Overseas Defendants Targeted Small Businesses, Non-Profits in U.S.
In an action brought by the Federal Trade Commission in 2013, a federal court has banned a Slovakia-based company and two of its executives from the business directory business, ending a scam that for years took millions of dollars from small businesses and non-profits in the United States and other countries.
A default judgment entered against Construct Data Publishers a.s., also doing business as Fair Guide, and a stipulated final judgment and permanent injunction against Wolfgang Valvoda and Susanne Anhorn, resolve the 2013 FTC action.
In its complaint, the FTC had alleged that, using direct mail, the defendants tricked retailers, home-based businesses, local associations and others into thinking they had a preexisting business relationship with the defendants. The defendants falsely suggested that consumers had to return a form confirming or updating their contact information for a trade show they had attended or planned to attend. Many recipients did not notice a statement, buried in fine print at the bottom of the form, that by signing and returning it they were agreeing to pay $1,717 annually to the company for a listing on its website.
A default judgment entered earlier in this case against the defendants was vacated in December 2014. That month, the U.S. Attorney for the Southern District of Illinois indicted Valvoda on mail fraud charges. The FTC’s civil case continued until recently, when the agency reached a settlement with Valvoda and Anhorn, and Construct Data Publishers defaulted after filing bankruptcy proceedings in Slovakia.
Under the final orders announced today, the defendants are banned from the business directory business. They also are prohibited from misrepresenting any product or service, attempting to collect payment for their business directory listings, profiting from consumers’ personal information, or failing to dispose of consumers’ personal information properly.
The order against Construct Data Publishers imposes a $7 million default judgment, including the transfer of $344,000 to the FTC from the court’s registry. The order against Valvoda and Anhorn imposes judgments of $2.1 million and $4.5 million, respectively, which will be suspended upon payment of $200,000. The full judgments will be imposed immediately if the defendants are found to have misrepresented their financial condition.
The Commission vote approving the proposed stipulated final order against Valvoda and Anhorn was 3-0. The U.S. District Court for the Northern District of Illinois, Eastern Division, entered the order on August 25, 2016.
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FCC FINES COMPANIES $11 MILLION FOR UNAUTHORIZED CHARGES ON CONSUMER BILLS, DECEPTIVE MARKETING, AND ILLEGAL CARRIER CHANGES Companies Impersonated Consumers’ Existing Carriers
WASHINGTON, September 15, 2016 – The Federal Communications Commission today
announced $11 million in fines against three related long distance carriers for “cramming”
unauthorized charges onto consumer telephone bills, “slamming” consumers by switching their
preferred phone carriers without authorization, deceptive marketing, and violating the FCC’s
truth-in-billing rules. The companies, Central Telecom Long Distance, Consumer Telcom, and
U.S. Telecom Long Distance, are run as one operation by Data Integration Systems, Inc. The
FCC is committed to combating abusive practices that result in telephone consumers paying for
services they never requested or received and expending significant time and effort to seek to
reverse the unauthorized charges and services.
“This isn’t rocket science: no consumer should be charged for phone services that they canceled
or never requested in the first place,” said Enforcement Bureau Chief Travis LeBlanc. “Today’s
fines make clear that we will aggressively prosecute those who ‘slam,’ ‘cram,’ or otherwise abuse
consumers by unlawfully charging them for services they didn’t want or request.”
During this investigation, the FCC’s Enforcement Bureau reviewed over 260 consumer
complaints about the three California-based companies. Many of the complaints were submitted
by or on behalf of consumers who had neither heard of the companies nor intended to sign up for
Operating as a single enterprise, the companies’ telemarketers falsely claimed that they were
calling on behalf of consumers’ real telephone carriers about a change in existing service. The
companies then misused consumers’ answers to switch their long distance carriers to one of the
companies. When customers realized what had occurred and returned to their preferred carriers,
these companies continued to charge consumers a recurring monthly fee. The companies also
failed to clearly and plainly describe the charges included in their customer bills, as required by
the FCC’s rules.
In Daugherty v. Convergent Outsourcing, Inc., No. 15-20392, 2016 WL 4709712 (5th Cir. Sept. 8, 2016), the federal Fifth Circuit Court of Appeals (which covers Texas, Louisiana, and Mississippi) agreed with the Sixth and Seventh Circuits that the Fair Debt Collection Practices Act requires disclosure of the fact that a debt is beyond the statute of limitations when the debt collector is offering a settlement of the debt. The debt collector in Daugherty sent a letter to a consumer that offered to “settle” a $32,405.91 debt for a payment of $3,240.59. The consumer sued the debt collector, arguing that the collection letter was misleading and violated the FDCPA because it did not inform her that the debt was unenforceable “and that a partial payment would revive the entire debt.” After reviewing the varying approaches of its sister circuits, the Fifth Circuit agreed with the Seventh Circuit (covering Illinois, Wisconsin and Indiana) and the Sixth Circuit (covering Michigan, Ohio, Kentucky, and Tennessee) that “a collection letter seeking payment on a time-barred debt (without disclosing its unenforceability) but offering a ‘settlement’ and inviting partial payment (without disclosing the possible pitfalls) could constitute a violation of the FDCPA.” The Seventh and Sixth Circuit cases are Buchanan v. Northland Group, 776 F.3d 393 (6th Cir. 2015), and McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014).
Daniel A. Edelman argued the Seventh and Sixth Circuit cases and filed an amicus brief in support of the consumer in the Fifth Circuit case.
The owners of a debt relief operation that targeted consumers with outstanding payday loans will be banned from the debt relief business under settlements with the Federal Trade Commission.
In February 2015, the FTC filed a complaint alleging that Jared Irby, Richard Hughes, Coastal Acquisitions LLC, and PSC Administrative LLC, who typically did business as “Payday Support Center” or “Infinity Client Solutions,” falsely promised to resolve consumers’ payday loans through their hardship program. Once enrolled, consumers stopped making payments to their lenders, but the defendants failed to provide the promised debt relief, and consumers ended up in deeper financial trouble, having paid hundreds of dollars for no reduction or settlement of their loans according to the agency.
Under two stipulated final orders announced today, the defendants are banned from all debt relief-related activities, and they are prohibited from making misrepresentations about financial and other products and services, and from making unsubstantiated claims about any products or services. The orders also bar the defendants from profiting from consumers’ personal information and failing to dispose of it properly.
Each order imposes a judgment of more than $23.7 million that will be partially suspended when Irby and the corporate defendants pay $149,537, and Hughes pays $8,037.26. In each case, the full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.
The Commission vote authorizing the staff to file the stipulated final orders against Irby, Coastal Acquisitions and PSC Administrative, and against Hughes, was 3-0. The U.S. District Court for the Southern District of Alabama entered the orders on September 7, 2016.
NOTE: Stipulated final orders have the force of law when approved and signed by the District Court judge.
WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has ordered First National Bank of Omaha to provide $27.75 million in relief to roughly 257,000 consumers harmed by illegal practices with credit card add-on products. The bank used deceptive marketing to lure consumers into debt cancellation add-on products and it charged consumers for credit monitoring services they did not receive. First National Bank of Omaha will also pay a $4.5 million civil money penalty to the CFPB.
“First National Bank of Omaha violated the trust of its customers by illegally signing them up for credit card add-on products,” said CFPB Director Richard Cordray. “The CFPB’s track record, and this result today, shows strong and consistent action against credit card companies that dupe consumers into buying a product they do not want.”
First National Bank of Omaha is headquartered in Omaha, Neb. As of March 31, 2016, the bank had approximately $18.4 billion in total assets. From 2002 until at least 2012, the bank offered add-on debt cancellation products with its credit card, including “Secure Credit” and “Payment Protection.” The bank promoted these products as providing a monthly payment to the cardholder’s account in the event of certain hardships like involuntary unemployment, hospitalization, or disability. Cardholders were charged a monthly fee. The bank also offered credit monitoring products, including “Privacy Guard” and “IdentitySecure” to monitor a cardholder’s credit for potential identity theft or fraud and to provide consumers with copies of their credit reports.
Today’s order covers the bank’s unfair billing practices from 1997 to 2012, and the bank’s deceptive enrollment practices from 2010 to 2012, when the practices stopped after a CFPB supervisory exam. The Bureau found the bank deceptively marketed the debt cancellation add-on products to consumers and it found illegal billing for credit monitoring services that consumers did not receive. Specifically, the bank:
- Disguised the fact that it was selling consumers a product: The bank forced consumers to listen to their sales pitches about debt cancellation products by implying that they had to stay on the phone while their cards were activating. In reality, the card activation process was nearly instantaneous and consumers did not have to stay on the line and listen to the pitch to have their cards activated.
- Distracted consumers into making a purchase: The bank led some consumers to believe they would not have to pay for the debt cancellation products. For example, the bank confirmed enrollment by asking for the consumer’s city of birth, not by asking if the consumer wanted the product. In other cases, the bank did not make it clear that consumers were making a purchase. For example, they made it seem like they were receiving a benefit, updating their accounts, or that the consumer was merely agreeing to receive more information about the product.
- Failed to disclose consumers’ ineligibility: When marketing the debt cancellation products, the bank told some consumers they were eligible for the product even when the consumers had disclosed information suggesting they would be ineligible for some product benefits, such as that they were retired, self-employed or employed for less than 30 hours a week.
- Hindered consumers from obtaining debt cancellation product benefits: The bank maintained strict eligibility standards and administrative requirements that prevented the vast majority of consumers from obtaining several of the promised debt cancellation benefits. For example, the bank would not cover consumers if they had pre-existing health conditions, but the bank defined pre-existing as any condition diagnosed or appearing for up to six months after consumers enrolled.
- Made cancellation of debt cancellation products difficult: The bank marketed its debt cancellation products as easy to cancel but instructed its customer representatives to make cancellation difficult. It had a sales incentive plan that awarded its customer service representatives money for a “save,” which occurred when the representative kept a consumer enrolled after attempting to cancel. Consumers were often unable to cancel unless they were willing to demand cancellation multiple times in succession.
- Billed for credit monitoring services not provided: In many cases, cardholders did not receive the credit monitoring services for which they paid because the bank did not properly process their authorization. In other cases, some of the credit reporting companies did not process the authorizations because they could not match the cardholder’s information to their files.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. The CFPB’s order requires that First National Bank of Omaha:
- Repay $27.75 million to affected consumers: First National Bank of Omaha must provide an estimated $27.75 million in refunds and additional relief to approximately 257,000 customers subjected to deceptive marketing or unfair practices.
- End unfair billing and other illegal practices: Consumers will no longer be billed for products if they are not receiving the promised benefits. First National Bank of Omaha will also be prohibited from marketing any debt cancellation or credit monitoring add-on products until it submits a compliance plan to the CFPB. First National Bank of Omaha will review and, if necessary, improve its policies to ensure that it does not commit unlawful acts in the future.
- Pay a $4.5 million penalty: First National Bank of Omaha will make a $4.5 million penalty payment to the CFPB’s .
This enforcement action is the result of the CFPB’s investigation into First National Bank of Omaha credit card add-on products conducted in coordination with the Office of the Comptroller of the Currency (OCC). The OCC is separately ordering restitution and a $3 million civil money penalty for the unfair billing practices. This is the eighth action the Bureau has taken in coordination with another regulator to address illegal practices with respect to credit card add-on products and the 12th action the Bureau has taken in total to address these practices.
CFPB Takes Action Against Wells Fargo for Illegal Student Loan Servicing Practices Wells Fargo to Pay $3.6 Million Penalty to the Bureau
Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today took action against Wells Fargo Bank for illegal private student loan servicing practices that increased costs and unfairly penalized certain student loan borrowers. The Bureau identified breakdowns throughout Wells Fargo’s servicing process including failing to provide important payment information to consumers, charging consumers illegal fees, and failing to update inaccurate credit report information. The CFPB’s order requires Wells Fargo to improve its consumer billing and student loan payment processing practices. The company must also provide $410,000 in relief to borrowers and pay a $3.6 million civil penalty to the CFPB.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” said CFPB Director Richard Cordray. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information and we will continue our work to improve the student loan servicing market.”
Wells Fargo is a national bank headquartered in Sioux Falls, S.D. Education Financial Services is a division of Wells Fargo that is responsible for the bank’s student lending operations. Education Financial Services both originates and services private student loans, and currently serves approximately 1.3 million consumers in all 50 states.
Student loans make up the nation’s second largest consumer debt market. Today there are more than 40 million federal and private student loan borrowers and collectively these consumers owe roughly $1.3 trillion. Last year, the CFPB found that more than 8 million borrowers are in default on more than $110 billion in student loans, a problem that may be driven by breakdowns in student loan servicing. Private student loans comprise approximately $100 billion of all outstanding student loans. While private student loans are a small portion of the overall market, the Bureau found that they are generally used by borrowers with high levels of debt who also have federal loans.
According to the CFPB’s order, Wells Fargo failed to provide the level of student loan servicing that borrowers are entitled to under the law. Because of the breakdowns throughout Wells Fargo’s servicing process, thousands of student loan borrowers encountered problems with their loans or received misinformation about their payment options. The CFPB found that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair and deceptive acts and practices, as well as the Fair Credit Reporting Act. Specifically, the CFPB found that the company:
- Impaired consumers’ ability to minimize costs and fees: Wells Fargo processed payments in a way that maximized fees for many consumers. Specifically, if a borrower made a payment that was not enough to cover the total amount due for all loans in an account, the bank divided that payment across the loans in a way that maximized late fees rather than satisfying payments for some of the loans. The bank failed to adequately disclose to consumers how it allocated payments across multiple loans, and that consumers have the ability to provide instructions for how to allocate payments to the loans in their account. As a result, consumers were unable to effectively manage their student loan accounts and minimize costs and fees.
- Misrepresented the value of making partial payments: Wells Fargo’s billing statements made misrepresentations to borrowers that could have led to an increase in the cost of the loan. The bank incorrectly told borrowers that paying less than the full amount due in a billing cycle would not satisfy any obligation on an account. In reality, for accounts with multiple loans, partial payments may satisfy at least one loan payment in an account. This misinformation could have deterred borrowers from making partial payments that would have satisfied at least one of the loans in their account, allowing them to avoid certain late fees or delinquency.
- Charged illegal late fees: Wells Fargo illegally charged certain consumers late fees even though the consumers had made timely payments. Specifically, the bank charged illegal late fees to certain consumers who made payments on the last day of their grace periods. It also charged illegal late fees to certain students who elected to pay their monthly amount due through multiple partial payments instead of one single payment.
- Failed to update and correct inaccurate information reported to credit reporting companies: Wells Fargo failed to update and correct inaccurate, negative information reported to credit reporting companies about certain borrowers who made partial payments or overpayments. These errors could damage a consumer’s ability to access credit or make borrowing more expensive.
Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair or deceptive practices. Among the terms of the consent order filed today, Wells Fargo must:
- Pay $410,000 in consumer refunds: Wells Fargo must provide at least $410,000 to compensate consumers for illegal late fees. This includes refunding illegal fees due to the bank’s failure to disclose its payment allocation practices across multiple loans within a borrower’s account as well as the bank’s failure to inform consumers that they could instruct the bank to allocate payments in a different way. This also includes refunding illegal fees charged because of the bank’s failure to combine partial payments made in the same billing cycle, and fees improperly charged when borrowers made a payment on the last day of the grace period.
- Improve student loan servicing practices: Wells Fargo must allocate partial payments made by a borrower in a manner that satisfies the amount due for as many of the loans as possible, unless the borrower directs otherwise. This can help reduce the number of delinquent loans in an account as well as the number of late fees. Last month, the Department of Education, in consultation with the CFPB, released calling for federal student loan servicers to implement a similar standard for handling partial payments.
- Improve consumer billing disclosures: Wells Fargo must provide consumers with enhanced disclosures with their billing statements. The disclosures must explain how the bank applies and allocates payments and how borrowers can direct payments to any of the loans in their student loan account.
- Correct errors on credit reports: Wells Fargo must remove any negative student loan information that has been inaccurately or incompletely provided to a consumer reporting company.
- Pay $3.6 million civil penalty: Wells Fargo will pay $3.6 million to the CFPB’s Civil Penalty Fund.
This order comes as the Bureau takes steps to ensure that all student loan borrowers have access to adequate student loan servicing. Last year, the Bureau released a report outliningwidespread servicing failures reported by both federal and private student loan borrowers and published a framework for student loan servicing reforms. As part of this work, the Bureau has continually raised concerns around, as well as taken enforcement and supervisory actions against, illegal student loan servicing practices related to the handling of partial payments. Building on this, earlier this year, the Bureau called for market-wide reforms and announced that it was prioritizing taking action against companies that engage in illegal servicing practices. Today’s action is an important part of this ongoing work.
Students and their families can find help on how to tackle their student debt on the CFPB’s website.
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