB Director Richard Cordray. “Responsible borrowers and their co-signers should have clear information and standards for releasing the co-signer if the time is right. We’re concerned that the broken co-signer release process is leaving responsible consumers at risk of damaged credit or auto-default distress.”

    The CFPB Student Loan Ombudsman’s Mid-Year Update is available at:

    “Private student loan companies should own up to borrowers when they qualify for valuable benefits, clean up contracts with surprises buried in the fine print, and step up to provide borrowers and their co-signers the service they deserve,” said CFPB Student Loan Ombudsman Rohit Chopra.

    Student loans make up the nation’s second largest consumer debt market. The market has grown rapidly in the last decade. Today there are more than 40 million federal and private student loan borrowers and collectively these consumers owe more than $1.2 trillion. While private student loans are a small portion of the overall market, they are generally used by borrowers with high levels of debt who also have federal loans. In general, private student loans carry higher interest rates and lack flexible repayment options, compared to federal student loans. Unlike other markets, independent data on the size and performance of the private student loan market is not available to investors and the public.

    Most private student loans require a co-signer. In fact, according to a 2012 report on private student loans published by the CFPB and the Department of Education, while co-signers were less often required during the years prior to the financial crisis, by 2011 more than 90 percent of new private student loans were co-signed, often by a parent or grandparent.

    A co-signer may help a borrower access credit or obtain a lower rate because they may be more creditworthy and can step in if a borrower is unable to repay. However, borrowers have also been hit with a default because of activities related to the co-signer, even if the borrower is paying on time. However, the loan will appear on the co-signer’s credit record which will count towards the co-signer’s total debt level and can affect the co-signer’s credit score if the loan is not repaid. Consumers also can be at a disadvantage if they are unable to obtain a co-signer release. For example, a co-signer may also have a more difficult time obtaining an affordable rate on other credit, making it more expensive to refinance a home or to buy a car.

    Last year, the CFPB released a report highlighting complaints related to auto-defaults. Consumers reported that private student lenders and servicers placed borrowers in default when a co-signer died or filed for bankruptcy, even if the loan was in good standing.

    Following the report, the Bureau’s Student Loan Ombudsman issued an information request to companies comprising much of the activity in the market in order to better understand and address current practices and policies affecting consumers.

    Today’s report includes findings of the information request from industry participants as well as analysis of more than 3,100 private student loan complaints and approximately 1,100 debt collection complaints related to student loan debt received between October 1, 2014, and March 31, 2015. Overall, private student loan complaints increased by 34 percent compared to the same time period last year.

    Among the issues that consumers face:

    • Companies rejected 90 percent of consumers who applied for co-signer release: Many private student lenders advertise options to release a co-signer from a private student loan. However, an analysis of industry responses to the CFPB’s information request found that the lenders and servicers surveyed granted very few releases—of those borrowers that applied for co-signer release, 90 percent were rejected.
    • Consumers left in the dark on co-signer release criteria: The CFPB found that consumers have little information on the specific borrower criteria needed to obtain a co-signer release. Consumers reported being confused about their eligibility for obtaining a co-signer release as well as not understanding why they had been denied.
    • Most private student loan contracts continue to contain auto-default clauses: Last year, the CFPB reported that private student loan servicers were putting borrowers in default when a co-signer died or filed for bankruptcy, even when their loans were otherwise in good standing. Following that report, some financial institutions stated that they would no longer hit borrowers with auto-defaults. The CFPB’s analysis of private student loan contracts, however, found that most private student loan contracts continue to include auto-default clauses.
    • Borrowers are at risk when loans are sold and packaged by Wall Street: Even if individual companies state that they will not trigger auto-defaults in certain cases, loans are often sold to other banks and securitized on Wall Street. This exposes borrowers to risk that the new owner of the loan will trigger an auto-default.
    • Company policies can permanently disqualify borrowers from co-signer release: Student loan borrowers reported that some companies’ policies penalize or disqualify borrowers who prepay their loans and are in good standing. Some companies also disqualify borrowers from releasing a co-signer if the consumer accepts the servicer’s offer of postponing payment through forbearance. These company policies can permanently ban a consumer from seeking co-signer release for the life of the loan and penalize consumers that may have graduated during tough economic times.
    • Potentially harmful clauses found in the fine print: In addition to auto-default clauses, the CFPB found other potentially harmful clauses hidden in fine print of some loans including “universal default” clauses. Financial institutions use these clauses to trigger a default if the borrower or co-signer is not in good standing on another loan with the institution, such as a mortgage or auto loan, that is unrelated to the consumer’s payment behavior on the student loan. These clauses can increase the risk of default for both the borrower and co-signer.

    Today’s report describes opportunities to improve the private student loan industry’s co-signer practices. The report identifies practices that could benefit consumers and industry, including:

    • Improving transparency around co-signer release criteria: Consumers and industry would benefit from increased transparency around the availability of co-signer release, including what specific requirements exist that a borrower needs to meet to obtain a release.
    • Improving consumer notifications for co-signer release eligibility:Private student loan servicers could notify consumers before placing them in a repayment status, such as forbearance, that it would disqualify them from co-signer release. In addition, private student loan servicers could improve their customer service by proactively notifying borrowers when they meet prerequisites for releasing a co-signer, such as making a certain number of on-time payments.
    • Examining potentially harmful clauses in the fine print: The CFPB report notes that policymakers should consider whether auto-default, universal default, and other potentially harmful terms in the fine print of private student loan contracts are appropriate.

    To help borrowers overcome obstacles to co-signer release, the CFPB published a set of sample letters for private student loan borrowers and their co-signers that they can send to the private student loan servicer. These letters instruct servicers to provide clear information about co-signer release policies.

    Last month, the CFPB launched a public inquiry into student loan servicing practices that can make paying back loans a stressful or harmful process for borrowers. The issues that the Bureau is seeking information on include: industry practices that create repayment challenges, hurdles for distressed borrowers, and the economic incentives that may affect the quality of service. The comment period is open until July 13, 2015.The CFPB also launched a new version of the Repay Student Debt tool, which helps borrowers get unbiased tips on how to navigate student loan repayment, along with other sample letters they can send to their student loan servicers.

    The CFPB began accepting consumer complaints about private student loans in March 2012. More information is at:


    Friday, June 19th, 2015

    Media Contact:

    Will Wiquist, (202) 418-0509


    For Immediate Release




    Commission Responds to Requests from Businesses and Attorneys General for Guidance on Robocall Blocking, Autodialers, Recycled Phone Numbers and More


    WASHINGTON, June 18, 2015 – The Federal Communications Commission today adopted a proposal to protect consumers against unwanted robocalls and spam texts.  In a package of declaratory rulings, the Commission affirmed consumers’ rights to control the calls they receive.  As part of this package, the Commission also made clear that telephone companies face no legal barriers to allowing consumers to choose to use robocall-blocking technology.


    The rulings were informed by thousands of consumer complaints about robocalls the FCC receives each month.  Complaints related to unwanted calls are the largest category of complaints received by the Commission, numbering more than 215,000 in 2014.


    Today’s action addresses almost two dozen petitions and other requests that sought clarity on how the Commission interprets the Telephone Consumer Protection Act (TCPA), closing loopholes and strengthening consumer protections already on the books.  The TCPA requires prior express consent for non-emergency autodialed, prerecorded, or artificial voice calls to wireless phone numbers, as well as for prerecorded telemarketing calls to residential wireline numbers.


    The rulings provide much needed clarity for consumers and businesses. Highlights for consumers who use either landline or wireless phones include:


    • Green Light for ‘Do Not Disturb’ Technology – Service providers can offer robocall-blocking technologies to consumers and implement market-based solutions that consumers can use to stop unwanted robocalls.
    • Empowering Consumers to Say ‘Stop’ – Consumers have the right to revoke their consent to receive robocalls and robotexts in any reasonable way at any time.
    • Reassigned Numbers Aren’t Loopholes – If a phone number has been reassigned, companies must stop calling the number after one call.
    • Third-Party Consent – A consumer whose name is in the contacts list of an acquaintance’s phone does not consent to receive robocalls from third-party applications downloaded by the acquaintance.

    Additional highlights for wireless consumers include:

    • Affirming the Law’s Definition of Autodialer – “Autodialer” is defined in the Act as any technology with the capacity to dial random or sequential numbers. This definition ensures that robocallers cannot skirt consumer consent requirements through changes in calling technology design or by calling from a list of numbers.
    • Text Messages as Calls – The Commission reaffirmed that consumers are entitled to the same consent-based protections for texts as they are for voice calls to wireless numbers.
    • Internet-to-Phone Text Messages – Equipment used to send Internet-to-phone text messages is an autodialer, so the caller must have consumer consent before calling.
    • Very Limited and Specific Exemptions for Urgent Circumstances – Free calls or texts to alert consumers to possible fraud on their bank accounts or remind them of important medication refills, among other financial alerts or healthcare messages, are allowed without prior consent, but other types of financial or healthcare calls, such as marketing or debt collection calls, are not allowed under these limited and very specific exemptions. Also, consumers have the right to opt out from these permitted calls and texts at any time.

    Today’s actions make no changes to the Do-Not-Call Registry, which restricts unwanted  telemarketing calls, but are intended to build on the Registry’s effectiveness by closing loopholes and ensuring that consumers are fully protected from unwanted calls, including those not covered by the Registry.


    By taking action today, the Commission is embracing the opportunity afforded by the 23 requests for clarification of the law to clearly stand with consumers against unwanted calls.


    Action by the Commission June 18, 2015 by Declaratory Ruling and Order (FCC 15-72).  Chairman Wheeler and Commissioner Clyburn, Commissioners Rosenworcel and O’Rielly approving and dissenting in part and Commissioner Pai dissenting.  Chairman Wheeler, Commissioners Clyburn, Rosenworcel, Pai and O’Rielly issuing statements.



    Office of Media Relations: (202) 418-0500

    TTY: (888) 835-5322

    Twitter: @FCC


    This is an unofficial announcement of Commission action.  Release of the full text of a Commission order constitutes official action.  See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

    FTC Cracks Down on Deceptive Debt Collection Texts

    Saturday, June 13th, 2015

    FTC Cracks Down on Deceptive Debt Collection Texts


    The US Federal Trade Commission (FTC) building is seen 19 September 2006 in Washington, DC. PAUL J. RICHARDS / AFP – Getty Image

    Debt collectors often have a difficult time getting a response from the person they’re trying to reach. Letters go unanswered. Calls are not returned.

    A text message can cut through the clutter.

    There’s nothing wrong with trying to make contact via text, as long as the collection agency follows all the rules. And according to the Federal Trade Commission (FTC), some do not.

    A few weeks ago, federal courts in New York and Georgia temporarily shut down three debt collection agencies accused by the FTC of sending deceptive and threatening text messages, among other things.

    Those deceptive texts, the FTC complaint alleges, were used to trick people into calling them back.

    The texts from one collection agency included false statements such as:

    “YOUR PAYMENT DECLINED WITH CARD ****-****-****-5463 . . . CALL 866.256.2117 IMMEDIATELY.”



    “That’s how they lured people into talking to them,” said Chris Koegel, assistant director of the FTC’s Division of Financial Practices. “People think there’s a problem with their credit card or that they’re about to get charged for something that didn’t make sense and they called. And when they did, the collectors would launch into their deceptive debt collecting by threatening arrest and lawsuits and things like that.”

    Bruce McClary, vice president of public relations for the National Foundation for Credit Counseling called the use of these bogus text messages a “despicable” way to do business.

    “Debt collectors are required to clearly identify themselves and clearly explain the intent of their communication, each and every time. That’s the law,” McClary told NBC News.

    The Federal Trade Commission first saw deceptive text messages used by dishonest debt collectors a few years ago. Koegel tells NBC News he believes this is “a growing trend” and he cautions people to be wary of strange text messages.

    Legitimate debt collectors know the rules and follow them: They cannot threaten, harass or lie to you.

    They must send you a written “validation notice” within five days of contacting you. This letter must tell you how much money you owe, the name of the creditor and how to proceed if you don’t think you owe the money.

    Never respond to a debt collector in any way or provide any personal information before you get that validation notice.

    If you get tricked into calling a debt collector – hang up – and file a complaint. Learn more about dealing with debt collectors on the FTC website.

    Reverse mortgages

    Thursday, June 4th, 2015

    June 4, 2015

    Office of Communications
    Tel: (202) 435-7170

    CFPB Issues Advisory Warning Consumers Not To Be Deceived


    WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) released results of a focus group study on reverse mortgage advertisements that found many participants were left with misimpressions about the product. After viewing the ads, consumers were confused about reverse mortgages being loans, and they were left with false impressions that they are a government benefit or that they would ensure consumers could stay in their homes for the rest of their lives. Today, the CFPB is also issuing an advisory that warns consumers that many reverse mortgage ads do not tell the full story.

    “As older consumers consider reverse mortgage loans to tap into their home equity, they need to be careful of those late night TV ads that seem too good to be true,” said CFPB Director Richard Cordray. “It is important that advertisements do not downplay the terms and risks of reverse mortgages or confuse prospective borrowers.”

    The study can be found at:

    A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. The reverse mortgage market is about 1 percent of the size of the traditional mortgage market, with 628,000 outstanding loans, according to industry reports. Most reverse mortgages today are federally insured through the Federal Housing Authority’s Home Equity Conversion Mortgage program, which carry some regulatory requirements.

    The number of reverse mortgage originations is likely to increase in upcoming years with the retirement of the “baby boom” generation, which has more home equity than retirement savings. Studies have estimated that among Americans nearing retirement, 41 percent have no retirement savings account. But a majority of them, about 74 percent, own their homes and have built up good equity. The most common ways for consumers to access this home equity is to refinance their original mortgage, take out a home equity loan or line of credit, sell the home and downsize, or obtain a reverse mortgage.

    Today’s CFPB study is based on 97 unique ads found on TV, radio, in print, and on the Internet. The CFPB interviewed about 60 homeowners age 62 and older in focus groups and in one-on-one interviews in Chicago, Los Angeles, and Washington, D.C. The study found that many of the ads were incomplete and/or contained inaccurate information. While advertisements frequently do not describe all the details of the particular product or service being sold, the incompleteness of reverse mortgage ads raises heightened concerns because reverse mortgages are complicated and often expensive loans intended for older, and frequently vulnerable, homeowners. The study found that the ads were characterized by: 

    • Ambiguity that reverse mortgages are loans: Some consumers found it difficult to understand from the ads that reverse mortgages are loans with fees and compounding interest; that the loans need to be repaid. Most ads either did not include interest rates or included interest rates in fine print. Other consumers thought that because the money they received through a reverse mortgage represented home equity they had accrued over time, there was no reason they would have to pay it back. 
    • False impressions about government affiliation: The advertisements left some older homeowners with the false impression that reverse mortgages are a risk-free government benefit, and not a loan. The study found that consumers often misinterpret the role of the federal government in the reverse mortgage market as providing consumer protections that are not actually offered.
    • Difficult-to-read fine print: The study found that some consumers did not pick up on key aspects of the loan because the loan requirements were often buried in the fine print if they were even mentioned at all. Many reverse mortgage ads reviewed did not, for example, mention helpful information like interest rates, repayment terms, and other requirements. 
    • Celebrity endorsements that imply reliability and trust: Many ads featured celebrity spokespeople discussing the benefits of reverse mortgages without mentioning the risks. Most consumers recalled TV ads that featured spokespeople portrayed as reliable and trustworthy. One consumer in one focus group said, “When it’s a former Congressman endorsing it, it makes it sound like a good idea.”
    • False impressions about financial security and staying in the home for the rest of the consumer’s life: The study found that many ads implied financial security for the rest of a consumer’s life. But a reverse mortgage does not guarantee financial security no matter how long a consumer lives. A consumer can tap into their equity too early and run out of funds to draw on. In addition, borrowers with a reverse mortgage are still responsible for paying property taxes, homeowner’s insurance, and property maintenance. Failing to meet these requirements can trigger a loan default that results in foreclosure. Most of the advertisements reviewed failed to mention such requirements.

    Incomplete or inaccurate statements made in advertisements about reverse mortgages can pose serious risks to older Americans. Without more balanced information, consumers may not make the right financial choice and jeopardize their retirement security. This means they could run out of money for their day-to-day expenses or even lose their homes.

    Consumer Advisory: Don’t Be Misled By Reverse Mortgage Advertising
    Today the CFPB is issuing an advisory warning older Americans to watch out for misleading or confusing reverse mortgage advertisements. The advisory highlights facts that consumers should keep in mind when seeing the ads:

    • A reverse mortgage is a home loan, not a government benefit: Consumers need to know that reverse mortgages have fees and compounding interest that must be repaid, just like other home loans.
    • Reverse mortgage ads don’t always tell the whole story: Reverse mortgage ads don’t always tell the whole story, such as that a consumer can lose ownership of their home.
    • Without a good plan, a consumer could outlive the loan money: Consumers should have a financial plan in place that accounts for a long life. That way, if a consumer needs to tap into their home equity, they won’t do it too early and risk running out of retirement resources later in life.

    The CFPB’s advisory can be found at:

    The Bureau has questions and answers about reverse mortgages at Ask CFPB. The Bureau also has developed a  consumer guide for older Americans with key facts on reverse mortgages. Consumers can submit a complaint with the CFPB about reverse mortgages online at, by phone at 1-855-411-CFPB or TTY/TDD (855) 729- 2372, or by mail.

    More information for older Americans and their caregivers about making financial decisions, protecting assets, preventing financial exploitation, and planning for long-term financial security can be found at:


    The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit


    Provident Funding

    Friday, May 29th, 2015

    from Credit & Collection News


    CFPB, DOJ Take Action Against Provident Funding For Discriminatory Lending

    The Consumer Financial Protection Bureau and the Department of Justice filed a complaint against Provident Funding Associates for charging higher broker fees on mortgage loans to African-American and Hispanic borrowers. The lender could potentially pay $9 million in damages if the court accepts the order.  Provident allegedly violated the Equal Credit Opportunity Act by charging African-American and Hispanic borrowers more in total broker fees than white borrowers based on their race and national origin and not based on their credit risk. Between 2006 and 2011, Provident made over 450,000 mortgage loans, and during this time period, Provident’s practice was to set a risk-based interest rate and then allow brokers to charge a higher rate to consumers. Provident would then pay the brokers some of the increased interest revenue from the higher rates. Provident’s mortgage brokers also had discretion to charge borrowers higher fees, unrelated to an applicant’s creditworthiness or the terms of the loan. The agencies allege that Provident’s discretionary broker compensation policies caused the differences in total broker fees, and that Provident unlawfully discriminated against African-American and Hispanic borrowers in mortgage pricing.

    FTC rulings give consumers stronger warranty protections

    Thursday, May 28th, 2015

    column by Bill Snyder in CIO

    The U.S. FTC recently shot down rules that required consumers to take products to authorized dealers for service or risk voided warranties.
    You likely believe you’ve always had the right to sue a company that sells you a defective product, or to take your device anywhere you want to get it repaired without voiding the warranty. In theory, you’re correct, but today many companies bully consumers out of asserting their rights. Fortunately, that’s about to change.
    If your laptop, smartphone or car, for example, is under warranty, and you take it somewhere other than a so-called “authorized dealer” for repair or maintenance, the manufacturer can claim that you voided the product guarantee. If your complaint is serious and you want to sue the manufacturer, there’s a good chance that fine print in the sales contract attempts to block you — compulsory arbitration is the only remedy.

    However, two Federal Trade Commission (FTC) rulings this month claim such bullying tactics violate the law and need to stop.

    Let’s start with the warranty issue and a practice called “implied tying.” This term refers to language that implies consumer warranty coverage is conditional and dependent on the use of select (and usually expensive) parts or services.

    Say you purchased a smartphone with a one-year warranty that doesn’t include drop-damage protection. If you break the screen and replace it yourself, you void the warranty. If your phone then overheats and dies because the processor is defective, some companies will claim it’s your problem, not theirs, because the warranty is longer valid.

    “Gotchas” like this one are even more common when it comes to cars. A typical automobile warranty requires that owners perform routine maintenance at specified intervals and replace defective parts with new ones from the car manufacturer. In the past, if you got a spark plug changed at a neighborhood garage, or replaced brake pads that weren’t under warranty with aftermarket parts, you voided the existing warranty.

    But not any more. The FTC recently completed a review of related regulations, and it made a point to say that “implied tying” violates the law and is not enforceable.



    The FTC also addressed the issue of compulsory arbitration. In the unlikely event that you actually read the fine print that comes with many products, you’ll see that you gave up the right to sue the manufacturer or service provider, no matter how serious your complaint. Once you sign a sales contract with this type of fine print, you have to go through arbitration and then be satisfied with whatever ruling you get.

    The FTC says this practice violates the Magnuson-Moss Warranty Act and must stop. Companies can still require that you submit to arbitration before filing suit, but after that you’re free to take them to court.

    Now that you know you have those rights, you should seriously consider using them. If more people take action against shady companies, those organizations might be less inclined to stick it to consumers.

    Credit errors should be fixed faster under new agreement with 31 states

    Wednesday, May 20th, 2015

    from Columbus (OH) Dispatch

    Credit errors should be fixed faster under new agreement with 31 states

    Ohio Attorney General Mike DeWine
    Ohio Attorney General Mike DeWine and attorneys general in 30 others states this afternoon will announce major changes in how national credit-reporting agencies do business so that consumers aren’t harmed by costly errors, sources toldThe Dispatch this morning.

    Three private companies — Experian, Equifax and TransUnion — which collect bill-payment histories of millions of Americans, have been under investigation since 2012 because they have mistakenly tangled credit information among consumers, corrupting the credit reports of those with good payment histories by inaccurately assigning someone else’s bad credit history to them.

    But worse of all, they failed to act or even investigate when consumers alerted them to the errors. Many had to take the credit agencies to court in order to correct mistakes — such as victims of identity theft, those reported as being dead, and a woman incorrectly flagged as a terrorist.

    >> Series: Credit Scars

    According to sources, the agreement with the 31 states requires the three credit agencies, among other things, to:

    Improve the dispute-resolution process so that consumers who find errors on their credit reports can get them easily corrected.

    Keep a list of companies that routinely report bad or inaccurate credit information to the agencies and provide them to the attorneys general. This will allow the states to go after “furnishers” who report faulty information.

    Stop pitching credit-monitoring services or other fee-based products to consumers who call with complaints until the agencies have resolved the consumers’ problems.

    Sources said the agreement calls for the credit agencies to reimburse the states $6 million for the cost of the investigation.

    The trade group that speaks for the Big Three credit agencies said that while their studies have shown that credit reports are accurate 98 percent of the time, their “goal is always to improve beyond even that high standard of accuracy,” Stuart Pratt, chief executive officer of the Consumer Data Industry Association said in a written statement.

    In March, the credit agencies announced a new initiative to improve the way consumers interact with the previously difficult-to-reach bureaus.

    “That plan, which arose out of collaborative discussions between the three agencies and a group of state attorneys general and the attorney general of New York, will enhance credit report accuracy, increase transparency, and provide meaningful benefits to consumers,” Pratt said in the statement. “Those benefits, which will be rolled out nationwide, stand as an example of what can be achieved when private industry and government officials work together.”

    The agreement comes after the Dispatch series “Credit Scars,” originally published in 2012, which illuminated the plight of thousands of Americans who, through no fault of their own, have been harmed by flawed reports. Their stories were documented in nearly 30,000 complaints filed with the Federal Trade Commission and attorneys general in 24 states that the newspaper collected and analyzed.

    The series prompted DeWine to launch an investigation and to recruit about 30 other attorneys general across the country to examine why the nation’s three largest credit-reporting agencies were ignoring and mishandling consumer complaints.

    The state of New York was part of the original group but broke away from the other attorneys general in 2013 then announced its own settlement with the agencies in March.

    Both agreements require the agencies to improve their dispute-resolution processes so that consumers can have their issues investigated, promote the website where consumers can get free credit reports and wait 180 days before placing derogatory medical debt on a credit report.

    Ohio and the other states, however, didn’t feel that New York went far enough to protect consumers and pushed for additional measures, sources said. DeWine will hold a press conference at 2 p.m. to announce the agreement.

    Article about one of our high-interest loan cases in Chicago Daily Law Bulletin

    Tuesday, May 19th, 2015

    Borrowers say interest is excessive

    Trial Notebook

    Steven P. Garmisa
    By Steven P. Garmisa
    Hoey & Farina
    Three Illinois residents who agreed to pay 139 percent interest on $2,525 in loans from Western Sky Financial — a “payday loan” company chartered in South Dakota that advertises on television and operates on the Internet — filed a state-court class action in Chicago against its owner, eight affiliated firms and some debt collectors, alleging that the defendants violated the Illinois Interest Act and the “unfair practices” provision of the Illinois Consumer Fraud Act.

    Western Sky and its affiliates allegedly lacked authorization from the Illinois Department of Financial and Professional Regulation to charge interest rates greater than the 9 percent maximum provided by the Interest Act.

    The defendants used the Class Action Fairness Act to yank the case into federal court. Then the district judge dismissed the lawsuit based on a contract provision that required arbitration of disputes by “an authorized representative” of the Cheyenne River Sioux Tribal Nation in South Dakota. But the 7th U.S. Circuit Court of Appeals reversed because the arbitration provision was unreasonable and unconscionable. Jackson v. Payday Financial, 764 F.3d 765 (7th Cir.2014).

    Back in the district court, the defendants filed a motion to dismiss, arguing among other things that the plaintiffs failed to allege valid claims under the Illinois statutes.

    Although U.S. District Judge Charles P. Kocoras dismissed a count that was based on the Illinois Criminal Usury statute — because that statute “does not imply a private right of action for individuals subject to loans charging usurious interest rates” — he declined to toss the Interest Act and Consumer Fraud claims.Jackson v. Payday Financial, 11 C 9288 (Feb. 3).

    Here are highlights of Judge Kocoras’ opinion (with omissions not noted in the text):

    Defendants argue that plaintiffs’ allegations concerning a violation of the Illinois Interest Act must be dismissed because the complaint does not allege that the defendants had actual knowledge that their loans were unlawful.

    Under the Illinois’ usury statutes, “whether a loan is usurious depends on whether the party intended to charge unlawful interest.” Saskill v. 4–B Acceptance, 117 Ill.App.3d 336, 453 N.E.2d 761 (1983).

    Plaintiffs’ allege that defendants knowingly lent money to the plaintiffs and charged interest rates more than 130 percent, well over the 9 percent cap established by the Illinois Interest Act. The complaint further specifies that the defendants were aware that the interest rates charged were unenforceable under Illinois law.

    The defendants counter that they were under the belief that their loans would be governed by Cheyenne River Sioux tribal law, as specified in the loan agreement.

    Despite the defendants assertions of their subjective beliefs, the present posture of the case does not support determining the facts of the case. At this juncture, the plaintiffs’ well-pled allegations establish that the defendants knew that the loans were unlawful under Illinois law.

    Additionally, defendants contend that the Illinois Interest Act solely applies to individuals and corporations actually in this state. Due to their lack of Illinois contacts, defendants argue that the Illinois Interest Act does not apply to them.

    Defendants point to the language of the Illinois Interest Act which states, in pertinent part: “in all written contracts it shall be unlawful for the parties to stipulate or agree that 9 percent per annum, or any less sum of interest, shall be taken and paid … in any manner due and owing from any person to any other person or corporation in this state … except as herein provided.” 815 ILCS 205/4(1).

    Defendants asserted limitation on the reach of the Illinois Interest Act is not persuasive.

    The Illinois Interest Act and other Illinois usury laws exist to broadly protect a “necessitous borrower” from an “unscrupulous lender.” See Rogus v. Continental Illinois Nat. Bank & Trust Co. of Chicago, 4 Ill.App.3d 557, 281 N.E.2d 346 (1972).

    The portion of the Illinois Interest Act relied on by the defendants merely enunciates the lawful nature of a 9 percent interest rate. If an individual or company wishes to exceed the cap interest rate, it must fall into one of the many established exceptions, which defendants do not argue that they fit into.

    Furthermore, another section of the Illinois Interest Act provides:

    “When any written contract, wherever payable, shall be made in this state, or between citizens or corporations of this state, or a citizen or a corporation of this state and a citizen or corporation of any other state, territory or country (or shall be secured by mortgage or trust deed on lands in this state), such contract may bear any rate of interest allowed by law to be taken or contracted for by persons or corporations in this state, or allowed by law on any contract for money due or owing in this state.” 815 ILCS 205/8.

    The permissibility of charging “any rate of interest allowed by law” in a contract made by any individual of any state defeats the defendants limited interpretation of the Illinois Interest Act.

    The defendants’ motion to dismiss plaintiffs’ Illinois Interest Act claim is denied.

    Disagreement concerning the application of the ICFA

    Defendants argue that the plaintiffs’ ICFA claim should be dismissed because there exists a legitimate disagreement about whether the alleged conduct is unlawful under the ICFA.

    Defendants fortify their argument by relying on Stern v. Norwest Mortgage Inc., 284 Ill.App.3d 506, 672 N.E.2d 296 (1996), for the proposition that the existence of a “reasonable difference of opinion as to the meaning” of a statute cannot support a ICFA claim.

    However, the Stern court went on to state that “there must be a claim seated in deceptive acts rather than a reasonable difference of opinion as to the meaning of an act of the Illinois General Assembly.” Id., 672 N.E.2d at 302.

    Courts have held that an individual can pursue two types of claims under the ICFA: 1) a claim alleging that the conduct is unfair; and 2) a claim alleging that the conduct is deceptive. See Siegel v. Shell Oil Co., 612 F.3d 932 (7th Cir.2010); see also Saunders v. Mich. Ave. Nat’l Bank, 278 Ill.App.3d 307, 662 N.E.2d 602 (1996).

    Plaintiffs have alleged that the defendants’ conduct was unfair for the purposes of pleading an ICFA claim.

    To show that particularized conduct constitutes an “unfair practice” under the ICFA, the practice must offend public policy, be immoral, unethical, oppressive, unscrupulous or cause substantial injury to consumers. Robinson, 775 N.E.2d at 961.

    “All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.” Id.

    For present purposes, the plaintiffs have pled that the defendants engaged in unfair conduct in violation of the ICFA for “contracting for and collecting finance charges, interest, and fees, from Illinois residents, in excess of the amounts permitted by Illinois law.”

    In light of Illinois’ enactment of several consumer protection statutes limiting the permissible interest charged to Illinois residents, the court finds that the alleged assessment of interest over 100 percent is unscrupulous and oppressive and sufficiently constitutes an unfair practice.

    Defendants submit their argument concerning a “reasonable difference of opinion” as a guise for their ultimate contention that Illinois law should not be applicable to the loan agreements.

    It is not the contention of the defendants that the ICFA is ambiguous or vague in defining the conduct it prohibits. Defendants go further and ultimately challenge the application of Illinois law to their conduct. Defendants have moved for dismissal based on plaintiff’s failure to state a claim.

    Plaintiffs have sufficiently alleged a violation of the ICFA under Illinois law.

    Basis for ICFA claim

    Defendants argue that the ICFA does not allow recovery for a violation of the Illinois Interest Act.

    Defendants contend that the ICFA prescribes numerous statutes that if violated give rise to a ICFA claim; the absence of the Illinois Interest Act from the delineated violations prohibits the application of the ICFA.

    Despite the defendants’ protestations concerning the absence of the Illinois Interest Act from the list of statutes qualifying as a ICFA violation, plaintiffs do not elicit the particular portion of the ICFA which relies on other violations to serve as a basis for an ICFA claim.

    Plaintiffs allege that the excessive interest and fees of the loans assessed by the defendants in their loans was an unfair practice in violation of 815 ILCS 505/2 of the ICFA, which does not rely on a violation of another statute.

    Plaintiffs do not allege that a violation of the Illinois Interest Act represents a violation of 815 ILCS 505/2Z of the ICFA, which provides a remedy under the ICFA for violations of other Illinois consumer statutes.

    Failure to establish the proximate cause of their injury

    Defendants finally contend that plaintiffs have failed to establish that their deception proximately caused plaintiffs’ injuries.

    To prevail under ICFA, a plaintiff must demonstrate that the defendant’s conduct is the proximate cause of the injury. Oliveira v. Amoco Oil Co., 201 Ill.2d 134, 776 N.E.2d 151 (2002).

    Therefore, plaintiffs must allege that “but for” the defendants’ unfair conduct, they would not have been damaged.

    Plaintiffs allege that the loans provided by the defendants unlawfully charged finance charges, interest, and fees that were not permitted under Illinois law. As a result of paying the charged interest of over 100%, as opposed to the Illinois cap of 9%, the plaintiffs were damaged.

    Plaintiff sufficiently pled the proximate cause of their injury was the defendants conduct. Defendants’ motion to dismiss plaintiffs’ ICFA claim is denied.

    “Convenience fees” for making payments may be illegal

    Monday, May 18th, 2015

    Article from trade publication Inside ARM about one of our cases


    The Inconvenient Reality of Convenience Fees
    Mike Bevel May 18, 2015
    You should probably stop charging convenience fees. You also probably won’t listen to me, or to your compliance team

    Nevertheless, it’s a risky prospect, the precedents aren’t terribly clear, and, if a recent case, Acosta v. Credit Bureau of Napa County, is to be believed, it’s against the Fair Debt Collection Practices Act and liable to get you sued.

    Here are the facts, per the filing on 29 April 2015:

    The defendant received a collection notice for $524.59. The notice helpfully listed “6 easy payment options,” including one with a convenience fee: “Pay via Credit Card. ($14.95 Chase Receivables processing fee where applicable).” Four of the remaining five options did not include a convenience fee.

    However, the defendant (via her attorney), believes that that $14.95 convenience fee violates the FDCPA in the following ways:

    1692e: False or misleading representations. “A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”
    1692e(2): (2) The false representation of—
    (A) the character, amount, or legal status of any debt; or
    (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.
    1692e(10): (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.
    1692f: Unfair practices. “A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.”
    1692f(1): (1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation [emphasis added, editor) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.
    Was that $14.95 part of the collection? That’s at issue here. Per the defendant’s counsel, the answer is yes, and because it’s yes, 1692f(1) was violated (which dominoed, in a sense, the other sections of the FDCPA). Per the agency, the answer is no, there was no collection intended: the $14.95 should be considered a “pass through.” Additionally, the agency never claimed the processing fee was due, and, too: there were four other options available to the defendant that didn’t have a convenience fee at all.

    The court…didn’t see it that way. Per the court, for there to have been no collection for the agency, then that $14.95 should have gone directly to the payment (i.e., third party) processor.

    And since there was a collection, the court then went on to determine whether it was “expressly authorized by the agreement creating the debt or permitted by law.” Which, per the court, this fee did neither: neither expressly authorized, and not permitted by law.

    Which brings us back to the beginning of this piece: convenience fees just aren’t. Acosta tells us this. Quinteros out of New York tells us this. There are incredibly narrow applications for convenience fees; but, for the most part, the risks are too great.

    What compliance folk can do now:

    Examine the agreements consumers sign with your clients. If there is no express language in those agreements stating that past-due accounts sent to collections might incur additional costs, you should not charge a convenience fee.
    Review your internal written policies regarding convenience fees with your own legal counsel — paying specific attention to the sections of the FDCPA quoted above.

    Stop adding convenience fees to transactions. Which, I know, is easier said than done, and a tough conversation to have with operations and management. But the risks, at this point, do not outweigh the benefits at all, and simply open your agency up for lawsuits and unwanted scrutiny.

    Student loan repayment

    Monday, May 18th, 2015

    Useful article from Charleston (South Carolina) Post & Courier:

    New college graduate? Learn about student loan repayment choices

    Many college graduates leave school with hefty student loan debt.

    Many college graduates leave school with hefty student loan debt. FILE/NORTHWEST FLORIDA DAILY/AP


    Most of the nation’s college Class of 2015 just celebrated graduation, and most of those graduates are heading into the world carrying large debt loads.

    The way those graduates manage their loan debt will have a huge impact on their finances — particularly their cash flow and credit rating — in ways that will make it either easier, or harder, to save money and borrow for things like cars and homes. There are many loan-repayment options, and those with loans need to research the choices as if they were studying for an important exam.

    College debt can be a financial time bomb if not handled pro-perly.

     College debt can be a financial time bomb if not handled properly. File/ap

    It can be a complex issue because there are many types of loans, and many repayment options. There are also plenty of scams out there, waiting to ensnare borrowers with false promises of debt reduction and loan consolidation. Those companies typically charge up-front fees, provide nothing in return, and eventually get shut down by the feds, only to have new ones pop up.

    A good starting point for learning more is the U.S. Department of Education’s student aid website, The “understanding repayment” and “repayment plans” areas of that website can lead a borrower through some of the many choices.

    For federal loans, there are at least seven repayment plan options, starting with the basic 10-year, fixed-payment plan. Other options allow borrowers to stretch out the payments, start with lower payments that rise over time, or make payments based upon the borrower’s income. There are three different income-based repayment plans.

    For those who became federal direct loan borrowers after Oct. 1, 2007, and received a disbursement after Oct. 1, 2011, for example, there’s the “pay as you earn” plan. That caps monthly payments at 10 percent of discretionary income, the payments change as income changes, and after 20 years of qualifying monthly payments (or 10 years for those in “public service” professions) any remaining balance is forgiven.

    Here’s how that might work:

    Discretionary income is considered to be what’s left after 150 percent of the federal poverty standard is subtracted from a person’s “adjusted gross income.” For South Carolina and all other states except Hawaii and Alaska, 150 percent of the federal poverty guideline for a single person this year is $17,655.

    So, a single person with an AGI of $25,000 would be considered to have $7,345 in discretionary income. Under the pay-as-you-earn plan, their monthly payment would be one-twelfth of 10 percent of their annual discretionary income. If that borrower had $25,000 in qualifying federal student loan debt, their initial monthly payment on that plan would be about $61, compared to $288 under the standard fixed payment 10-year plan.

    There are too many options and scenarios to discuss in detail here, but the Department of Education website, the Consumer Financial Protection Bureau website and reputable private websites such as can help sort through them. Not all loans qualify for all plans.

    One thing to keep in mind is that, as with a mortgage, extending a loan over more years results in lower monthly payments, but higher total payments over the life of the loan because more interest will be paid. Of course, if some of the loan balance will be forgiven, that changes the equation.

    According to the Consumer Financial Protection Bureau, two-thirds of graduates are finishing their bachelor’s degrees with debt that averages nearly $30,000. Nationally, student loan debt has topped $1.2 trillion, more than $100 billion of which is in default.

    As with a mortgage, defaulting on a student loan can lead to ruined credit and still more debt, as fees and interest charges pile on. Unlike a mortgage, student loan debt in most cases sticks with the borrower even if they declare bankruptcy.

    So pay those student loan bills, pay them on time, and keep good records. The CFPB spent two years collecting more than 28,000 public comments about the student loan process and holding hearings, and what they heard about borrowers’ interactions with loan servicers was not encouraging.

    “At every stage of the process of paying back their student loans, borrowers have told us they are wrapped in mounds of red tape, particularly for private student loans,” CFPB Director Richard Cordray said Thursday at hearing on student loans. “From the beginning, when they first graduate and start making their initial payments, consumers can experience problems with payment posting, problems with attempted prepayments, and problems with partial rather than full payments.”

    That’s one reason why it’s important for borrowers to keep good records, and know the rules. Setting up regular electronic payments from a bank account is one way to make sure the bills get paid on time.