CFPB Enforcement action against medical debt collector (6/18/2015 press release re-post)

CONSUMER FINANCIAL PROTECTION BUREAU TAKES ACTION AGAINST MEDICAL DEBT COLLECTOR

Company Mishandled Consumer Credit Reporting Disputes, Prevented Consumers From Exercising Debt Collection Rights 

WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) announced an enforcement action against a medical debt collection company for mishandling consumer credit reporting disputes and preventing consumers from exercising important debt collection rights. These practices potentially affected the credit scores of thousands of individuals and caused consumers distress and confusion. The CFPB is ordering the company to provide over $5.4 million in relief to harmed consumers, correct its business practices, and pay a $500,000 penalty. 

“Syndicated Office Systems mistreated consumers and prevented them from exercising critical debt collection rights,” said CFPB Director Richard Cordray. “These violations are particularly egregious given the challenges many consumers already face who are attempting to navigate the medical debt maze. Today we are putting a stop to these illegal practices and getting consumers the relief they deserve.” 

Syndicated Office Systems, LLC, which does business as Central Financial Control, is a debt collection agency that primarily collects medical debt on behalf of hospitals, doctors, and other healthcare providers. The company is an indirect subsidiary of Conifer Health Solutions, LLC, which provides billing and other services to more than 600 hospitals nationwide. Tenet Healthcare Corporation, a publicly traded healthcare services company based in Dallas, Texas, is the parent company of Conifer Health Solutions. 

Companies that collect medical debt and supply this information to credit reporting agencies have a significant impact on consumers’ credit scores. More than 43 million Americans have medical debt adversely affecting their credit reports, and more than half of all overdue debt on consumer credit reports is from medical debt. A recent CFPB report found that the complex processes by which medical bills are incurred, collected by a wide range of debt collectors, and reported to credit reporting agencies can create unique challenges for consumers. The Bureau also found that medical debt can overly penalize consumer credit scores. 

As part of its debt collection business, Syndicated Office Systems regularly supplies information on the status of its medical debt collection accounts to credit reporting agencies and is considered a furnisher under the Fair Credit Reporting Act. Credit reporting agencies track a consumer’s credit history and other consumer transactions based on information supplied by furnishers. The reports that credit reporting agencies sell are used in determining everything from consumer eligibility for credit to employment decisions.  

Syndicated Office Systems typically initiates collection efforts through letters and telephone calls to consumers. Within five days of their initial communication, debt collectors are generally required to send debt validation notices to alert consumers about their right to request proof that a debt is valid or dispute the debt. A CFPB investigation, however, uncovered that Syndicated Office Systems failed to send debt validation notices to thousands of consumers. 

The CFPB also found that the company mishandled consumer credit reporting disputes by failing to investigate and respond to consumers within the 30-day timeframe required under the law.  Because the company furnishes information related to past-due medical debt, the information consumers seek to dispute or validate has the potential to lower credit scores. 

The CFPB order charges the company with violating the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. The violations specifically include: 

• Mishandling consumer credit reporting disputes:  Syndicated Office Systems failed to respond to more than 13,000 consumer credit report disputes within the 30-day timeframe required by law. On average, the company took more than 90 days to respond to consumers’ disputes and, in some cases, took over a year. Consumers spent time and money attempting to follow up on unresolved disputes and experienced distress and confusion due to the delays. The CFPB found that the company had no policies or procedures in place to investigate these consumer credit report disputes. Instead, the company treated consumer credit report disputes in the same way as other consumer complaints and had no deadline for responding. 
• Preventing consumers from exercising important debt collection rights: Syndicated Office Systems failed to send debt validation notices to more than 10,000 consumers. During this time, the company continued to collect over $2 million from consumers who did not receive the notices. Failing to provide notices denies consumers the opportunity to assess whether the debt is valid and whether the amount or source is correct. These notices can be an especially important consumer safeguard with regard to medical debt, where issues like insurance reimbursements and medical billing processes are commonly fraught with complexity, confusion, and delay, and can lead to consumers being unsure of how much to pay or even whom to pay. 

Together, these violations had the potential to harm thousands of consumers and in some cases, negatively impact their credit scores. This can hinder consumers’ ability to obtain credit or increase the rates they may pay for credit. In some cases, the company reported inaccurate information to the credit reporting agencies and then failed to provide a timely response to consumer disputes about the errors. Some consumers may also have been able to avoid negative information on their credit reports if they had known about their right to assess and dispute the debt in question. 

Enforcement ActionTo address these violations, the CFPB order requires Syndicated Office Systems to take the following actions: 

• Provide over $5 million in relief to harmed consumers: Syndicated Office Systems must identify all affected consumers and provide monetary relief. Consumers who were never sent a debt validation notice and who made payments to the company will receive a full refund and have remaining account balances forgiven. The company will pay $100 to consumers who were never sent a debt validation notice and did not make any payments to the company. The company must also pay damages ranging from $100-$1,000 to each consumer who did not receive a timely response to his or her credit report dispute. The amount that each consumer receives will correspond to the duration of the company’s delay in responding to the consumer’s credit report dispute. The company must submit a written plan to the CFPB for approval detailing how the company will identify affected consumers and provide relief. 
• Correct errors on credit reports: Syndicated Office Systems must identify all consumer accounts affected by its illegal business practices and fix any inaccuracies. The company must also update the account information it has furnished to the credit reporting companies and notify all affected consumers of this update, to the extent it has not already done so. 
• End illegal credit reporting and debt collection practices: The company must cease its illegal business practices and develop new policies to comply with federal consumer credit reporting and debt collection laws. 
• Establish consumer safeguards: Syndicated Office Systems must change how it does business and establish safeguards to ensure it has the staffing, facilities, systems, and information necessary to timely and completely respond to consumer credit report disputes. It must also establish a strong oversight program to identify any systemic inaccuracies to ensure that it informs consumers of their right to validate and dispute inaccurate debts in collection. 
• Pay a civil monetary penalty of $500,000: Syndicated Office Systems will pay a $500,000 fine for the illegal actions. 

The consent order filed today is available here:http://files.consumerfinance.gov/f/201506_cfpb_order-syndicated.pdf 

The CFPB will continue to enforce federal laws to ensure accuracy in credit reporting and debt collection. Consumers should check their credit report for inaccuracies at least once a year. Consumers can order a free credit report once every 12 months from AnnualCreditReport.com. 

Tips for consumers on how to deal with medical debt can be found at:http://files.consumerfinance.gov/f/201412_cfpb-7-ways-to-keep-medical-debt-in-check.pdf 

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CFPB Takes Action Against Servicemember Auto Lender for Aggressive Debt Collection Tactics‏ (press release re-post)

 RELEASED BY CFPB JUNE 17, 2015:

CONSUMER FINANCIAL PROTECTION BUREAU TAKES ACTION AGAINST SERVICEMEMBER AUTO LENDER FOR AGGRESSIVE DEBT COLLECTION TACTICS

Auto Loan Company Misled Servicemembers About Consequences of Nonpayment

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) sued an auto loan company, Security National Automotive Acceptance Company, for aggressive debt collection tactics against servicemembers. In a complaint filed in federal court, the CFPB alleges that the company used a combination of illegal threats and deceptive claims in order to collect debts. The CFPB is seeking compensation for harmed consumers, a civil penalty, and an order prohibiting the company from committing future violations.

“Security National Automotive Acceptance Company took advantage of military rules to put enormous pressures on servicemembers to pay their debts,” said CFPB Director Richard Cordray. “For all the security they provide us, servicemembers should not have their financial and career security threatened by false information from an auto loan company.”

Security National Automotive Acceptance Company, LLC (SNAAC) is an Ohio-based auto finance company that operates in more than two dozen states and specializes in lending to servicemembers. It lends money primarily to active-duty and former military to buy used motor vehicles.

The CFPB alleges that the company violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, and abusive acts and practices by using aggressive collection tactics that took advantage of servicemembers’ special obligations to remain current on debts. Both active-duty and former servicemembers could encounter trouble with the company if they missed or were late on payments. Once consumers defaulted, they became subject to repeated threats to contact their chain of command. In many other instances, the company exaggerated the consequences of not paying. Thousands of people were victims of the company’s aggressive tactics. Specifically, the CFPB alleges that the company has:

• Exaggerated potential disciplinary action that servicemembers would face:The CFPB believes that the company routinely exaggerated the potential impacts on servicemembers’ careers of remaining delinquent. The company told customers that their failure to pay could result in action under the Uniform Code of Military Justice, as well as a number of other adverse career consequences, including demotion, loss of promotion, discharge, denial of re-enlistment, loss of security clearance, or reassignment. In fact, these consequences were extremely unlikely.
• Contacted and threatened to contact commanding officers to pressure servicemembers into repayment: The company buried a provision within the fine print of contracts saying that it could contact commanding officers about servicemembers’ debts. The company would repeatedly contact commanding officers to disclose the debts in an effort to force payment, and suggest that the servicemembers were in violation of military law and other regulations. The CFPB alleges that many consumers were unaware of the provision, and those who were aware of it did not understand the pressure that would be brought to bear on them because of it. The company’s tactics, the CFPB alleges, therefore took advantage of the servicemembers’ inability to protect their interests in their transactions with the company and was unfair.
• Falsely threatened to garnish servicemembers’ wages: The company implied to consumers that it could immediately commence an involuntary allotment or wage garnishment. But such consequences could not or would not occur because, through the military pay system, involuntary allotments are only processed once a judgment by a court is obtained. The company would threaten to pursue an involuntary allotment before they had even determined whether the servicemember would be sued.
• Misled servicemembers about imminent legal action: In many instances, the company threatened to take legal action against customers when, in fact, it had not determined whether to take such action. In fact, in numerous instances, the company did not intend to take such action at the time.

Through this lawsuit, the Bureau seeks to stop the alleged unlawful practices of the company. The Bureau has also requested that the court impose penalties on the company for its 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 company has actually violated the law.

A copy of the complaint file today can be found at:http://files.consumerfinance.gov/f/201506_cfpb_complaint-security-national-automotive-acceptance-company.pdf

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Leading motor vehicle financing companies that are not banks to come under CFPB supervision: Final Rule pulished

CFPB adopts final rule to assure that consumers purchasing or leasing automobiles are treated fairly by the largest players in the market for auto financing that are not banks.

The CFPB already supervises motor vehicle financing by large banks and credit unions. The new rule expands the scope of regulation to bring in the nonbank auto finance companies with a volume of at least 10,000 transactions a year. The definition of "larger participants" covers about 90% of the total market segment, and involves close to 7 million consumers. Auto finance is the third-largest category of household debt after home mortgages and student loans, with about $900 billion of debt outstanding in 2014.

Through its examiners the Bureau will monitor these major players in car financing for compliance with federal law in such areas as accurate disclosure of credit terms in marketing (deceptive practices), fair lending under the Equal Credit Opportunity Act, payment history reporting to credit bureaus, debt collection activities, and repossession of vehicles by third parties hired by the creditors.

The new rule, which was originally proposed in Sept. 2014 and modified in minor ways, will go into effect 60 days from the date of publication in the Federal Register.

BELOW: JUNE 10, 2015 MEDIA RELEASE VIA IINTERNET FROM THE CFPB

 

CONSUMER FINANCIAL PROTECTION BUREAU TO OVERSEE NONBANK AUTO FINANCE COMPANIES

Bureau Publishes Exam Procedures for Supervised Companies in $900 Billion Market

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) published a rule today that will allow the agency to supervise larger nonbank auto finance companies for the first time. The CFPB also released the examination procedures that examiners will use to ensure that auto finance companies are following the law. 
 

“Auto loans and leases are among the most significant and complex financial transactions in a typical consumer’s life,” said CFPB Director Richard Cordray. “Today’s rule will help ensure that larger auto finance companies treat consumers fairly.” 
 

Auto loans are the third largest category of household debt, behind mortgages and student loans. American consumers had about $900 billion in auto loans outstanding in the fourth quarter of 2014. The automobile leasing market also continues to grow as more than a quarter of new cars are acquired through leases. 
 

Auto loans are financed by both banks and nonbanks. Consumers can either get a loan through direct financing, where they seek credit directly from a lender, or through indirect financing, where an auto dealer typically enters into a retail installment sales contract that it then sells to a third-party. Banks, credit unions, and nonbank auto finance companies provide credit to consumers both directly and indirectly. Some nonbank finance companies are “captive” nonbanks, meaning they are owned by auto manufacturers and generally do only indirect lending. 
 

Currently, the Bureau supervises auto financing at the largest banks and credit unions. Today’s rule extends that supervision to any nonbank auto finance company that makes, acquires, or refinances 10,000 or more loans or leases in a year. Under the rule, those companies will be considered “larger participants,” and the Bureau may oversee their activity to ensure they are complying with federal consumer financial laws, including the Equal Credit Opportunity Act, the Truth in Lending Act, the Consumer Leasing Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (Dodd-Frank Act) prohibition on unfair, deceptive, or abusive acts or practices. 
 

Under today’s final rule, which was proposed in September 2014, the Bureau estimates that it will have authority to supervise about 34 of the largest nonbank auto finance companies and their affiliated companies that engage in auto financing. These companies together originate around 90 percent of nonbank auto loans and leases, and in 2013 provided financing to approximately 6.8 million consumers. The final rule also defines additional automobile leasing activities for coverage by certain consumer protections of the Dodd-Frank Act. 
 

The Bureau is finalizing the rule largely as proposed, with minor changes. The final rule broadens the category of transactions involving asset-backed securities that are not counted toward the 10,000 transaction threshold. It also makes a minor modification to the definition of refinancing for the purpose of the threshold.  
 

To coincide with this new authority, the Bureau has also updated its Supervisory and Examination Manual to provide guidance on how the Bureau will monitor the bank and nonbank auto finance companies that it supervises. Examiners will be assessing potential risks to consumers and whether auto finance companies are complying with requirements of federal consumer financial law. Among other things, examiners will be evaluating whether auto finance companies are: 

• Fairly marketing and disclosing auto financing terms: The Bureau will be examining auto finance companies that market directly to consumers to ensure they are not using deceptive tactics to market loans or leases. The Bureau would be concerned if consumers are being misled about the benefits or terms of financial products. The Bureau is also looking to ensure that consumers understand the terms they are getting. 

• Providing accurate information to credit bureaus: The Bureau will assess whether information auto finance companies provide to credit bureaus is accurate. The CFPB recently took an enforcement action against an auto finance company that distorted consumer credit records by inaccurately reporting information like the consumers’ payment history and delinquency status to credit bureaus. The CFPB is looking to prevent inaccurate information from being reported in the future. 

• Treating consumers fairly when collecting debts: The Bureau will assess whether auto finance companies are using illegal debt collection tactics. The Bureau will be looking to ensure that collectors are relying on accurate information and using legal processes when they collect on debts.  The Bureau also will review the repossession process, including the practices of third-party service providers that are employed to repossess autos. 

• Lending fairly:  The Bureau will assess whether auto finance companies’ practices comply with the Equal Credit Opportunity Act and other Bureau authorities protecting consumers. 

Today’s rule will take effect 60 days after publication in the Federal Register. 

A copy of the rule published today can be found at: http://files.consumerfinance.gov/f/201506_cfpb_defining-larger-participants-of-the-automobile-financing-market-and-defining-certain-automobile-leasing-activity-as-a-financial-product-or-service.pdf 

The Examination Procedures for Auto Finance can be found at: http://files.consumerfinance.gov/f/201506_cfpb_automobile-finance-examination-procedures.pdf 

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)