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.
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 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.
For federal student loans, there are a number of repayment options, depending upon the type of student loan (there are at least a dozen varieties) and who borrowed the money (the student or the parent). Multiple loans can be consolidated into one, but the process cannot be reversed and has pros and cons.
A good starting point for learning more is the U.S. Department of Education’s student aid website, studentaid.ed.gov. 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 consumerfinance.gov and reputable private websites such as finaid.org 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.
You’re going to the slammer. The hoosegow. The pokey.
Or, that’s what scammers want you to believe.
In a new take on an old scam, con artists have been impersonating officials from the state Attorney General’s office, mailing phony “arrest warrants” in a ploy to steal money from unsuspecting victims.
In this scheme, which will be announced later today by the Attorney General’s office, swindlers use the mail to send an official-looking notice.
It starts with a mock-up logo from the United States District Court. The letter tells the recipient that he’s been charged with criminal violations including “collateral check fraud” and “theft by deception,” which could lead to “a maximum sentence of 3 years in prison and a fine of up to $24,000.”
But of course, there’s a way out.
Cash. Moolah. Simoleons. Or smackers or cabbage or clams. Take your pick.
Would-be victims are told they can call a phone number with a 609 area code to arrange payment of an outstanding balance of $1,876.48.
The Division of Consumer Affairs said the phone number is answered by perpetrators of the scam.
“This attempt to defraud people by appropriating the identity of our office is criminal, unconscionable, and deeply offensive,” acting Attorney General John Hoffman said.
This scam takes to another level one reported last month, when the state warned consumers of a similar fraud. Imposters, via telephone, falsely claimed to represent the Attorney General’s office and told unsuspecting victims to immediately pay a non-existent debt.
Ironically, the recent letters include a page of details about the Fair Debt Collection Practices Act (FDCPA). PROTECTING YOURSELF
If you receive any kind of threat that’s supposedly from a government agency, whether online, by phone or by snail mail, get your guard up.
Never send money or offer your personal information to anyone on the phone or through the mail, and don’t click on any links or attachments unless you’re sure of the sender’s identity.
“Our message to New Jerseyans is very simple: Any time you receive a letter, email, or phone call that demands your money in the name of a government agency, do not engage with the person who contacted you,” Hoffman said.
Instead, he recommends you independently verify the contact information by looking online or in the phone book to find a legitimate phone number for the agency that supposedly reached out to you. Next, call the agency directly to ask if the communication you received was valid.
Don’t let yourself be intimidated.
“Con artists are adept at manipulating people. Don’t let yourself be manipulated, and don’t let yourself become a victim,” said Steve Lee, acting director of Consumer Affairs. “Never respond immediately to anyone who demands your money or asks for your personal information. Stop, think, and verify the story you are being told.”
Scammers will use scare tactics to try to push you to move fast, whether it’s regarding an arrest threat or a high-powered but false sales pitch.
Consumer Affairs said if the communication says “you must act right away,” take a step back and don’t rush into anything. And if the communication tells you to stay quiet or not share the news with anyone, be even more suspicious.
“These criminals know that know consumers are much more likely to become victims if their emotions are higher – and if they are prevented from discussing the scam with a friend or relative,” the state said.
Rather than become a victim, arm yourself and your loved ones with information about these and other scams.
Check in with Consumer Affairs to see its public events calendar so you can learn more about its “Fighting Fraud” initiative to educate seniors and other New Jerseyans about scams.
You can read more about protecting yourself from fraud with the division’s FedUp Handbook, and you can educate yourself about identity theft and online crimes with the Cyber Safe NJ initiative.
If you receive a communication like this scam letter, or if you suspect any kind of scam, file a complaint with Consumer Affairs online or call 1-800-242-5846 (toll-free in New Jersey) or 973-504-6200.
PS: we have seen these from other supposed law enforcement officials besides NJ
Posted: May 13, 2015 1:13 PM CDT
By Jeremy Culver, Multimedia JournalistCONNECT
Over one-third of Americans have never looked at their credit report according to a new study from Bankrate.com.
Over one-third of Americans have never looked at their credit report according to a new study from Bankrate.com.
QUINCY, Ill. (WGEM) – More than one-third of Americans have never looked at their credit report according to a new study from Bankrate.com. With the recent rise in scams and data breaches in the last year, local credit specialists say this is alarming.
Michael Hitt, president of CBQ services, says to hear the report was disappointing.
The main reason is because checking your credit report is free. In 2003, the Fair Credit Reporting Act allowed residents to receive, upon request, a free annual credit report from the three major credit bureaus.
Hitt says the website www.annualcreditreport.com was created around 2005, making it easier for residents to access. Hitt says you need to check these reports periodically to make sure all of it is accurate.
“It also can be a tell-tale sign, if maybe you’ve become a victim of some kind of fraud or identity theft,” Hitt said. “If there’s information on there you don’t recognize or you think needs to be updated, changed or corrected, most of that is done for you by the bureaus at no charge.”
Hitt says to remember the reports indicate how well you pay bills and can be reported incorrectly. So check for that information to be corrected in case of an error.
Hitt says if you are in an emergency, like you think you are a victim of identity theft, get all three reports at once. If you aren’t, Hitt says split them up. Get one every four months. The law states it’s per calendar year.
The number of U.S. data breaches tracked in 2014 hit a record high of 783 in 2014, according to a recent report released by the Identity Theft Resource Center.
One idea that consumer experts suggest is temporarily freezing your credit, however it may not be best for everyone.
Hitt says doing this works perfectly for those who have all their basis covered or for those not actively searching for new credit. However for others it may backfire.
Hitt says some credit card and insurance companies look at your credit report when it comes time to renew services every few years and you could lose those. Hitt says there are other ways you can protect yourself.
“A lot of credit card companies and bankers may allow you to freeze your individual account online,” Hitt said. “Which would be, I think, a much better option than freezing the entire credit report.”
Residents who want to freeze their credit report without being a victim must pay a small fee to the bureau company, typically $3 to $10 per person per bureau.
If you are a victim of identity theft, you won’t necessarily lose money. Hitt says nearly 99 percent of the cases he’s dealt with identity theft victims do not lose any money. He says it’s mainly the time that’s involved in getting things resolved and repairing their credit.
There are three big things residents should do to be a smart consumer.
Plan ahead. Hitt says start thinking your information will be taken at some point
If you can, do business locally. If you are planning it will be taken at some point, think of who you will be talking to if something happens. Hitt says would you rather talk to someone in person or call a phone number to talk with a representative.
Use a credit card over using a debit card. The reason why is most credit cards give you a year or longer to make a dispute if there’s a charge you didn’t make versus most debit cards only allow you a month or so.
Prepared Remarks of Richard Cordray
Director of the Consumer Financial Protection Bureau
Field Hearing on Student Loans
May 14, 2015
Thank you all for joining us today in Milwaukee. Plato once said, “The direction in which education starts a man will determine his future life.” More Americans are heeding that advice and going to college at record rates – including both women and men, I might add, unlike in Plato’s day. At the same time, the high price of college has created pressure and anxiety for students and families across the country.
Today the Consumer Financial Protection Bureau is here in Wisconsin to focus on how tens of millions of Americans are affected by their student debt load, which in the aggregate now tops $1.2 trillion. Wisconsin alone has about 812,000 federal student loan borrowers who owe $18.2 billion. This does not even include the expensive private student loans that many Wisconsin students most likely took out to get through school. This is a significant burden now being carried by many of our best and brightest.
Student loans are now the largest source of consumer debt outside of mortgages. Two-thirds of graduates are finishing their bachelor’s degrees with debt that averages nearly $30,000. Among the most careful observers of economic data, there is a growing consensus that a strain of this magnitude can have repercussions that threaten the economic security of young Americans and economic growth for all Americans. Significant debt can have a domino effect on the major choices people make in their lives: whether to take a particular job, whether to move, whether to buy a home, even whether to get married.
Two years ago, we issued a public notice and held a hearing to gather input on the student debt domino effect. We received more than 28,000 responses. The responses identified areas of concern, including an overwhelming feeling by many borrowers that the process of paying back their loans creates harms of its own and should be improved. They said the frustrations and difficulties of understanding when, where, and how to pay back student debt are stressful and counter-productive. Today we are going to be focusing on these issues.
Borrowers who finance a home, a car, or an education often find that a company they never heard of acts as their loan servicer, with the responsibility to collect and allocate the loan payments. For young people finishing college, student loan servicers will be their primary point of contact on their outstanding loans. These companies are responsible for collecting payments and sending the payments to the loan holders. Borrowers rely on them to process payments accurately, to provide billing information, and to answer questions about their accounts, including ways to help prevent default. The servicer is often different from the lender. This means consumers often have no control or choice over the company they are dealing with to manage their loans.
As a growing share of student loan borrowers reach out to their servicers for help, the problems they encounter bear an uncanny resemblance to the situation where struggling homeowners reached out to their mortgage servicers before, during, and after the financial crisis. Having seen the improper and unnecessary foreclosures experienced by many homeowners, the Consumer Bureau is concerned that inadequate servicing is also contributing to America’s growing student loan default problem. At this point, about 8 million Americans are in default on more than $100 billion in outstanding student loan balances.
Today we are launching a public inquiry into student loan servicing practices. The inquiry seeks information on the hurdles that make repayment a stressful process and even at times a harmful one. For many young people, repaying a student loan is one of their first experiences in the financial marketplace. Starting off their financial lives with such a big debt load can feel overwhelming, and it can become all the more stressful when things do not go right. Defaulting on a student loan can be devastating, making it harder for a young person to gain a firm financial footing. The resulting pressures can make student loan borrowers feel like they are walking a tightrope where any false move can cause them to fall.
The Request for Information that the Consumer Bureau is issuing today is meant to find ways to put the “service” back into the student loan servicing market and help people avoid unnecessary defaults. We are encouraging student borrowers to share their experiences by visiting ConsumerFinance.gov. To spread word of this initiative online, use the hashtag #StudentDebtStress.
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. 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. For example, some former students have told us they find it takes a few days for servicers to process their payments, which can cause them to have to pay additional interest. We have also heard from borrowers who complain about inconsistency, noting that they often get widely different information, protections, and rights depending on what type of loan they have.
When borrowers do seek any sort of help, the range and severity of their problems can quickly snowball. They have told us about lost paperwork, unanswered inquiries, and no clear path to get answers. They also find that when errors are made, they may not be fixed very quickly. They may encounter limited access to basic account information, including their payment history over the years. One borrower told us, for example, that she made her payment on-time and in-full each month through an automatic payment system established by the lender but still faced problems with unexpected fees. Once again, these kinds of problems are not new to loan servicing in general, and in particular they have happened repeatedly in the mortgage servicing market over the past decade.
The stress can get even worse when loans change hands from one servicer to another. Transfers are very common in this market, and the consumer has no control over it. Between 2010 and 2013, more than 10 million student loan borrowers had their loans move from one servicer to another for various reasons other than consumer preference. One person told us that after seven years her account was switched to another company. Suddenly, she stopped receiving paper statements and since then has had to call the new servicer each month to confirm her payment amount.
These loan transfers can produce real headaches and confusion for consumers. Some borrowers have complained that they are charged late fees because they mailed their payments to their old servicers without being aware that this was now an error. Other types of problems can arise as well. We heard from one person who said he made full payments each month for six years. But when he informed the new company handling his loan that he wished to enroll in an alternative payment plan that had been available from his original servicer, he was told that was no longer an option.
In today’s Request for Information, we are seeking greater understanding of industry practices and the underlying market forces that are causing various pain points for borrowers.
The inquiry seeks to determine if the student loan servicing industry is doing things that make repayment more complicated and more costly for consumers. We are interested to know whether payments are applied in ways that maximize fees or lengthen the amount of time for repayment. And we also want to know whether servicers are forwarding enough information to the new company when the rights to a loan are sold.
We also intend to get a deeper understanding of whether there are in fact, as some would claim, economic incentives for inadequate service. Because student loan borrowers generally do not get to choose the company that handles their loans, ordinary market forces will not guarantee reasonable customer care. The model used in most third-party student loan servicing contracts provides companies with a flat monthly fee for each account. This fee is generally fixed and does not rise or fall depending on the level of attention that a particular borrower requires in a given month. This means that student loan servicers often make more money when they spend as little time as possible on each account, and they typically get paid more when a borrower is in repayment longer. So we are evaluating whether the typical methods of servicer compensation can jeopardize the interests of borrowers. We especially want to know if there are adequate economic incentives to take the time to enroll people in flexible repayment options or to help them avoid default.
We also are interested in seeing what we can learn from protections offered in other consumer credit markets. Protections offered to consumers with credit cards and mortgages might help improve the quality of student loan servicing as well. In recent years, policymakers have adopted broad-based changes to strengthen federal consumer financial laws so that they better protect consumers with mortgages and credit cards. But there is currently no comprehensive statutory or regulatory framework that provides uniform standards for the servicing of all student loans.
This means servicers in other markets are subject to more precise rules that include customer service standards, limits on certain fees, written acknowledgement of disputes, and protections when loans are sold. In some cases, servicers are required to explain the options that are available to distressed borrowers. For example, a mortgage servicer must consider all foreclosure alternatives available and cannot steer homeowners to those options that are most financially favorable to the servicer.
And so we are deeply interested to learn more about whether recent reforms in the credit card and mortgage servicing markets might help improve performance in the student loan servicing market. After all, loan servicing generally includes many common functions, irrespective of the underlying consumer financial product, such as account maintenance, billing and payment processing, customer service, and managing accounts for customers experiencing financial distress.
Some of these comparisons may be quite specific. For example, credit card users have had certain protections under the CARD Act since 2009. Consumers get timely posting of their payments and periodic billing statements at least 21 days before payment is due. If a consumer has multiple balances at multiple interest rates, any extra payments generally must be allocated to balances with the highest interest rate, so borrowers can get out of debt as quickly as possible. We are seeking information on whether applying these same approaches might benefit student loan borrowers as well.
In the same vein, the Bureau is seeking information on whether the reforms we recently made to the mortgage servicing market might also benefit student loan borrowers. Reforms related to payment handling, loan transfers, error resolution, interest rate adjustment notifications, loan counseling, and treatment of distressed borrowers are all now in place to improve the functioning of the mortgage servicing market. We are analyzing whether these protections should inform policymakers and market participants when considering improvements in student loan servicing.
Furthermore, the lack of transparency of the student loan market remains deeply problematic. Both the financial regulators and the public lack access to basic, fundamental data on student loan origination and performance. Without this information, we will be challenged to understand the complete set of risks posed by student debt burdens. Today’s Request for Information asks whether more can be done on this issue and what, in fact, should be done.
At the Consumer Bureau, our mission is to provide evenhanded oversight of industry while promoting fair and transparent markets. For this reason, we finalized a rule that will allow us to supervise larger nonbank student loan servicers, thereby closing a significant gap in oversight for compliance with federal consumer financial laws. So the landscape is already changing.
We are also grateful to our partners at the Departments of Education and Treasury and among the state attorneys general for their work to protect student loan borrowers. As our country pursues a vigorous debate about higher education policy, it is imperative that we keep in mind the very real challenges of those who have already accrued substantial student loan debt. We must do more on their behalf. Student loans play a pivotal role in young people’s lives as they seek to establish their creditworthiness and eventually finance their first major purchases. And with more than 40 million Americans now carrying substantial student debt loads, it is simply unacceptable to leave them without robust consumer protections and a well-functioning servicer market.
Abigail Adams once said, “Learning is not attained by chance, it must be sought for with ardor and diligence.” In today’s world, her statement applies not only to how we should seek to educate ourselves, but also to how we should seek to provide financing that makes educational opportunity possible. The rights of consumers to be treated fairly and according to the law must likewise be pursued with ardor and diligence. Thank you.
CONSUMER FINANCIAL PROTECTION BUREAU LAUNCHES PUBLIC INQUIRY INTO STUDENT LOAN SERVICING PRACTICES Bureau Seeks Information On Industry Practices That Can Create Student Debt Stress
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) is launching 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 CFPB is also re-launching an enhanced version of its Repay Student Debt online tool to help borrowers figure out their options for affordable repayment.
“Student debt stress can make borrowers feel like they are walking a tightrope where any false move in paying back a loan can cause them to fall,” said CFPB Director Richard Cordray. “Today’s inquiry seeks information on the pain points in student loan servicing that make repayment a more difficult and stressful process.”
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. The market is now facing an increasing number of borrowers who are struggling to stay current on their loans.
Servicers are a critical link between the borrowers and the lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers must contact student loan servicers to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms. A servicer is often different than the lender, and a borrower typically has no control over which company services a loan.
The CFPB has heard from borrowers through its complaint handling, its Tell Your Story function, and from staff travelling across the country. The CFPB has observed that many borrowers are experiencing significant student debt stress. Consumers have complained about billing problems associated with payment posting, prepayments, and partial payments. For example, borrowers report that payments may be processed in ways that make repaying student loans even more expensive. Other consumers have complained about lost records, slow response times to fixing errors, and a general lack of customer service. Often, consumers who have their loan transferred from one servicer to another report experiencing interruptions when receiving notices, billing statements, or other routine communications.
The CFPB has also heard from distressed borrowers that student loan servicers may have difficulty helping them avoid defaults and delinquencies. Repayment roadblocks can exacerbate problems. Distressed borrowers complain that they are given the runaround when they ask for help, they have a hard time getting straight answers from servicing staff, and that the staff are untrained or unequipped to deal with their problems.
For many young consumers, repaying a student loan is their first experience in the financial services marketplace. Student loans play a pivotal role as they seek to establish their creditworthiness and, eventually, finance their first major purchases. This potential impact on millions of Americans lives only heightens the student debt stress borrowers face.
In light of these concerns, the CFPB is seeking input on ways to ensure borrowers receive quality student loan servicing. The public inquiry focuses on the following:
Industry practices that create repayment challenges: The CFPB’s inquiry seeks information about specific practices that could potentially create problems as consumers repay their loans. The inquiry seeks information on whether consumers are harmed by billing error dispute processes, whether payments are applied in a way that maximizes fees or increases the amount of interest paid, and if the borrower receives enough information when a loan is transferred between servicers.
Hurdles for distressed borrowers: The CFPB estimates that there are nearly 8 million borrowers in default, representing more than $110 billion in balances. Today’s public inquiry requests information on whether servicers’ policies and procedures are resulting in struggling borrowers paying more fees or prolonging repayment. It seeks information on whether these policies and procedures are driving borrowers to default on their loan.
Economic incentives affecting the quality of service: The CFPB is seeking information on whether the typical ways that servicers are paid may indirectly lead to borrower harm. The model used in most third-party servicing contracts provides student loan servicers with a flat monthly fee per account serviced. This fee is generally fixed and does not rise or fall depending on the level of service a particular borrower requires in a given month. The CFPB’s inquiry seeks information on whether student loan servicers have adequate economic incentives to take the time to enroll borrowers in flexible repayment options or help them avoid default.
Application of consumer protections in other markets: For student loan borrowers, there are no comprehensive federal regulations to ensure standards for the servicing of their loans. The CFPB is analyzing whether there are protections in other consumer credit markets – such as credit cards or mortgages – that could inform policymakers and market participants when considering options to improve the quality of student loan servicing. For example, servicers in some other markets are subject to more stringent rules that include early intervention for delinquent borrowers, protections when loans are sold, written acknowledgement of disputes, and limits on certain fees. A recent Presidential Memorandum requested that the Department of Education consider, in consultation with the CFPB and the Department of the Treasury, whether these other markets should inform potential student loan servicing standards.
Availability of information about the student loan market: The CFPB is looking at whether a general lack of transparency in the market may be contributing to consumer harm. The Bureau is seeking information on whether there is adequate information available about how the market is functioning to determine whether servicers are providing help to those repaying their loans and those struggling to avoid default.
The CFPB oversees the student loan servicing industry for compliance with federal consumer financial protection laws. The Bureau currently supervises student loan servicing at the largest banks and nonbank student loan servicers that handle more than one million borrower accounts, regardless of whether they service federal or private loans. This represents most of the activity in the student loan servicing market.
The CFPB is working with the Department of Education and the Department of the Treasury to identify initiatives to strengthen student loan servicing. Members of the public are encouraged to submit comments. The submissions to this request for information may serve to assist federal and state regulatory and enforcement agencies in prioritizing resources. The public comments will also be used to inform a report required by the recent Presidential Memorandum. The deadline for submitting comments is July 13, 2015.
Repay Student Debt 2.0 Today, the CFPB has re-launched its Repay Student Debt web tool. This interactive resource offers a step-by-step guide to navigate borrowers through their repayment options, especially when facing default. The new version of this tool provides student loan borrowers with sample instructions to send to their student loan servicer to protect themselves against payment processing problems and auto-defaults. It also has information about how to request a lower monthly payment when experiencing financial distress. Student loan borrowers experiencing problems related to repaying student loans or debt collection can also submit a complaint to the CFPB.
Consumers Paid $49 Million in Fees for Deceptive Mortgage Payment Program
WASHINGTON, D.C. —(ENEWSPF)—May 11, 2015. Today the Consumer Financial Protection Bureau (CFPB) filed a lawsuit in federal district court against Nationwide Biweekly Administration, Inc., Loan Payment Administration LLC, and the companies’ owner, Daniel Lipsky, alleging that Nationwide misrepresents the interest savings consumers will achieve through a biweekly mortgage payment program and misleads consumers about the cost of the program. The CFPB is seeking compensation for harmed consumers, a civil penalty, and an injunction against the companies and their owner.
“These companies and their owner, Daniel Lipsky, took advantage of consumers with false promises of savings on their mortgage,” said CFPB Director Richard Cordray. “Homeowners deserve accurate information in the financial marketplace. Today we are taking action to end these illegal and deceptive practices, and to hold these companies accountable for their actions.”
Nationwide Biweekly Administration is an Ohio-based company that transmits funds from consumers to their mortgage servicers. Loan Payment Administration LLC is a wholly owned subsidiary of Nationwide. Daniel Lipsky is the founder, president, and sole owner of Nationwide, and has managerial responsibility for both companies.
Nationwide offers a product for mortgage borrowers that it calls the “Interest Minimizer.” Most consumers who enroll in the Interest Minimizer program send Nationwide half their monthly mortgage payment every two weeks, effectively making one additional monthly payment per year. Nationwide charges consumers a setup fee of up to $995 to enroll in the program and charges consumers between $84 and $101 in payment processing fees each year they remain enrolled.
Nationwide advertises the “Interest Minimizer” program online and via direct mail, and in 2014 aired an infomercial on Lifetime television. Many of the company’s marketing materials promise that consumers who enroll will save money, with language such as “Am I guaranteed to save money? Yes!” Other documents contained statements like “soon you will be . . . saving thousands of dollars in unnecessary payments.”
The CFPB’s complaint alleges that the defendants made misrepresentations about Nationwide’s mortgage payment program to consumers, and collected approximately $49 million in setup fees between 2011 and 2014. Consumers enrolled after being promised substantial and immediate savings on their mortgages. However, the Bureau alleges the defendants know that consumers will pay more in fees than they save in interest for the first several years in the program, and that many consumers will leave the program without saving any money at all. The CFPB alleges these practices violate the Telemarketing Sales Rule and the Consumer Financial Protection Act’s prohibition against unfair, deceptive or abusive acts or practices.
Violations alleged in the CFPB’s complaint include:
Falsely promising consumers they could achieve savings without paying more: In direct mail, online, and other marketing materials, Nationwide claims that consumers enrolled in the Interest Minimizer program will save money without increasing their mortgage payments. In a video on Nationwide’s website, Lipsky states, “you’re not increasing your payment. You’re just switching to a smaller biweekly or weekly amount.” In fact, consumers in the program pay processing fees for each biweekly payment and the initial setup fee to Nationwide, plus the equivalent of one additional monthly payment each year.
Falsely promising immediate savings that take years to achieve: Despite promises of immediate savings, a consumer would have to stay enrolled for many years to recoup the fees that Nationwide charges. Nationwide claims that the median consumer in its Interest Minimizer program in 2013 had a 30-year mortgage for approximately $160,000 with an interest rate of 4.125 percent. A consumer with those loan terms would have to stay in the program for nine years to recoup her fees – at which point she would have paid more than $1,200 in fees to Nationwide. Only 25 percent of the consumers enrolled at the end of 2014 had been enrolled for longer than four years.
Misleading consumers about the cost of the program: Nationwide’s direct mail and marketing materials falsely claim that consumers’ extra payments “are directed 100% to the principal of the loan.” However, Nationwide keeps the first extra biweekly payment (up to $995) as the setup fee. When consumers ask Nationwide sales representatives how much the program costs, some of the company’s sales scripts instruct the representative to redirect the consumer, and other scripts say representatives should only mention the fee if consumers “persist to ask about fees.” None of the scripts states the dollar amount of the setup fee.
Falsely claiming to be affiliated with mortgage lenders or servicers: Nationwide’s marketing materials misrepresent that it is affiliated with consumers’ mortgage lenders or servicers. For example, in one telemarketing sales script, when consumers ask, “Do you work with/affiliated with my lender?” sales representatives were instructed, “Do NOT say ‘No’” – when the accurate answer is “No.”
Through this lawsuit, the Bureau seeks to stop the alleged unlawful practices of the two companies and Daniel Lipsky. The Bureau has also requested that the court impose penalties on defendants for their conduct and require that compensation be paid to consumers who have been harmed.
The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law.
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, visitconsumerfinance.gov.
The FTC and CFPB allege that Green Tree Servicing LLC made illegal and abusive debt collection calls to consumers, misrepresented the amounts people owed, and failed to honor loan modification agreements between consumers and their prior servicers, among other charges.
“It’s against the law for a loan servicer to lie about the debts people owe, or threaten and harass people about their debts,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Working together, the FTC and CFPB are holding Green Tree responsible for mistreating homeowners, including people in financial distress.”
Green Tree has become the servicer for a substantial number of consumers who were behind on their mortgage payments at the time their loans were transferred to Green Tree. Because homeowners cannot choose their servicer, they are locked into a relationship with the company for as long as it services their loans.
Illegal Debt Collection Practices
According to the FTC and the CFPB, Green Tree’s collectors called consumers who were late on mortgage payments many times per day, including at 5 a.m. or 11 p.m., or at their workplace, every day, week after week, and left many voicemails on the same day. They also unlawfully threatened consumers with arrest or imprisonment, seizure of property, garnishment of wages, and foreclosure, and used loud and abusive language, including calling consumers “deadbeats,” mocking their illnesses and other struggles, and yelling and cursing at them. The company also allegedly revealed debts to consumers’ employers, co-workers, neighbors, and family members, and encouraged them to tell the consumers to pay the debt or help them pay it. The complaint also alleges that Green Tree took payments from some consumers’ bank accounts without their consent.
The agencies also allege that Green Tree pressured consumers to make payments via Speedpay, a third-party service that charges a $12 “convenience” fee per transaction, claiming it was the only way to pay, or that consumers had to use the service to avoid a late fee.
Mishandled Loan Modifications and Delayed Short Sale Requests
According to the complaint, in many instances, Green Tree failed to honor loan modifications that were in the process of being finalized when consumers’ loans were transferred from other servicers to Green Tree. This resulted in consumers making higher monthly payments, receiving collection calls, and even losing their homes to foreclosure. Green Tree also allegedly misled consumers about their loss mitigation options. The company told some consumers who were behind on their mortgages that they needed to make a payment to be considered for a loan modification, even for programs that prohibited the company from requiring up-front payments. In addition, Green Tree took up to six months to respond to consumers’ short sale requests despite telling them it would respond much more quickly. These delays caused consumers to lose potential buyers, miss other loss mitigation options, and face foreclosures they could have avoided.
Misrepresented Account Status to Consumers and Credit Reporting Agencies
According to the complaint, Green Tree misrepresented the amounts consumers owed or the terms of their loans. This included telling consumers they owed fees they did not owe, or that they had to make higher monthly payments than their mortgage contracts required. The company often knew or had reason to believe that specific portfolios of loans it acquired from other servicers contained unreliable or missing information. In many instances, it should have known that consumers had loan modifications from prior servicers and therefore owed lower amounts. And when consumers disputed the amounts owed or terms of their loans, Green Tree failed to investigate the disputes before continuing collections.
Green Tree also allegedly furnished consumers’ credit information to consumer reporting agencies when it knew, or had reasonable cause to believe, that the information was inaccurate, and failed to correct the information after determining that it was incomplete or inaccurate – often when consumers told Green Tree about it.
Proposed Settlement Order
In addition to the $63 million in monetary payments, the proposed settlement order includes provisions that require Green Tree to:
establish and maintain a comprehensive data integrity program to ensure the accuracy and completeness of data and other information about consumers’ accounts, before servicing them;
cease collection of amounts disputed by consumers until Green Tree investigates the dispute and provides consumers with verification of the amounts owed;
meet certain loan servicing requirements to ensure that whenever Green Tree is involved in the sale or transfer of servicing rights, the buyer or transferee will honor loss mitigation agreements and properly review outstanding loss mitigation requests;
ensure that it has enough personnel and the technical capacity to handle loss mitigation requests and respond to consumer inquiries in a timely fashion, and make its loss mitigation application available to consumers at no cost and on its website;
implement a “Home Preservation Requirement” to provide loss mitigation options to consumers whose loans were transferred to Green Tree during the time period covered by the complaint; and
obtain substantiation for any amounts collected when consumers have in-process loan modifications, and for purported amounts due when there is reason to believe a newly transferred loan portfolio is seriously flawed.
The proposed order also prohibits Green Tree from making material misrepresentations about loans, processing procedures, payment methods, and fees, from taking unauthorized withdrawals from consumer accounts, and from violating the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Real Estate Settlement Procedures Act.
The Commission vote authorizing the staff to file the complaint and proposed stipulated order was 5-0. The FTC filed the complaint and proposed stipulated order in the U.S. District Court for the District of Minnesota.
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. Stipulated orders have the force of law when approved and signed by the District Court judge.
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