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    Edelman, Combs, Latturner, & Goodwin, LLC

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    Suite 1500
    Chicago, IL 60603
    Phone: 312-739-4200
    Fax: 312-419-0379

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    CFPB actions against Portfolio Recovery and Midland/ Asset Acceptance

    Thursday, September 10th, 2015

    Debt Buyers to Pay $61 Million In Consumer Refunds & Amend Their Practices

    U.S. consumer protection regulators ordered the country’s two largest debt buyers, Encore Capital Group and a unit of PRA Group, to pay millions of dollars in refunds and fines on Wednesday over charges of using “deceptive tactics” to collect bad debt. The Consumer Financial Protection Bureau said Encore has been ordered to pay $42 million in refunds and a $10 million penalty. Portfolio Recovery Associates, the PRA Group unit, was ordered to pay $19 million back to customers and an $8 million penalty. The CFPB said both companies purchased debt using “potentially inaccurate” information and pressured customers with false statements. They also tried to collect on debts using robo-signed court filings to “churn out lawsuits,” the CFPB said. “Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” CFPB Director Richard Cordray said. In a statement posted on its website, PRA group said the settlement with the CFPB “will not materially impact operations” and that it decided to “end this drawn out process,” even though it objected to the CFPB’s characterization of its business practices. Encore, in a statement, said that it too disagreed with the CFPB’s position, but opted to “agree to a settlement so we can move forward.” It also criticized the regulator, saying the CFPB was using enforcement actions to achieve reforms in the sector, instead of writing rules. Encore and Portfolio Recovery Associates both purchase delinquent debts, often for just pennies on the dollar. They generally then attempt to collect the full amount that was claimed by the original lender.

    From Credit & Collection News (industry publication)



    Wednesday, September 9th, 2015

    September 9, 2015

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    Encore and Portfolio Recovery Associates Must Refund Millions of Dollars and Overhaul Debt Collection and Litigation Practices

    WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) took action against the nation’s two largest debt buyers and collectors for using deceptive tactics to collect bad debts. The Bureau found that Encore Capital Group and Portfolio Recovery Associates bought debts that were potentially inaccurate, lacking documentation, or unenforceable. Without verifying the debt, the companies collected payments by pressuring consumers with false statements and churning out lawsuits using robo-signed court documents. The CFPB has ordered the companies to overhaul their debt collection and litigation practices and to stop reselling debts to third parties. Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio Recovery Associates must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.

    “Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” said CFPB Director Richard Cordray. “Now, the two biggest debt buyers in the market must refund millions and overhaul their practices. We will continue to take action to protect consumers from illegal and obnoxious debt collection practices.”

    Encore Capital Group, Inc. is headquartered in San Diego, Calif. Its subsidiaries also named in today’s action are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp. Together, they form the nation’s largest debt buyer and collector. Portfolio Recovery Associates is the nation’s second largest debt buyer and collector. Portfolio Recovery Associates is a Delaware for-profit corporation headquartered in Norfolk, Va. and is a wholly-owned subsidiary of PRA Group, Inc.

    As debt buyers, Encore and Portfolio Recovery Associates purchase delinquent or charged-off accounts for a fraction of the value of the debt. Although they pay only pennies on the dollar for the debt, they may attempt to collect the full amount claimed by the original lender. Together, these two companies have purchased the rights to collect over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts.

    The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers, or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. These practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

    Collecting Bad Debts
    Encore and Portfolio Recovery Associates illegally attempted to collect debt that they knew, or should have known, may have been inaccurate or unenforceable. Specifically, the CFPB found that the companies:

    • Attempted to collect on unsubstantiated or inaccurate debt: Encore and Portfolio Recovery Associates stated incorrect balances, interest rates, and payment due dates in attempting to collect debts from consumers. The companies purchased large portfolios of consumer debt with balances that sellers claimed were “approximate” or that otherwise did not reflect the correct amount owed by the consumer. Sellers also warned the companies that some of the debts they were buying may not have the most recent consumer payments deducted from the balance. Some sellers also represented that documents were not available for some of the accounts. The companies continued purchasing from these sellers and then collecting on that debt without first conducting any investigation to determine whether the debts were accurate and enforceable.

    Illegal Litigation Practices
    Encore and Portfolio Recovery Associates collected debts through lawsuits and threats of legal action in unlawful ways. Specifically, the companies:

    • Misrepresented their intention to prove debts they sued consumers over: Encore and Portfolio Recovery Associates regularly attempted to collect on debts by suing consumers in state courts across the country. In numerous cases, the companies had no intention of proving these debts. They placed tens of thousands of debts with law firms staffed by only a handful of attorneys and in many cases made no effort to obtain the documents to back up their claims. Instead, the companies relied on consumers not filing a defense and winning the lawsuits by default.
    • Relied on misleading, robo-signed court filings to churn out lawsuits: Encore and Portfolio Recovery Associates filed affidavits that contained misleading statements in debt collection lawsuits across the country. For example, they both used affidavits that misrepresented that the affiants had reviewed original account-level documentation confirming the consumers’ debts when they had not. The companies also submitted affidavits with documents attached that they claimed were the consumers’ specific account contracts or records when they weren’t. These shortcuts allowed the companies to churn through lawsuits without doing the research and due diligence required to obtain a legitimate judgment.
    • Sued or threatened to sue consumers past the statute of limitations: From at least July 21, 2011 to March 31, 2013, Encore sent thousands of letters offering a time-limited opportunity to “settle” without revealing that the debt was too old for litigation. From January 2009 to March 2012, Portfolio Recovery Associates sent similar letters to consumers. Both of the companies also filed cases past the applicable statute of limitations.
    • Pressured consumers to make payments using misrepresentations: Encore and Portfolio Recovery Associates made other inaccurate statements to consumers to press them to make additional payments. Specifically:
    • Encore falsely told consumers the burden of proof was on them to disprove the debt: In sworn affidavits, Encore falsely told consumers and courts that the debt should be assumed to be valid because the consumer had not disputed it within a certain time period. In fact, Encore had the burden to first prove the debt was owed and accurate before the consumer had to challenge it.
    • Portfolio Recovery Associates falsely claimed an attorney had reviewed the file and a lawsuit was imminent: The company’s collectors, who identified themselves as from the “Litigation Department,” misrepresented to consumers that litigation against them was planned, imminent, or even underway. In reality, in many cases, an attorney had not reviewed the account and the company had not decided whether to file suit.

    Other Illegal Collection Practices:

    • Encore disregarded or failed to adequately investigate consumers’ disputes:  If a consumer disputed their debt more than 45 days after Encore started collecting, Encore would require the consumer to produce specific documents or other “proof” to support their dispute or it would not conduct the legally-required investigation of the issues raised by the consumer.
    • Encore farmed out disputed debts to law firms without forwarding required information: In numerous instances, Encore assigned disputed debt to law firms and third-party debt collectors without informing them that the debt was disputed. As a result, law firms evaluating Encore accounts for litigation did not know which accounts were disputed.
    • Encore made harassing collection calls to consumers: Encore called consumers repeatedly or continuously with the intent to annoy, abuse, or harass them into paying. Encore’s subsidiary, Asset Acceptance, made thousands of calls to consumers before 8 a.m. or after 9 p.m. and called hundreds of consumers more than 20 times in a two-day period.
    • Portfolio Recovery Associates misled consumers into consenting to receive auto-dialed cell phone calls: For approximately a year, and ending in August 2013, Portfolio Recovery Associates told consumers that they could only prevent collection calls to their cell phones before 9 a.m. if they consented to receive calls on their cell phones from a dialer. The company penalized representatives who failed to adhere to this policy.

    Enforcement Action

    Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws. Under the terms of the CFPB orders released today, Encore and Portfolio Recovery Associates are required to:

    Stop reselling debts: The companies are prohibited from reselling the debts they buy to other debt collectors. This will protect consumers from the potential harm that results when debt collectors continue to sell and resell debts that may be inaccurate or lack the business records and information needed to collect them.

    Refund millions of dollars to consumers:

    Encore must pay up to $42 million in refunds: The company must provide refunds where it collected payments by misrepresenting that it could sue on a time-barred debt or by misrepresenting in court that a debt was assumed valid because the consumer did not previously dispute it.

    Portfolio Recovery Associates must pay $19 million in refunds: The company must provide refunds where it collected payments by misrepresenting that an attorney had reviewed a debt or that collectors were calling on behalf of attorneys, and where it collected payments on judgments that it should not have obtained because they were barred by the statute of limitations from suing to collect the debt.
    Cease collections on millions of dollars of debt:

    Encore must stop collecting on $125 million of debt:  The company must release or move to vacate all judgments and dismiss all lawsuits where it misrepresented that a debt was assumed valid, and stop any attempts to enforce or collect on these judgments. The face value of this debt is estimated at over $125 million.

    Portfolio Recovery Associates must stop collecting on $3 million of debt: The company must release or move to vacate all judgments and dismiss all pending lawsuits it filed past the statute of limitations and stop any attempts to enforce or collect on those judgments, estimated to have a face value of $3.4 million.

    Stop collecting debts they can’t verify: Encore and Portfolio Recovery Associates can’t collect unsubstantiated debt. Under the order, they must review original account-level documents verifying a debt before collecting on it when, for example, a consumer has disputed it, the seller didn’t promise it was accurate or valid, or the debt was part of a portfolio they knew included unsupportable or inaccurate information.

    Ensure accuracy when filing lawsuits: The companies cannot file lawsuits to enforce debts unless they have specific documents and information showing the debt is accurate and enforceable.

    Provide consumers information before filing suit: Encore and Portfolio Recovery Associates must provide consumers with information about a debt, such as the name of the creditor and charge-off balance, and offer to provide consumers with original documents relating to the account before they are allowed to file a lawsuit or threaten to file suit to collect the debt.

    Use accurate affidavits: The companies cannot use affidavits to collect debts unless the statements contained in the affidavits specifically and accurately describe the signer’s knowledge of the facts and the documents attached.

    Reform collection of older debts: Encore and Portfolio Recovery Associates are prohibited from suing or threatening to sue to collect on time-barred debt. They also cannot collect on such debt unless they disclose to consumers that they can’t sue to collect it.

    Pay civil money penalties:

    • Encore must pay a penalty of $10 million to the CFPB’s Civil Penalty Fund.
    • Portfolio Recovery Associates must pay a penalty of $8 million to the CFPB’s Civil Penalty Fund.

    First Financial Investment

    Monday, September 7th, 2015

    Please contact us if First Financial Investment Fund is attempting to collect an old Illinois medical bill from you.

    Sherman Financial Group

    Saturday, August 29th, 2015

    Please contact us if any of the following companies has accessed your credit report:

    Credit One Bank

    Granite Bay Acceptance

    All are associated with debt buyer Sherman Financial Group.

    US Court of Appeals for the Third Circuit Upholds FTC’s Authority to Regulate Cybersecurity in FTC v. Wyndham Worldwide Corp.

    Wednesday, August 26th, 2015

    Last Updated: August 25 2015

    On August 24, 2015, the US Court of Appeals for the Third Circuit released its opinion in the closely watched case of Federal Trade Commission v. Wyndham Worldwide Corp., holding that the Federal Trade Commission (FTC) has the authority under the “unfairness” provision of Section 5 of the FTC Act to assert claims against Wyndham for failure to implement certain cybersecurity safeguards that allegedly resulted in three data breaches over several years.

    In 2012, the FTC accused Wyndham Hotels of failing to use reasonable efforts to protect consumer information after hackers broke into Wyndham’s corporate computer systems and stole credit card numbers. The FTC brought an enforcement action in federal court in New Jersey, asserting (among other things) that Wyndham’s allegedly inadequate cybersecurity was “unfair” in violation of the FTC Act.

    Wyndham moved to dismiss the complaint on various grounds, including that the FTC lacked authority to regulate cybersecurity through the FTC Act’s “unfairness” prohibition. It also argued that the FTC had not provided notice of the cybersecurity standards it purported to enforce. Although denying the motion to dismiss, the district court certified (and the Third Circuit accepted) two questions for interlocutory review: (1) whether the FTC has the authority under Section 5 of the FTC Act to pursue an unfairness claim for allegedly inadequate cybersecurity; and (2) whether Wyndham had fair notice that its specific cybersecurity practices could be declared “unfair” under the Act.

    The Third Circuit first considered Wyndham’s argument that the FTC had failed to plead “unfair” practices within the plain meaning of that term. Relying on the specific allegations made by the FTC, the Court rejected Wyndham’s arguments, concluding in part that the FTC’s allegations would meet even the standards Wyndham had proposed for interpreting the term “unfair.”

    Next, the Court of Appeals considered Wyndham’s argument that the FTC Act should not be construed to permit regulation of cybersecurity given Congress’ more recent passage of industry-specific statutes mandating the creation of data security requirements (such as the Gramm-Leach-Bliley Act, Fair Credit Reporting Act, and the like).  The court concluded that this later legislation did not conflict with the FTC Act, nor was the enactment of those statutes “inexplicable” in light of the FTC’s asserted authority under the FTC Act. In addition, the court concluded that the FTC’s push for additional statutory authority to regulate cybersecurity did not imply that it lacked the authority it asserted in this case.

    Finally, the Third Circuit considered Wyndham’s argument that it lacked notice of what specific cybersecurity practices were necessary to avoid liability.  The court concluded that, because the court was interpreting the FTC Act itself in the first instance rather than the FTC’s own interpretation of the Act or a regulation implementing the Act, Wyndham was entitled only to “fair notice of what the statute itself requires,” not “ascertainable certainty” of “the FTC’s interpretation of the statute.” The Court of Appeals found the former standard satisfied here, in large part based upon a comparison of the types of cybersecurity claims that the FTC had brought against other defendants in earlier cases to the types of claims the FTC is asserting against Wyndham.

    The Third Circuit’s opinion is likely to herald further FTC enforcement actions brought under the FTC Act’s “unfairness” provision. Likewise, the decision is likely to prompt further discussions in Congress of the use of FTC enforcement actions to set national cybersecurity policy in the absence of more specific Congressional direction. Businesses that hold consumers’ personally identifiable information consequently should continue to monitor FTC activity in this area as they consider their cybersecurity practices and policies in the face of substantial cyber threats.

    NCSLT — National Collegiate Student Loan Trusts (update)

    Wednesday, August 26th, 2015

    Please contact us if one of the National Collegiate Student Loan Trusts (“NCT”) is trying to collect a loan from you in Illinois, whether by lawsuit or dunning you.

    The servicer of the NCT loans, Transworld Systems, Inc. (formerly NCO Financial Services), is under federal investigation for its handling of these loans.

    About 125 lawsuits per month are filed to collect NCT loans in Cook County alone, with more in other counties.

    Important information:

    1.     Under no circumstances should you allow NCT to get a judgment against you by failing to respond to a summons and complaint.  NCT has obtained hundreds of judgments against people who did not bother to defend themselves even though they had valid defenses.  If you fail to respond, they can get a default judgment against you and then garnish your non-exempt wages, seize your non-exempt assets and put liens on your real property.

    2.     Do not agree to a judgment with an agreement that you will pay a small sum per month for six months or so.  NCT tries to get people to agree to this.  If  you do this you have waived your right to dispute the debt and at the end of that period the judgment  can be enforced against your nonexempt assets and up to 15% of your wages.   Judgments are enforceable for 20-27 years in Illinois, and bear interest at 9%.  Some of these agreements don’t even pay the interest on the judgment.  Any agreement should completely resolve the debt, with a substantial discount.

    3.     Don’t make the mistake of calling NCT or its attorneys or debt collectors before speaking to an attorney.  We will review your documents and facts and consult with you without charge, and advise you whether we will take your case and what our fees will be.

    4.     We believe that most NCT cases have serious problems with them, for a number  of reasons.   First, we believe that virtually all of the lawsuits filed on these loans violate Illinois law.  Second, NCT sometimes cannot prove that it has the right to collect on the student loan debt at issue. Sometimes it cannot prove  the amount due.  Some suits appear to be filed beyond the statute of limitations.  Finally, we believe that many or all of the obligations of cosigners under these loans may not be enforceable.

    As noted above, NCT loans are actually serviced by Transworld/ NCO Financial, an organization which has a long history of consent orders and government investigations and is currently under investigation by the Consumer Financial Protection Bureau; this casts doubt on the accuracy of any records it produces.

    We have lots of experience defending NCT cases, and have also brought a number of affirmative claims challenging NCT’s  collection practices.  If you are currently being sued by NCT, or anticipate a lawsuit in the near future, please call us immediately.

    Navient (Sallie Mae spinoff of student loan business) under federal investigation

    Wednesday, August 26th, 2015

    Disclosure in Navient’s SEC filings:

    On August 19, 2015, Navient Solutions, Inc. (“NSI”), a wholly-owned subsidiary of Navient Corporation (the “Company,” “we” or “us”), received a letter from the CFPB notifying NSI that, in accordance with the CFPB’s discretionary Notice and Opportunity to Respond and Advise (“NORA”) process, the CFPB’s Office of Enforcement is considering recommending that the CFPB take legal action against NSI. The NORA letter relates to a previously disclosed investigation into NSI’s disclosures and assessment of late fees and other matters and states that, in connection with any action, the CFPB may seek restitution, civil monetary penalties and corrective action against NSI.

    The purpose of a NORA Letter is to ensure that a party being investigated by the CFPB has the opportunity to present its positions to the CFPB before an enforcement action is recommended or commenced, in the form of a written statement setting forth any reasons of law or policy why the party believes the CFPB should not take legal action against it. NSI continues to believe that its acts and practices relating to student loans are lawful and meet industry standards and, where applicable, the statutory or contractual requirements of NSI’s other regulators. As such, NSI intends to make a NORA submission to the CFPB.

    The Company is committed to resolving any potential concerns. However, it is currently unable to predict the timing or outcome of the NORA process. The Company cannot provide any assurance that the CFPB will not ultimately take legal action against NSI or that the outcome of any such action, if brought, will not have a material adverse effect on the Company. It is also not possible at this time to estimate a range of potential exposure, if any, for amounts that may be payable in connection with these matters and, as a result, reserves have not been established.

    Mortgage company door hangers

    Monday, August 24th, 2015

    Please contact us if a mortgage company has left door hangers on your home.

    Student loan debt: America’s next big crisis

    Monday, August 24th, 2015

    The Federal Reserve Bank of New York released its latest Report on Household Debt and Credit Developments, and the news isn’t good for student-borrowers.

    As of the second calendar quarter ending June 30, seriously delinquent student loans (which the FRBNY describes as those whose payments are 90 or more days past due), increased to 11.5% of the $1.19 trillion dollars’ worth of education loans, versus 11.1% in the first quarter.

    Before you dismiss four-tenths of one percent as decimal dust, consider this: Although student loans make up only 10% of all consumer debt, the amount of seriously past due student loan payments total nearly one-third of all seriously past-due debt payments. What’s more, of the total $1.19 trillion in outstanding education-related loans, only about half that amount is actually in repayment at this time (the balance is deferred because the borrowers are still in school).

    So instead of 11.5% being seriously delinquent, it’s actually twice that amount: 23%.

    Not only that but the FRBNY’s numbers don’t include problems in the making — loans with payments that are currently between 30 and 90 days late. Nor does it take into account the value of the contracts that are in forbearance or those that have already been accommodated in some other way.

    All of this taken into consideration, no one should be surprised if way more than 23% the student loans that are in repayment are indeed “troubled,” which is precisely what is so terribly frustrating about the current news cycle.

    Just about every presidential candidate has a “plan” to help students finance higher education. We hear talk of a future filled with free-tuition schemes, venture-capitalized student financing and consumer-driven models (whatever that means) that incorporate online learning.

    Years ago, my corporate colleagues and I referred to this type of hype as vaporware: sounds great, promises to do a lot, not yet available, but coming really, really soon . . . honest.

    I say that because no presidential hopeful has articulated a plan that candidly acknowledges the enormous scope of this problem and deals with it in a constructively comprehensive manner other than for some hand-wringing about interest rates: how they’re too high and need to be reduced so borrowers can catch a break by refinancing their debts at lower rates.

    Vaporware. And not just because the political will to reduce student-loan rates is probably nonexistent, when you consider our ideologically divided government. Lawmakers would also have to find a way to replace the revenues that will be lost when a government program that generates $50 billion in annual profits is transformed into one that merely breaks even.

    Yet when many borrowers are so obviously unable to meet their payment obligations, it’s clear that the loans were not properly structured in the first place; a mistake so profound that simply cutting interest rates will not suffice.

    The only way to deal with a loan portfolio that is as distressed as this is to restructure it en masse: extend the duration of all loans in tandem with modifying the rate of interest so that the installments become affordable.

    This is neither amnesty nor welfare. It’s common sense. In fact, lenders do that all the time because, as the saying goes, a rolling loan gathers no loss.

    When so many student borrowers are falling further and further behind in their payments, postponing purchases of cars and houses, putting off marriages and having children, they are sending an unmistakable message.

    Why are we not listening?

    Data Brokers Charged in $7M Payday Loan Scam

    Wednesday, August 12th, 2015

    AUG 12, 2015 12:15pm ET
    From Collections and Credit News (industry publication)
    The Federal Trade Commission charged a data broker operation on Wednesday with illegally selling payday loan applicants’ financial information to a scam operation that took millions of dollars from consumers by debiting their bank accounts and charging their credit cards without their consent.

    The data broker enterprise bought loan applications from the operators of payday loan websites and got others directly from consumers via their own payday loan websites, according to the FTC.

    The defendants are: Sequoia One LLC, Gen X Marketing Group LLC, Jason A. Kotzker, Theresa D. Bartholomew, John E. Bartholomew, Jr. and Paul T. McDonnell.

    Instead of passing on the loan applications to legitimate payday lenders, the defendants sold the information to companies such as Ideal Financial Solutions Inc., which purchased the financial account information for more than 500,000 consumers from the defendants and allegedly raided their accounts for at least $7.1 million. As a result, some consumers had to close their accounts or were charged fees for insufficient funds.

    “Scammers used consumer information they bought from this operation to make millions in unauthorized charges,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “Companies that collect people’s sensitive information and give it to scammers can expect to hear from the FTC.”

    The defendants often sold payday loan applications to Ideal Financial for about 50 cents each, while legitimate lenders pay up to $100 or more. The complaint alleges they did this knowing that Ideal Financial was making unauthorized bank account debits and credit card charges.

    In fact, according to the complaint, the defendants helped hide Ideal Financial’s fraud by using fine-print disclosures on their websites as well as other misleading tactics to avoid alerting banks to the fraudulent activity.

    Three of the defendants – McDonnell and the Bartholomews – agreed to settle the FTC charges. Under proposed settlement orders, they are prohibited from selling or otherwise benefitting from customers’ personal information.

    The order against the Bartholomews imposes a $7.1 million judgment that will be suspended upon  payment of $15,000. The order against McDonnell imposes a judgment of more than $3.7 million, which will be suspended because of his inability to pay. The full judgments will become due immediately if these defendants are found to have misrepresented their financial condition.

    Litigation against the other defendants continues.