Consumer Financial Protection Bureau (CFPB) obtains judgment against foreclosure relief scamsters, shuts down lawfirm (press release re-post)

RELEASE DATE: May 29, 2015 

CONSUMER FINANCIAL PROTECTION BUREAU AND FLORIDA ATTORNEY GENERAL OBTAIN $27.7 MILLION JUDGMENT AGAINST FORECLOSURE RELIEF SCAM COMPANIES 

Court Enters Judgment Against Hoffman Law Group and Affiliates for Deceiving Consumers and Collecting Illegal Advance Fees; Individuals Involved to Auction Jewelry, Watches to Pay Redress 

  

WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau and the State of Florida were granted a final judgment against the Hoffman Law Group and corporate affiliates accused of using deceptive marketing practices and scamming distressed homeowners into paying illegal advance fees. Working together, five companies tricked consumers into paying millions of dollars in illegal upfront fees to join frivolous lawsuits that the companies falsely claimed would pressure banks to modify their loans or provide foreclosure relief. The court found the corporate defendants liable for $11,730,579 – the full amount of illegal fees paid by consumers – and ordered them to pay a $10 million civil penalty, in addition to penalties to the State of Florida. 

“These companies preyed on vulnerable consumers who were trying to save their homes from foreclosure,” said CFPB Director Richard Cordray. “The false promises made by these companies lured struggling homeowners into scams that led to greater financial hardship. We are working to protect consumers from illegal predatory practices by holding bad actors accountable for their actions.” 

"Scamming homeowners worried about losing their homes is not only illegal, it is despicable, and thanks to the great work of my consumer protection division and the Consumer Financial Protection Bureau, these defendants will pay for preying on Florida homeowners facing foreclosure,” said Florida Attorney General Pam Bondi. "Foreclosure rescue scammers cannot evade the law by hiding behind a law firm. It is discouraging that there are attorneys out there that will allow their licenses to be used by shady companies to target people facing foreclosure." 

The lawsuit named Hoffman Law Group (formerly Residential Litigation Group), its operators, Michael Harper, Benn Willcox, and attorney Marc Hoffman, and its affiliated companies, Nationwide Management Solutions, Legal Intake Solutions, File Intake Solutions, and BM Marketing Group, all based in North Palm Beach, Fla.

The Hoffman Law Group was a law firm set up to give the appearance that consumers in financial distress needing to modify their mortgage loans or save their homes from foreclosure would get specialized help from attorneys. The related companies, which were run by Harper and Willcox, existed to market and support the scheme. 

In July 2014, the Bureau and Florida sought and obtained a temporary restraining order and an asset freeze against the companies and Harper, Willcox and Hoffman, and the court ordered a receiver to take charge of all the assets flowing from the alleged scam. 

The lawsuit charged Hoffman Law Group, its affiliated companies, and the individual defendants with violating Regulation O, formerly known as the Mortgage Assistance Relief Services (MARS) rule, and Florida state law. Regulation O prohibits charging advance fees for mortgage loan modification services, making misrepresentations about loan modification services, and it requires that consumers be given certain disclosures. 

The defendants’ violations included: 

• Collecting fees before obtaining a loan modification: Companies cannot legally accept payment for helping to obtain a mortgage modification for a consumer before the consumer has a modification agreement in place with their lender. The Hoffman companies charged consumers advance fees without having first obtained modifications for them, which was not only illegal but also caused significant harm to consumers who often paid thousands of dollars without ever receiving a modification.  
• Inflating success rates and likelihood of obtaining a modification: The firm’s marketing materials misrepresented the likelihood that they would help consumers save substantial sums in mortgage payments. Ultimately, many consumers who paid these companies advance fees did not receive a mortgage modification and ended up worse off than they began. 
• Duping consumers into thinking they would receive legal representation: The lawsuit alleged that the companies and individual defendants engaged in a particularly egregious scam where they used their status as attorneys to dupe consumers into thinking they would receive legal representation. 
• Discouraging consumers from talking to their lenders and from making mortgage payments: The companies discouraged consumers from communicating directly with their lenders or servicers, claiming that they would handle all such communications. They also discouraged consumers from making mortgage payments to their lenders and servicers (and to make payments to the Hoffman companies instead), ostensibly in order for the consumer to better demonstrate financial hardship. As a result, many consumers were subject to negative credit ratings and/or foreclosure and consumers did not seek other relief from hardship caused by their mortgage, including working directly with their lender to receive a loan modification. 

The final judgment entered by the court included: 

• Redress to victims: The receiver, who took over the corporate defendants’ operations and froze assets belonging to the company and related individuals, will pay $655,737—the entire amount of the estate, as of March 30, 2015, minus administrative expenses and funds required to pursue additional recoveries—to the Bureau to be used for redress for victims. Although the court found the Hoffman Law Group and its corporate affiliates liable for $11,730,579—the full amount of illegal fees paid by approximately 2,000 affected consumers—it suspended the balance of the judgment beyond the amount in the receivership estate as uncollectable. 
• Auctioning of personal effects: In the stipulated judgments against Harper, Willcox and Hoffman, the court ordered the receiver to auction certain personal belongings of value, including eleven watches, sixteen pieces of jewelry, two handguns, a computer, and a television, the proceeds of which will be paid to the receivership estate. 
• Pay $16 million in civil and state penalties for violating the law: The corporate defendants are required to pay a $10 million civil penalty for the violations of Regulation O and a $6 million state penalty for violation of the Florida Deceptive and Unfair Trade Practices Act, although the receivership estate (to which the companies have relinquished all their funds) does not currently have enough funds to pay those penalties. The individual defendants were also required to pay penalties under the stipulated judgment. 
• Cease all business operations: The companies have been permanently dissolved and can no longer operate or do business of any kind. The individual defendants are permanently banned from, among other things, advertising or selling any mortgage assistance relief product or service or any debt relief product or service. In addition, Hoffman relinquished his license to practice law in the state of Florida. 

The court judgment is available at: http://files.consumerfinance.gov/f/201505_cfpb-default-judgment-and-order-as-to-corporate-defendants.pdf 

The individual orders are available at: 

Marc Hoffman: http://files.consumerfinance.gov/f/201505_cfpb-stipulated-final-judgment-and-order-as-to-defendant-marc-hoffman.pdf 

Benn Willcox: http://files.consumerfinance.gov/f/201505_cfpb-stipulated-final-judgment-and-order-as-to-defendant-benn-willcox.pdf 

Michael Harper: http://files.consumerfinance.gov/f/201505_cfpb_stipulated-final-judgment-and-order-as-to-defendant-michael-harper.pdf 

The CFPB’s complaint is available at: http://files.consumerfinance.gov/f/201407_cfpb_complaint_hoffman-law-group-et-al.pdf 

PayPal targeted by CFPB for signing up consumers for unwanted online credit without permission and other violations, faces millions in fines and restitution (press-release re-post)

FOR IMMEDIATE RELEASE:May 19, 2015 

CONSUMER FINANCIAL PROTECTION BUREAU TAKES ACTION AGAINST PAYPAL FOR ILLEGALLY SIGNING UP CONSUMERS FOR UNWANTED ONLINE CREDIT

PayPal to Refund $15 Million to Consumers and Pay $10 Million Fine

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) filed a complaint and proposed consent order in federal court against PayPal, Inc. for illegally signing up consumers for its online credit product, PayPal Credit, formerly known as Bill Me Later. The CFPB alleges that PayPal deceptively advertised promotional benefits that it failed to honor, signed consumers up for credit without their permission, made them use PayPal Credit instead of their preferred payment method, and then mishandled billing disputes. Under the proposed order, PayPal would pay $15 million in consumer redress and a $10 million penalty, and it would be required to improve its disclosures and procedures.  

“PayPal illegally signed up consumers for its online credit product without their permission and failed to address disputes when they complained,” said CFPB Director Richard Cordray. “Online shopping has become a way of life for many Americans and it’s important that they are treated fairly. The CFPB’s action should send a signal that consumers are protected whether they are opening their wallets or clicking online to make a purchase.” 

PayPal Inc., a California-based company, offers a line of credit known as PayPal Credit that consumers can use to pay for online and other purchases. PayPal Credit operates like other forms of credit; consumers make purchases using it as a form of payment and then repay the debt over time. As with credit cards and other forms of credit, consumers using PayPal Credit may incur interest, late fees, and other charges. Consumers often enroll in PayPal Credit while purchasing a good or service online or while creating a PayPal account. 

Since 2008, PayPal has offered PayPal Credit to consumers across the country making purchases from thousands of online merchants, including eBay. The CFPB alleges that many consumers who were attempting to enroll in a regular PayPal account, or make an online purchase, were signed up for the credit product without realizing it. The company also failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company. Tens of thousands of consumers experienced these issues. Specifically, the CFPB alleges that the company: 

• Deceptively advertised promotional benefits: The CFPB alleges that PayPal failed to honor advertised promotions, such as a $5 or $10 promised credit toward consumer purchases. 

• Abusively charged consumers deferred interest: The CFPB alleges that PayPal offered consumers limited-time, deferred-interest promotions, and that PayPal purported to let consumers pick how payments would be applied to these promotional balances. But consumers who attempted to contact the company to get more information or request to apply their payments to promotional balances often could not get through to the company’s customer service line or were given inaccurate information. Many such consumers were hit with deferred-interest fees that, due to the company’s conduct, they could not avoid. 

• Enrolled consumers in PayPal Credit without their knowledge or consent:The CFPB alleges that the company often automatically enrolled consumers in PayPal Credit when those consumers were signing up for a regular PayPal account or making purchases. The company enrolled other consumers while they tried canceling or closing out of the application process. Many consumers ended up enrolled in PayPal Credit without knowing how or why they were enrolled. They discovered their accounts only after finding a credit-report inquiry or receiving welcome emails, billing statements, or debt-collection calls for amounts past due, including late fees and interest. 

• Made consumers use PayPal Credit for purchases instead of their preferred payment method: The CFPB alleges that the company automatically set or preselected the default payment method for all purchases made through PayPal to PayPal Credit. This meant consumers used PayPal Credit even when they intended to use another method of payment such as a linked credit card or checking account. Other consumers were not able to select another payment method, finding that their purchases were charged to a PayPal Credit account even when they affirmatively selected another payment. Many of these consumers incurred late fees and interest because they did not know they had made purchases through PayPal Credit. 

• Engaged in illegal billing practices: The CFPB alleges that the company failed to post payments or failed to remove late fees and interest charges from consumers’ bills even when the consumers were unable to make payments because of website failures. Numerous consumers reported that the company lost payment checks or took more than a week to process checks. 

• Mishandled consumer disputes about payments: The CFPB also alleges that PayPal mishandled consumers’ billing disputes and made billing errors. 

Enforcement ActionUnder 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. Under the terms of the proposed consent order filed today, PayPal would: 

• Pay $15 million in redress to victims: PayPal would reimburse consumers who were mistakenly enrolled in PayPal Credit, who mistakenly paid for a purchase with PayPal Credit, or who incurred fees or deferred interest as a result of the company’s inadequate disclosures and flawed customer-service practices. 

• Improve disclosures: PayPal would be required to take steps to improve its consumer disclosures related to enrollment in PayPal Credit to ensure that consumers know they are enrolling or using the product for a purchase. These improved disclosures would also apply to fees and deferred interest to ensure that consumers understand how their payments will be allocated.  

• Pay $10 million civil penalty: PayPal would pay $10 million to the CFPB’s Civil Penalty Fund. 

The credit product at issue in this enforcement action was formerly known as Bill Me Later, and offered by Bill Me Later, Inc., which was acquired by PayPal, Inc.  

The proposed consent order is not a finding or ruling that the company has actually violated the law. It has been filed with the U.S. District Court for the District of Maryland, and would have the force of law only if it is approved by the presiding judge. 

A copy of the consent order filed today can be found at:http://files.consumerfinance.gov/f/201505_cfpb_consent-order-paypal.pdf 

A copy of the complaint filed today can be found at:http://files.consumerfinance.gov/f/201505_cfpb_complaint-paypal.pdf  

Prepared Remarks of Richard Cordray Director of the Consumer Financial Protection Bureau 

PayPal Credit Enforcement Action 

Washington, D.C. May 19, 2015

Thank you for joining us on this call.  Today, the Consumer Financial Protection Bureau is filing a complaint and a proposed consent order against PayPal for illegally signing up and billing tens of thousands of consumers for its online credit product, PayPal Credit.  

The Bureau alleges that PayPal lured in consumers to this product with deceptive advertising, signed up people without them knowing it, and then mishandled billing disputes when they arose.  This kind of conduct has no place in the consumer financial marketplace.  Under our proposed order, PayPal would return the $15 million that it illegally took from consumers and it would pay a $10 million penalty for its wrongful actions. 

Online shopping has become a way of life for many Americans.  It offers convenience, 24-hour shopping, and vast choices.  PayPal’s online payment services are offered on merchant websites throughout the Internet.  Since 2008, the company has offered PayPal Credit, formerly called Bill Me Later, which is a financial product that operates like other forms of credit.  Consumers make purchases using it as a form of payment and then repay the debt over time.  As with credit cards and similar products, consumers using PayPal Credit may incur interest, late fees, and other charges. 

From the first encounter a consumer may have had with PayPal Credit, there were problems.  Tens of thousands of consumers who were attempting to enroll in a regular PayPal account, or make an online purchase, were signed up for the credit product without realizing it.  The company enrolled other consumers while they tried to cancel or close out of the application process.  Many people ended up enrolled without knowing how or why, only to discover unexpectedly that they actually had an account when they learned of a credit-report inquiry, or when they received emails welcoming them to PayPal Credit, billing statements, or debt-collection calls. 

One reason so many consumers ended up having this product, unbeknownst to them, was that PayPal set the default payment method for all purchases to PayPal Credit.  Other consumers were simply not able to select another payment method when they tried to pay. 

Then, for those who did willingly sign up for the product, PayPal in many instances failed to honor advertised promotions, such as the promise of a $5 or $10 credit toward consumer purchases.  This was deceptive advertising. 

Finally, once enrolled, consumers encountered headache after headache.  PayPal failed to post payments properly, lost payment checks, and mishandled billing disputes that consumers had with merchants or the company itself.  Numerous consumers reported that the company took more than a week to process payment checks.  And even when customers were unable to pay because of website failures, they still got charged late fees. 

So today the Consumer Bureau has filed a complaint and proposed consent order in federal court.  Under the proposed order, PayPal would refund $15 million to consumers.  PayPal would reimburse those who were mistakenly enrolled in PayPal Credit, those who mistakenly paid for a purchase with PayPal Credit, and those who incurred fees or deferred interest as a result of the company’s inadequate disclosures and flawed customer-service practices.  We are also imposing a $10 million penalty on the company. 

In addition, we are requiring PayPal to change the way it does business with its PayPal Credit product.  The company must now give clear disclosures during the enrollment and checkout process so that consumers know what is happening and that they can use a different payment method if they so choose.  The company must ensure that customers receive the promotions advertised and that payments are credited in a timely manner.  These changes are designed to ensure that in the future consumers will not be treated in the same manner that PayPal treated them in the past. 

Online shopping and the financial products that make it possible are positive features of modern life.  They create great options and accessibility.  But financial services providers that enable these transactions need to be careful to make sure that people are treated fairly and according to the law.  And we will continue to be vigilant in protecting all consumers.  Thank you. 

Consumer Protection Division of the Texas AG's Office vs Debt Collection Attorney Joseph Onwuteaka and Samara Portfolio Management LLC - The fight ain't over yet

Joseph O. Onwuteaka gives Texas Attorney General's Office headaches in enforcement action stemming from massive venue violations by Onwuteaka in debt collection suits filed in the name of Samara Portfolio Management, LLC against Texas consumers.   
Houston-based attorney Joe Onwuteaka should be nominated for some sort of “survivor” award. He is a frequent tax-suit defendant, having been sued by local taxing authorities more than a dozen times (many of which resulted in nonsuits), and a veteran of the attorney disciplinary system, with three suspensions on the State Bar profile page, which he has not updated since 2006.

The Harris and Fort Bend County court records paint an even more colorful picture.

In 2012 speedy Joe got caught driving erratically on the Southwest Freeway, and had his license suspended for refusing to submit what would likely have been an incriminating specimen. That suspension involved his driver’s license only, not his license to practice law. According to the arresting officer, Onwuteaka identified himself as a licensed attorney, but he was hauled off with hands secured behind his back for processing and booking anyhow, after not cooperating in the field sobriety test and refusing to blow at 2AM in the morning while emitting tell-tale fumes. So the officer had sufficient other indicia of probable cause, as detailed in the police report.

Apparently he still has it. -- His bar card. And apparently, he is still practicing law. But there are clouds on the horizon.

THE SAMARA PORTFOLIO SCHEME 

Unlike other collection attorneys busy in mass litigation, many of who don’t last long because they either get canned by the collection lawfirm that hires them, or by the client if they work for a creditor directly, Joe  developed his own business model for making the most of a chunk of the bad-debt after-market.

Rather than hiring himself out to financial institutions or to debt buyers, he would buy the bad debts himself (in the name of a limited liability company owned by him and his wife), and would then retain himself to collect on these debts. Technically he and his SAMARA PORTFOLIO MANAGEMENT LLC are legally distinct. But both are debt collectors, and both are being sued by the Texas Attorney General for debt collection violations committed by Onwuteaka on a massive scale and as a pattern of practice: Filing collection suits against consumer debtors in a court convenient to Onwuteaka (Harris County Justice Court Precinct 1, Place 2 in Downtown Houston) even though the defendants did not live in Harris County and their cases had no connection to Harris County. Suing consumers in the wrong venue violates both federal and state law. -->   FDCPA

ATTORNEY DISCIPLINARY RAP SHEET 

Onwuteaka has drawn the attention of the attorney disciplinary system on numerous occasions. The Commission on Lawyer Discipline sued him no less than seven times in Harris County District Court, and before that it was the District Grievance Committee of the State Bar of Texas.  In 2007 and 2009, he was under (probated) suspension for part of the year. The most recent disciplinary case in Harris County (2010-10545) is shown as pending, but a joint motion to dismiss it has been on file since 2010. In 2008, Onwuteaka agreed to a public reprimand and payment of $2,000 in attorneys’ fees to the Commission.

Like I said, he is a survivor.

Whether he will survive, professionally and financially, the Attorney General’s pending enforcement action arising from his pattern and practice of venue violations in hundreds of cases he brought against Texas consumers is another matter.

THE TEXAS AG’S ENFORCEMENT ACTION AGAINST ONWUTEAKA AND SAMARA PORTFOLIO 

In 2013 the Attorney General's Office, then still headed by Greg Abbott, sued Onwuteaka, his law firm, LAW OFFICE OF JOSEPH ONWUTEAKA, and his company, SAMARA PORTFOLIO MANAGEMENT LLC, under the Texas Debt Collection Act (which is the state-level counterpart to the FDCPA) and the DTPA, alleging that he had sued hundreds of consumers in the wrong county.

The OAG handles a variety of different types of litigation. This one was brought by the Consumer Protection Division in the name of  The State of Texas. The filing attorney (attorney in charge) was and remains Rick Berlin. As is the AG’s standard practice, the attorneys at the higher levels in the OAG's hierarchy are also listed on the pleadings,

Cases filed with the Harris County District Clerk are randomly assigned to one of the many courts serving the same jurisdiction. State of Texas v Samara Portfolio Management, LLC, et al ended up in the 80th District Court, presided over by Judge Larry Weiman, a Democrat elected in 2008 as part of the Obama sweep in Harris County, and re-elected in 2012. This is a civil case. When it is over and done with, Onwuteake won’t go to jail (unless he is found in contempt or prosecuted for  any criminal offenses separately.)

The State’s Original Petition and Application for Temporary Injunction and Permanent Injunction was filed on June 14, 2013. Assistant Attorney General Rick Berlin signed it as attorney in charge.
Another Assistant Attorney General, Rosemarie Donnelly, is also on the pleadings, as Tommy Prud'Homme, the Chief of the Consumer Protection Division.

The AG action seeks damages, restitution, and injunctive relief. The petition alleged that the defendants violated the Texas Deceptive Trade Practices Act and the Texas Debt Collection Act ("TDCA") and asks for hefty penalties of $20,000 per violation, and other relief.

The petition has since been amended.

A DRAWN-OUT BATTLE 

Bad Boy Onwuteaka  has put up a helluvo a fight. Perhaps he got the sense that this is the fight of his life; -- his professional life as a debt company owner and collector anyhow. As of May 2015, the online docket sheet for his case is 8 pages long, and mostly reflects filings related to telephonic and video depositions of consumers sued by Onwuteaka, and discovery disputes. This includes multiple successive motions to compel and for sanctions brought against Onwuteaka for failure to comply with discovery requests.

This is a big case because so many people were the target of Onwuteaka’s debt collection abuses.

First 25 names of more than 900 people sued in wrong county, with place service shown in
in column marked yellow. (Attorney General's Exhibit) 

Trial has been set and reset several times because the assistant attorney general who is actively litigating the case for the Attorney General’s Office has not be able to secure Onwuteaka’s complete co-operation in producing documents, and is therefore not ready to try the case.

Onwuteaka also filed counterclaims against the Attorney General. But he lost on those by way of summary judgment, along with having impermissible defenses struck from his answer.

April 10, 2015 Order dismissing Onwuteaka's counterclaim  

After four continuances, trial on the Attorney Generals’ claims against Onwuteaka and his law office and company is now set for October, 26. 2015.

Stay tuned!

FOURTH MOTION FOR CONTINUANCE 

Motion for Continuance (to reset trial to a later date) 

SUMMARY: This blog post provides an update on the enforcement action filed by the Texas Attorney General's Office in the name of the State of Texas in 2013 against debt collection attorney Joseph O. Onwuteaka aka Joseph Osochukwu Onwuteaka, his law firm, and his company, Samara Portfolio Management, LLC. It also offers information on this attorney's disciplinary history.  
   
CASE STYLE: State of Texas v Samara Portfolio Management, LLC et al; Cause No. 2013-35721 in the 80th Judicial District Court of Texas (Harris County) 
  

Richard Cordray addresses Student Loan Issues at Hearing in Milwaukee (May 14, 2015 CFPB press release re-blogged)

May 14, 2015 CFPB ITEM VIA INTERNET 

Prepared Remarks of Richard Cordray Director of the Consumer Financial Protection Bureau 

Field Hearing on Student Loans 

Milwaukee, Wisconsin 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. 

Sprint and Verizon cell phone customers to get refunds thanks to CFPB action over illegal cramming (press release re-post); phone companies also to pay fines

FOR IMMEDIATE RELEASE [from CFPB]:

May 12, 2015

CONSUMER FINANCIAL PROTECTION BUREAU TAKES ACTION TO OBTAIN $120 MILLION IN REDRESS FROM SPRINT AND VERIZON FOR ILLEGAL MOBILE CRAMMING

Companies Will Also Pay $38 Million in Fines for Unauthorized Charges on Customers' Mobile Bills

WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau filed proposed orders in federal courts against Sprint and Verizon which, if approved, would provide $120 million in redress to wireless customers who were illegally billed hundreds of millions of dollars in unauthorized third-party charges. The CFPB alleges that the companies operated billing systems that allowed third parties to “cram” unauthorized charges on customers’ mobile-phone accounts and ignored complaints about the charges. Today’s actions are being taken in coordination with the state attorneys general and the Federal Communications Commission (FCC). Under the proposed terms, the CFPB will oversee $120 million in consumer refunds. The companies will also pay $38 million in federal and state fines. 

“Sprint and Verizon had flawed billing systems that allowed merchants to add unauthorized charges to wireless customer bills,” said CFPB Director Richard Cordray. “Consumers bore the brunt of those charges and ended up paying millions of dollars while the companies reaped profits. Today’s actions will put $120 million back into the pockets of harmed consumers and require these companies to improve their billing practices going forward.” 

Consumers use mobile phones to purchase an array of digital products, such as apps, games, books, movies, and music. These purchases appeared as charges on consumers’ phone bills. Wireless carriers collect and process payments for these purchases and control the networks connecting merchants and customers. From about 2004 through 2013, nearly all wireless carriers’ third-party billing involved products called “premium text messages” or “premium short messaging services” because they were frequently delivered by text messages. Sprint and Verizon outsourced payment processing for these digital purchases to vendors, but failed to properly monitor them. 

The lack of oversight by Sprint and Verizon allowed the vendors to have nearly unfettered access to consumers’ wireless accounts. The billing systems for premium messages attracted and enabled unscrupulous merchants who, in some cases, only needed consumers’ phone numbers to cram illegitimate charges onto wireless bills. The charges ranged from one-time fees of about $0.99 - $4.99 to monthly subscriptions that cost $9.99 a month. The companies received a 30-40 percent cut of the gross revenue from these charges. 

Most consumers were targeted online. Consumers clicked on ads that brought them to websites asking them to enter their cellphone numbers. Some merchants tricked consumers into providing their cellphone numbers to receive “free” digital content and then charged for it. Many others simply placed fabricated charges on bills without delivering any goods or communicating with consumers. 

In December 2014, the CFPB filed suit in the Southern District of New York against Sprint and today is filing a proposed consent order. Today, the CFPB also filed a complaint and a proposed consent order in the District of New Jersey to address Verizon’s unlawful conduct. The Bureau charges Sprint and Verizon, as payment processors for third parties, with violating the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair practices by: 

• Allowing third parties to illegally charge consumers: The companies’ billing systems made it easy for third-party scammers to attach charges to consumers’ bills. The companies profited from these illegitimate charges which victimized millions of consumers. 
• Automatically billing consumers for illegitimate charges without their consent: Neither Sprint nor Verizon required customers to opt in to third-party billing. Instead, they automatically enrolled customers without their consent. This policy helped perpetuate the wrongdoing because many customers did not spot unauthorized charges, as they were unaware that third parties could place charges on their bills. Although Verizon and Sprint allowed consumers to block third-party charges, consumers had to specifically request that they do so. Since many consumers were unaware that third parties could even place charges on their bills, they did not know to ask for such protection, making the blocking option of little use. 
• Ignoring consumer complaints about unauthorized charges: Both companies failed to track customer complaints about unauthorized charges, and as a result, lacked the most basic alert mechanism that could have revealed flaws in their monitoring systems. The companies also failed to provide full and prompt remediation to consumers subjected to these charges. 
• Disregarding red flags about third party vendors: Both companies disregarded red flags showing that the billing systems for premium messages were a breeding ground for unauthorized charges. Sprint and Verizon continued to outsource merchant oversight and billing to certain vendors despite lawsuits citing evidence that those same vendors enabled the cramming of unauthorized charges onto consumers’ bills. 

As a result, Sprint’s and Verizon’s wireless customers – many of whom did not know that third parties could place charges on their bills – incurred millions of dollars in illegitimate charges while the companies profited handsomely.

Enforcement ActionPursuant 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. The parties’ proposed consent orders, if approved by the courts, would require Sprint and Verizon to: 

• Pay $120 million in redress: The proposed consent orders would require Verizon to pay $70 million and Sprint to pay $50 million in consumer refunds. The CFPB will oversee the redress programs. Verizon customers can submit claims for refunds at www.CFPBSettlementVerizon.com or can learn more information about the Verizon settlement by calling 888-726-7063. Sprint customers can submit claims for refunds at www.SprintRefundPSMS.com or can learn more information about the Sprint settlement by calling 877-389-8787. 
• Clearly and conspicuously disclose third-party charges on wireless bills:The proposed orders would also require Verizon and Sprint to present third-party charges in a separate and clearly labeled section of the consumer’s bill so that consumers can clearly identify which charges are from the carrier and which charges are from third parties. 
• Obtain informed consent from consumers prior to third-party billing: Verizon and Sprint would be required under the orders to obtain informed consent before a consumer is charged by a third party and provide purchase confirmation for third-party charges such as an email or text message to the consumer. Verizon and Sprint would also be required to block third-party charges for consumers and tell consumers about the option to block said charges. 
• Improve dispute resolution procedures: In addition, the proposed orders would require Verizon and Sprint to ensure that consumers disputing third-party charges are directed to a customer service representative who has access to at least 12 months of the consumers’ billing statements. The representative must offer consumers the option to block future third-party charges, and provide consumers with a refund of unauthorized charges unless the companies can demonstrate the consumers expressly consented to the charges, already received refunds for the charges, or are otherwise ineligible for a refund. 
• Enhance customer-service training programs: The companies would be obligated under the orders to train customer service representatives about third-party billing procedures for at least six years unless the companies discontinue third-party billing. 

Sprint and Verizon will also pay $38 million in federal and state fines. The CFPB worked in close coordination with the state attorneys general and the FCC in investigating the companies’ third-party billing practices. The FCC and state attorneys general from all fifty states and the District of Columbia have worked to combat wireless cramming.  Their collaboration was invaluable in achieving the substantial consumer relief and improved billing practices from Verizon and Sprint. 

A copy of the Verizon complaint is available here:http://files.consumerfinance.gov/f/201505_cfpb-cfpb-v-verizon-complaint.pdf 

A copy of the Verizon proposed consent order is available here:http://files.consumerfinance.gov/f/201505_cfpb-cfpb-v-verizon-proposed-order.pdf 

A copy of the Sprint proposed consent order is available here:http://files.consumerfinance.gov/f/201505_cfpb-cfpb-v-sprint-corporation-proposed-order.pdf 

A copy of the Sprint complaint is available here:http://files.consumerfinance.gov/f/201412_cfpb_cfpb-v-sprint-complaint.pdf 

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