Small creditors operate under different rules - CFPB issues rule on access to mortgage credit in rural areas (media release re-post)

FOR IMMEDIATE RELEASE:September 21, 2015 CONTACT:Office of CommunicationsTel: (202) 435-7170 CONSUMER FINANCIAL PROTECTION BUREAU FINALIZES RULE TO FACILITATE ACCESS TO CREDIT IN RURAL AND UNDERSERVED AREAS Bureau Extends Provisions to Cover More Community Banks, Credit Unions, and Other Creditors Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today finalized several changes to its mortgage rules to facilitate responsible lending by small creditors, particularly in rural and underserved areas. The new rule, which was proposed in January, will increase the number of financial institutions able to offer certain types of mortgages in rural and underserved areas, and gives small creditors time to adjust their business practices to comply with the rules. “The financial crisis was not caused by community banks and credit unions, and our mortgage rules reflect the fact that small institutions play a vital role in many communities,” said CFPB Director Richard Cordray. “These changes will help consumers in rural or underserved areas access the mortgage credit they need, while still maintaining these important new consumer protections.” In January 2013 and May 2013, the CFPB issued several mortgage rules, most of which took effect in January 2014. Among these rules, the Ability-to-Repay rule protects consumers from irresponsible mortgage lending by requiring that lenders generally make a reasonable and good-faith determination that prospective borrowers have the ability to repay their loans. Under the Ability-to-Repay rule, a category of loans called Qualified Mortgages prohibit certain risky loan features for consumers and are presumed to comply with ability-to-repay requirements. There are a variety of provisions in the rules that affect small creditors, as well as small creditors that operate predominantly in rural or underserved areas. For instance, a provision in the Ability-to-Repay rule extends Qualified Mortgage status to loans that small creditors hold in their own portfolios, even if consumers’ debt-to-income ratio exceeds 43 percent. Small creditors that operate predominantly in rural or underserved areas can originate Qualified Mortgages with balloon payments even though balloon payments are otherwise not allowed with Qualified Mortgages. Similarly, under the Bureau’s Home Ownership and Equity Protection Act rule, such small creditors can originate high-cost mortgages with balloon payments. Also, under the Bureau’s Escrows rule, eligible small creditors that operate predominantly in rural or underserved areas are not required to establish escrow accounts for higher-priced mortgages. Since issuing the mortgage rules, the CFPB has continued to monitor the mortgage market and seek public feedback. The changes finalized today reflect the Bureau’songoing study of the market and extensive outreach to stakeholders including consumer advocates and industry groups. Today’s final rule will: Expand the definition of “small creditor”: The loan origination limit for small-creditor status will be raised from 500 first-lien mortgage loans to 2,000 and will exclude loans held in portfolio by the creditor and its affiliates. Include mortgage affiliates in calculation of small-creditor status: The final rule does not change the current asset limit for small-creditor status, which is set at less than $2 billion (adjusted annually) in total assets as of the end of the preceding calendar year. However, under the new rule the assets of the creditor’s mortgage-originating affiliates are included in calculating whether a creditor is under the limit. Expand the definition of “rural” areas: In addition to counties that are considered to be “rural” under the CFPB’s current mortgage rules, today’s final rule expands the definition of “rural” to include census blocks that are not in an urban area as defined by the Census Bureau. The rule adds two new safe harbors for determining whether a property location meets the definition of rural. A creditor will be able to rely on an automated address look-up tool available on the Census Bureau’s website or on a new automated tool that will be provided on the Bureau’s website. The rule maintains the current safe harbor for creditors who choose to rely on the county lists available on the Bureau’s website. Provide grace periods for small creditor and rural or underserved creditor status: Creditors that exceed the origination limit or asset-size limit in the preceding calendar year will be allowed to operate, in certain circumstances, as a small creditor with respect to mortgage transactions with applications received prior to April 1 of the current calendar year. Today’s final rule creates a similar grace period for creditors that no longer operated predominantly in rural or underserved areas during the preceding calendar year. Create a one-year qualifying period for rural or underserved creditor status: The final rule adjusts the time period used in determining whether a creditor is operating predominately in rural or underserved areas, from any of the three preceding calendar years to the preceding calendar year. Provide additional implementation time for small creditors: Eligible small creditors are currently able to make balloon-payment Qualified Mortgages and balloon-payment high-cost mortgages regardless of where they operate, under a temporary exemption scheduled to expire on January 10, 2016. Today’s final rule extends that period to include balloon-payment mortgage transactions with applications received before April 1, 2016, giving creditors more time to understand how any changes will affect their status, and to adjust their business practices. Today’s final rule is being adopted as proposed, with several technical changes and clarifications. The final rule, including its changes and clarifications, will take effect January 1, 2016. A copy of the final rule is available at:http://files.consumerfinance.gov/f/201509_cfpb_amendments-relating-to-small-creditors-and-rural-or-underserved-areas-under-the-truth-in-lending-act-regulation-z.pdf  ###

CFPB goes after debt-relief outfit for charging up-front fees, says World Law Group took $67 mil from consumers and didn't deliver

9-15-2015 PRESS RELEASE FROM THE CONSUMER FINANCIAL PROTECTION BUREAU:

FOR IMMEDIATE RELEASE: September 15, 2015 CONTACT: Office of Communications Tel: (202) 435-7170 CONSUMER FINANCIAL PROTECTION BUREAU SUES WORLD LAW GROUP FOR CHARGING ILLEGAL FEES AND MAKING FALSE PROMISES IN DEBT-RELIEF SCHEME  Lawsuit Names Individuals Responsible for Bilking $67 million from 21,000 Consumers WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau announced that it has obtained a preliminary injunction against World Law Group and its senior leaders for running a debt-relief scheme that charged consumers exorbitant, illegal upfront fees. The Bureau alleges the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts. World Law is alleged to have taken $67 million from at least 21,000 consumers before providing any debt-relief services. The Bureau has obtained an order in U.S. District Court that halts World Law’s operations and freezes defendants’ assets while the case is pending. “We took action today against World Law Group for an alleged debt relief scheme that lured consumers with false promises of help from lawyers and collected millions in illegal upfront fees,” said CFPB Director Richard Cordray. “We are seeking to put an end to this scheme and prevent more consumers from being harmed.” The Bureau’s lawsuit names Derin Scott, David Klein, and Bradley James Haskins, who control World Law Group. The lawsuit alleges that the defendants operate through an interrelated maze of companies, including Orion Processing, LLC, d/b/a World Law Processing, WLD Credit Repair, and World Law Debt; Family Capital Investment & Management LLC a/k/a FCIAM Property Management; World Law Debt Services, LLC; and World Law Processing, LLC. The companies comingle funds and share functions, employees, and office locations to operate the debt-relief scheme. According to the complaint, World Law promised to help consumers reduce their debts using a “team of attorneys,” including “local attorneys,” that would provide legal representation and negotiate debt settlements directly with consumers’ creditors. World Law allegedly told consumers to stop paying their debts and instead make a single monthly payment to the company, which its lawyers would use to negotiate debt settlements with creditors. According to the complaint, World Law unlawfully kept many of these payments as fees before providing debt-relief services. As a result, consumers paid millions of dollars in illegal fees and suffered additional harms, including being subjected to collection calls, lawsuits, late fees, and lower credit scores. The CFPB alleges that the World Law Group violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair, deceptive, or abusive acts and practices and the Telemarketing and Consumer Fraud and Abuse Prevention Act. Specifically, the Bureau alleges that World Law: Charged illegal upfront fees: According to the Bureau’s complaint, World Law charged consumers thousands of dollars in fees before providing debt-relief services. This is barred by the Telemarketing Sales Rule. In fact, the Bureau alleges that 99 percent of consumers who enrolled in World Law’s program paid illegal upfront fees. These unlawful fees include a $199 “initial fee” collected during the first three months of the program, an “attorney monthly service fee” of $84.95 per month, and “bundled legal service fees” ranging from 10 percent to 15 percent of the consumers’ outstanding debt balance, which are collected during the first 13 months of the program. Made false promises of legal representation: World Law promised that consumers would receive local legal representation and have their debts negotiated by an attorney. In reality, according to the Bureau, the defendants did not provide the promised legal representation. The Bureau alleges that consumers rarely, if ever, communicated with a lawyer and the vast majority of services provided  ̶  if services were provided at all  ̶  were debt-relief services provided by non-lawyers. The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law. The Court issued the preliminary injunction because it found that the Bureau is likely to prevail and that the public interest is served by granting the Order. The case will proceed until the court makes a final determination or the parties settle the matter. A copy of the CFPB’s complaint can be found at:http://files.consumerfinance.gov/f/201509_cfpb-complaint-orion-processing-llc-world-law.pdf The full text of the preliminary injunction orders entered by the court against the defendants is available here:http://files.consumerfinance.gov/f/201509_cfpb_preliminary-injunction-orion-processing-llc-world-law.pdf andhttp://files.consumerfinance.gov/f/201509_cfpb_preliminary-injunction-order-orion-processing-llc-world-law.pdf

Can citizens trust their bank? - Apparently not ... read about the latest enforcement action against a major bank taken by federal regulators, requiring $11 mil be paid back to consumers

When your banks keeps money that belongs to you, thinking you won't find out ....

FOR IMMEDIATE RELEASE:August 12, 2015 CONTACT:Office of CommunicationsTel: (202) 435-7170 Prepared Remarks of Richard Cordray Director, Consumer Financial Protection Bureau  Citizens Bank Enforcement Action Washington, D.C. August 12, 2015 Thank you for joining this call.  Today the Consumer Financial Protection Bureau, along with our federal partners, is taking action against Citizens Bank for shoddy practices that deprived consumers of money that was rightfully theirs when they made deposits into their checking and savings accounts.  The Consumer Bureau is ordering the bank to return approximately $11 million to harmed consumers and pay a $7.5 million fine. Checking accounts are an important part of financial life for some 200 million Americans, which makes them one of our most widely used financial products.  They function as a basic tool for money management.  They are also supposed to provide a secure way for consumers to collect earnings, make payments, and transfer and hold funds.  But when a depository institution violates the basic tenet of what it means to offer a deposit account – that is, to receive and keep safe the customer’s funds – it imbues a deep sense of mistrust. When consumers deposited their money into Citizens Bank, they trusted that all of their money would go into their accounts.  But our investigation found that Citizens regularly denied some customers the full credits of their deposits.  Customers making a deposit filled out a deposit slip listing the checks or cash that they believed were going into their accounts.  They then turned the deposit slip over to the bank teller and got a receipt for the transaction.  The bank took those deposit slips and scanned the deposit items at central locations. But in cases where the bank’s scanner misread either the deposit slip or the checks, or if the total on the deposit slips did not equal the total amount of the actual checks or cash, Citizens did not take appropriate action to fix those mistakes even when it became aware of them. Instead, the bank ignored discrepancies if they fell below a certain dollar amount – which at times was as high as $50.  One could argue that it all came out in the wash – some consumers benefited by this policy and some were harmed by it.  But for those customers who were harmed, the bank kept the difference, and over the years shorted consumers millions of dollars.  We believe this practice was unfair and deceptive. The inconsistencies had various causes.  Perhaps the customer incorrectly added up the deposits, or perhaps the bank’s scanners did not capture the image of the correct amount on the deposit slips or checks.  Either way, consumers lost money that rightfully belonged to them. In its account disclosures, Citizens Bank told its customers that all deposits were subject to verification and the bank would take steps to ensure that consumers were credited with the correct amounts.  But this was not true.  For almost five years of the period covered by our order, the bank only investigated and corrected errors that exceeded $50.  For the last year, it only reviewed discrepancies above $25.  In other words, if the bank read the customer’s deposit slip as totaling $100, but the customer had actually deposited $150, the bank took the $50 difference for itself without ever informing the customer about what it had done. The bank may have seen these discrepancies as “rounding errors” not worth its time to pursue.    But that is not sufficient.  Even though some customers may have benefited from the policy in different circumstances, that fact did not nullify the harm to others.  This is sloppy banking, and it violates the Dodd-Frank Act, which prohibits financial providers from engaging in unfair or deceptive practices. So today, we are ordering the bank to return about $11 million to consumers who did not receive money that should have been deposited into their accounts.  And we are ordering Citizens Bank to pay a $7.5 million penalty as well.  In addition, we are ordering the bank to change the way it collects deposits so that consumers will not have this problem in the future.  The bank has made a significant technology investment over the past year to address the issue. This is the first action the Bureau has taken involving illegal practices in connection with deposit processing.  The whole premise of the banking system is built on the basic trust that when you give your money to the bank, the bank will hold that money safely for you.  It was not acceptable for Citizens to keep money for itself when errors were made.  Fifty dollars may seem like a small amount to a bank with assets worth billions of dollars, but it is real money to regular people.  Consumers deserve to have confidence that they can move their money around securely without exposing themselves to unwelcome risks, such as a bank resolving an error by keeping the difference for itself. I would like to thank our federal partners, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, for their close coordination with us to address this issue and work with the bank to develop a robust restitution program for consumers.  We will continue to take appropriate action against those we find to be deceiving or taking advantage of consumers.  Thank you. ***  FOR IMMEDIATE RELEASE: August 12, 2015 CONTACT:Office of CommunicationsTel: (202) 435-7170 CONSUMER FINANCIAL PROTECTION BUREAU ORDERS CITIZENS BANK TO PAY $18.5 MILLION FOR FAILING TO CREDIT FULL DEPOSIT AMOUNTS CFPB, OCC, and FDIC Take Action Against Bank For Ignoring Deposit Discrepancies WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) took action against Citizens Bank for failing to credit consumers the full amounts of their deposited funds. The bank kept money from deposit discrepancies when receipts did not match actual money transferred. Today’s CFPB consent order requires the bank to provide approximately $11 million in refunds to consumers and pay a $7.5 million penalty for the violations. “Citizens Bank regularly denied customers the full credits of their deposits when there were discrepancies between deposit slips and the actual money transferred into the bank,” said CFPB Director Richard Cordray. “The bank chose to ignore these discrepancies and harmed many consumers by pocketing the difference.” Today’s CFPB action is against Citizens Bank, N.A., formerly known as RBS Citizens Bank, N.A.; Citizens Financial Group, Inc., formerly known as RBS Citizens Financial Group, Inc.; and Citizens Bank of Pennsylvania. The bank operates retail branches in about a dozen states and among its various products and services are deposit accounts. For the period at issue, the bank generally required its customers making a deposit to fill out a slip listing the checks or cash being deposited, and their total. The customer then turned the deposit slip over to the bank and got a receipt reflecting the amount on the deposit slip for the transaction. The bank scanned the deposit slip and deposit items at a central location. The CFPB investigation found that from January 1, 2008 to November 30, 2013, Citizens Bank violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair and deceptive practices by failing to properly credit consumers’ checking and savings accounts. In cases where the bank’s scanner misread either the deposit slip or the checks, or if the total on the deposit slip did not equal the total of the actual checks, Citizens Bank did not take action to fix the mistake if it fell below a certain dollar amount. Over the years, by ignoring the discrepancies the bank shorted consumers millions of dollars. Specifically, Citizens Bank: Failed to credit consumers the full amount of their deposits: Citizens Bank frequently did not give consumers full credit for their deposits when the amount scanned on the deposit slip was less than the amount of the checks and cash deposited. The bank credited the consumer’s account with what was read on the deposit slip, not the actual sum of money the consumer transferred into the bank. Citizens only investigated and fixed errors when they were above a certain threshold. From January 2008 to September 2012, the bank only looked into discrepancies greater than $50. From September 2012 to November 2013, the bank only looked into discrepancies greater than $25. Falsely claimed that it would verify deposits: Citizens Bank told consumers that deposits were subject to verification, implying that the bank would take steps to ensure consumers were credited with the correct deposit amount. But the bank’s practice was not to verify and correct deposit inaccuracies unless they were above the $25 or $50 threshold. Although some consumers benefited by this policy, others lost money that rightfully belonged to them. The CFPB concluded that many of those consumers were harmed by this unfair and deceptive practice. Enforcement ActionUnder the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Today’s order requires Citizens Bank to: Pay approximately $11 million in redress to victims: Citizens Bank must pay $11 million to consumers who did not receive all the money that should have been deposited into their accounts. Citizens Bank must include any fees the consumer incurred related to the under-crediting, including but not limited to any overdraft fees, insufficient funds fees, and monthly maintenance fees. The bank must also include a reasonable estimate of interest on these amounts. Consumers are not required to take any action to receive their credit or check. If the consumers have an open account with the bank, they will receive a credit to their account. For closed accounts, Citizens Bank will send a check to the affected consumers. End all violations of federal consumer financial law in connection with deposit discrepancies: Citizens Bank is prohibited from engaging in violations of unfair, deceptive, and abusive acts or practices in connection with deposit transactions. Among other things, this means the bank must properly review its compliance management system to ensure no further violations relating to its processing of deposits, it must not misrepresent its processing practices, and it must incorporate corrective actions if the bank fails to process deposits consistent with federal consumer financial law. The bank has made a significant technology investment over the past year to address the issue. Pay $7.5 million civil penalty: Citizens Bank will make a $7.5 million penalty payment to the CFPB’s Civil Penalty Fund. The CFPB is taking this action in coordination with the FDIC and the OCC. The FDIC separately ordered Citizens Bank of Pennsylvania to pay restitution and a $3 million civil penalty. The OCC separately ordered Citizens Bank, N.A., to pay restitution and a $10 million civil penalty. In total, Citizens Bank must pay about $11 million in consumer refunds and $20.5 million in federal penalties for these coordinated actions. As part of these actions, the FDIC and OCC are ordering additional relief relating to business accounts. A copy of the CFPB consent order is available at:http://files.consumerfinance.gov/f/201408_cfpb_consent-order-rbs-citizens.pdf Information about the FDIC action can be found at:https://www.fdic.gov/news/news/press/2015/ Information about the OCC action can be found at: http://www.occ.gov/news-issuances/news-releases/2015/index-2015-news-releases.html ###

CFPB issues bulletin providing guidance on private mortgage insurance cancellation and termination‏ under Homeowners Protection Act (press release issued Aug. 4, 2015, with links to resources)

CONSUMER FINANCIAL PROTECTION BUREAU PROVIDES GUIDANCE ABOUT PRIVATE MORTGAGE INSURANCE CANCELLATION AND TERMINATION

Bureau Issues Bulletin Regarding Homeowners Protection Act

August 4, 2015

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today issued a bulletin providing guidance to mortgage servicers regarding the cancellation and termination of private mortgage insurance. The bulletin explains certain requirements of the Homeowners Protection Act and is intended to help servicers comply with the law. 

“Consumers should not be billed for unnecessary private mortgage insurance,” said CFPB Director Richard Cordray. “We will continue to supervise mortgage servicers to ensure they are treating borrowers fairly, and today’s guidance should help servicers come into compliance with the Homeowners Protection Act.” 

Private mortgage insurance protects the lender if the borrower stops making payments on a loan. Lenders generally require consumers to purchase private mortgage insurance if their down payment is less than 20 percent of the sales price or the appraised value of the home. PMI premiums are added to the borrower’s monthly mortgage payment. The Homeowners Protection Act of 1998 was passed by Congress to address borrowers’ difficulties in cancelling private mortgage insurance when they had reached a certain level of equity in the property. 

Private mortgage insurance can be expensive for consumers, and the Homeowners Protection Act provides specific cancellation and termination rights. If a servicer does not cancel a borrower’s private mortgage insurance promptly, it can lead to the borrower paying significant amounts of money on unnecessary premiums. 

The CFPB has identified substantial industry confusion over implementation of the private mortgage insurance cancellation and termination requirements in the Homeowners Protection Act. Examinations by the Bureau have identified violations of several different provisions of the Act.  The CFPB discussed a number of Homeowners Protection Act violations in the Summer 2013, Winter 2013, and Summer 2015 issues of Supervisory Highlights.  

Today’s bulletin summarizes existing requirements under the law, and does not create any new responsibilities or requirements. 

Today’s bulletin is available here:

http://files.consumerfinance.gov/f/201508_cfpb_compliance-bulletin_private-mortgage-insurance-cancellation-and-termination.pdf 

The Summer 2013 issue of Supervisory Highlights is available here:http://www.consumerfinance.gov/reports/supervisory-highlights/ 

The Winter 2013 issue of Supervisory Highlights is available here:http://www.consumerfinance.gov/reports/supervisory-highlights-winter-2013/ 

The Summer 2015 issue of Supervisory Highlights is available here:http://www.consumerfinance.gov/reports/supervisory-highlights-summer-2015/  

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CFPB files suit against offshore payday lenders for violations and abuses including false threats and illegal wage-assignments - (Aug. 8, 2015 press release re-post)

FOR IMMEDIATE RELEASE: August 4, 2015

CONTACT: Office of CommunicationsTel: (202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU SUES OFFSHORE PAYDAY LENDER 

Bureau Alleges the NDG Enterprise Collected Money Illegally, Seeks Refunds for Consumers

Washington, D.C. – The Consumer Financial Protection Bureau (CFPB) today announced the filing of a lawsuit in federal district court against the NDG Enterprise, a complex web of commonly controlled companies, for collecting money consumers did not owe. The CFPB alleges that the defendants illegally collected loan amounts and fees that w ere void or that consumers had no obligations to repay, and falsely threatened consumers with lawsuits and imprisonment. The CFPB is seeking to end the companies’ alleged illegal practices and obtain monetary relief for consumers. 

“We are taking action against the NDG Enterprise for collecting money it had no right to take from consumers,” said CFPB Director Richard Cordray. “Companies making loans within the U.S. have to comply with federal law, and the Consumer Bureau will work to ensure that American consumers receive the protections and fair treatment they deserve.” 

The NDG Enterprise originates and collects payday loans over the Internet to consumers in all 50 states, including states such as New York where those loans are void because they violate state usury caps and licensing requirements. The CFPB’s complaint names NDG Financial Corp., Northway Financial Corp., Ltd., Northway Broker, Ltd., E-Care Contact Centers, Ltd., Blizzard Interactive Corp., Sagewood Holdings, Ltd., New World Consolidated Lending Corp., New World Lenders Corp., Payroll Loans First Lenders Corp., and New World RRSP Lenders Corp. All of the defendants except Northway Financial Corp. Ltd. and Northway Broker, Ltd. are Canadian corporations. Northway Financial Corp. Ltd. and Northway Broker, Ltd. are incorporated in Malta. Sagewood Holdings, Ltd. owns a majority interest in NDG Financial Corp., which owns all of the other defendants. 

The CFPB’s complaint alleges that the defendants have violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibition on unfair, deceptive, and abusive acts and practices. The CFPB’s complaint alleges, among other things, that the NDG Enterprise: 

• Made false threats to consumers: In numerous instances, the defendants falsely represented to consumers that non-payment of debt would result in lawsuit, arrest, imprisonment, or wage garnishment, despite lacking the intention or legal authority to take such actions. 

• Deceived consumers about their debts: Under state law, consumers had no obligation to repay the loans in question that were made by the NDG Enterprise. However, the NDG Enterprise told consumers expressly or by implication that they were obligated to repay loan amounts and fees that they did not actually owe. 

• Used illegal wage-assignment clauses: In numerous instances, the defendants included unlawful, irrevocable wage-assignment clauses in loan agreements. These clauses allowed the defendants to take payments directly from consumers’ employers’ payroll accounts. 

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. The Bureau’s lawsuit seeks: 

• Monetary relief and damages: The CFPB wants the defendants to refund the money they took from consumers where the loan amounts were void or the consumer otherwise was not obligated to repay the loan. The Bureau’s complaint also seeks additional damages and costs. 

• No further violations of federal consumer laws: The Bureau wants the defendants to adhere to all federal consumer financial protection laws, including prohibitions on unfair, deceptive, and abusive acts and practices. 

The Bureau’s complaint is not a finding or ruling that the defendants have actually violated the law. 

A copy of the complaint filed in federal district court is available here:http://files.consumerfinance.gov/f/201508_cfpb_complaint-northway.pdf 

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Discover Bank raked over the coals, fined, for violations in student loan servicing and debt collection (CFPB press release issued 7-22-2015)

FOR IMMEDIATE RELEASE [from the CFPB]:

July 22, 2015

CONSUMER FINANCIAL PROTECTION BUREAU ORDERS DISCOVER BANK TO PAY $18.5 MILLION FOR ILLEGAL STUDENT LOAN SERVICING PRACTICES

Discover's Illegal Servicing Practices Affected Private Student Loan Borrowers Transferred from Citibank

WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) took action against Discover Bank and its affiliates for illegal private student loan servicing practices. 

The CFPB found that Discover overstated the minimum amounts due on billing statements and denied consumers information they needed to obtain federal income tax benefits. The company also engaged in illegal debt collection tactics, including calling consumers early in the morning and late at night. The CFPB’s order requires Discover to refund $16 million to consumers, pay a $2.5 million penalty, and improve its billing, student loan interest reporting, and collection practices. 

“Discover created student debt stress for borrowers by inflating their bills and misleading them about important benefits,” said CFPB Director Richard Cordray. “Illegal servicing and debt collection practices add insult to injury for borrowers struggling to pay back their loans. Today’s action is an important step in the Bureau’s work to clean up the student loan servicing market.” 

Discover Bank is an Illinois-based depository institution. Its student loan affiliates – The Student Loan Corporation and Discover Products, Inc. – are also charged in today’s action. Beginning in 2010, Discover expanded its private student loan portfolio by acquiring more than 800,000 accounts from Citibank. As a loan servicer, Discover is responsible for providing basic services to borrowers, including accurate periodic account statements, supplying year-end tax information, and contacting borrowers regarding overdue amounts. 

Student loans make up the nation’s second largest consumer debt market. The market has grown rapidly in the last decade. Today there are more than 40 million federal and private student loan borrowers and collectively these consumers owe more than $1.2 trillion. The market is now facing an increasing number of borrowers who are struggling to stay current on their loans. Earlier this year, the Bureau revealed that more than 8 million borrowers were in default on more than $110 billion in student loans, a problem that may be driven by breakdowns in student loan servicing. While private student loans are a small portion of the overall market, they are generally used by borrowers with high levels of debt who also have federal loans.  

Today’s action demonstrates how Discover failed at providing the most basic functions of adequate student loan servicing for a portion of the loans that were transferred from Citibank. Thousands of consumers encountered problems as soon as their loans became due and Discover gave them account statements that overstated their minimum payment. Discover denied consumers information that they would have needed to obtain tax benefits and called consumers’ mobile phones at inappropriate times to contact them about their debts. The CFPB concluded that the company and its affiliates violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against unfair and deceptive acts and practices, and also the Fair Debt Collection Practices Act. Specifically, the CFPB found that the company: 

• Overstated the minimum amount due in billing statements: Discover overstated the minimum amount due for certain borrowers who were just starting to pay off their student loan debts. The minimum payment due incorrectly included interest on loans that were still in deferment and were not required to be paid. For some borrowers this overpayment meant diverting payments from other expenses; for others it meant not paying at all because they thought they could not come close to making the full payment and instead accrued associated penalties. 

• Misrepresented on its website the amount of student loan interest paid:The tax code permits taxpayers to deduct student loan interest paid during the year under certain conditions. Servicers are required to provide borrowers with a statement specifying how much the borrower paid in interest, if it was more than $600. Discover did not provide the Citibank private student loan borrowers with the customary tax information form it provided to its other borrowers, unless those borrowers submitted certain paperwork. For those borrowers who did not submit that additional form, their online interest statements on Discover’s website in 2011 and 2012 reflected $0.00 in interest paid. Discover did not explain that the borrowers were required to fill out a form to get the correct amount of interest they paid. This zero interest statement was likely to mislead consumers into believing that they did not qualify for the student loan tax deduction, potentially causing consumers to not seek important tax benefits. 

• Illegally called consumers early in the morning and late at night, often excessively: Discover placed more than 150,000 calls to student loan borrowers at inappropriate times – before 8 a.m. and after 9 p.m. in the borrower’s time zone. Discover learned about these violations in October 2012 but failed to address the problem until February 2013. 

• Engaged in illegal debt collection tactics: Discover acquired a portfolio of defaulted debt from Citibank but failed to comply with the consumer notices required by federal law. For example, the company failed to provide consumers with specific information about the amount and source of the debt and the consumer’s right to contest the debt’s validity. That information must be provided during the debt collector’s initial communication or in a written notice immediately following that initial communication. 

Enforcement Action

Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Among the terms of the consent order filed today, Discover must: 

• Return $16 million to more than 100,000 borrowers: Specifically, Discover will: 
• Provide an account credit (or a check if the loans are no longer serviced by Discover) to the consumers who were misled about their minimum payments in an amount equal to the greater of $100 or 10 percent of the overpayment, up to $500. About 5,200 victims will get this credit;
• Reimburse up to $300 in tax preparation costs for consumers who amend their 2011 or 2012 tax returns to claim student loan interest deductions. For consumers who do not participate in this tax program or did not take advantage of earlier ones offered by the company, Discover will issue an account credit of $75 (or a check if their loans are no longer serviced by Discover) for each relevant tax year. About 130,000 victims will receive this relief; and
• Provide account credits of $92 to consumers subjected to more than five but fewer than 25 out-of-time collection calls and account credits of $142 to consumers subjected to more than 25 calls. About 5,000 victims will receive these credits.

• Accurately represent the minimum periodic payment: Discover cannot misrepresent to consumers the minimum periodic payment owed, the amount of interest paid, or any other factual material concerning the servicing of their loans. 

• Send clear and accurate student loan interest and tax information to borrowers: Discover must send borrowers the IRS W-9S form that it requires them to complete to receive a form 1098 from the company, and it must clearly explain its W-9S requirement to borrowers. Discover must also accurately state the amount of student loan interest borrowers paid during the year. 

• Cease making calls to consumers before 8 a.m. or after 9 p.m.: Discover must contact overdue borrowers at reasonable times. This will be determined by the time zone of the consumer’s known residence or phone number, unless the consumer has expressly authorized Discover to call outside these hours. 

• Pay $2.5 million civil penalty: Discover will pay $2.5 million to the CFPB’s Civil Penalty Fund. 

A copy of the consent order can be found at:http://files.consumerfinance.gov/f/201507_cfpb_consent-order-in-the-matter-of-discover-bank-student-loan-corporation.pdf  

This order comes as the Bureau considers steps to ensure that all student loan borrowers have access to adequate student loan servicing. Last year, the Bureau expanded its examination program to supervise the largest nonbank participants in the student loan servicing market. In October, the Bureau released an edition ofSupervisory Highlights identifying a range of illegal student loan servicing practices at one or more companies. Earlier this year, the Bureau was joined by leaders from the Department of Education and the Department of the Treasury in launching a public inquiry into student loan servicing practices.  

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov