Today's Trends in Credit Regulation

CFPB Watch for Auto Dealers
By Michael A. Benoit

This month we report developments from the Consumer Financial Protection Bureau, the Federal Trade Commission, state authorities, and various CFPB advisory groups. We're Talking About Debt Collection! The FTC and the Office of the New York Attorney General will host a meeting on June 15, 2015, in Buffalo, New York, to discuss consumer protection issues with the debt collection industry. This will be the first of several "Debt Collection Dialogues" the FTC will hold around the country. Representatives from the two agencies will discuss recent enforcement actions, consumer complaints about debt collection practices, and compliance issues. A representative from the CFPB will participate as well.

Relief is Hard to Find. On April 3, the FTC announced a proposed settlement with Linden Financial Group LLC, the marketing arm of a law firm that allegedly deceived consumers into paying large up-front fees for inadequate mortgage relief services. Linden prepared and mailed advertisements for mortgage relief services designed to look like they were coming from lawyers in the recipients' states. Linden also allegedly received money from the payment processor set up to collect funds from consumers and then used the money to fund expenses and funnel cash to the law firm and its lawyers. Linden will be banned from the mortgage relief and debt relief industries, prohibited from violating the FTC's Telemarketing Sales Rule, and required to have competent and reliable evidence to support claims made about the benefits, performance, or efficacy of any financial product or service. The proposed order imposes a judgment of $28.6 million against Linden and requires the company to turn over its financial accounts to the FTC. On March 25, the FTC reached a proposed settlement with another company providing mortgage relief services and its owners, alleging that the defendants charged illegal up-front fees for services they falsely promised would reduce consumers' interest rates or monthly payments. A judgment of $1,270,439 was imposed, but was partly suspended due to the defendants' inability to pay.

Cut That Out! On April 8, the CFPB announced a lawsuit against several debt collection companies and their individual owners for allegedly threatening, harassing, and deceiving consumers in order to collect debt that the consumers did not actually owe or was not payable to those collecting it. The CFPB also brought charges against the telemarketing company that initiated millions of automated phone calls to consumers as part of the collection process and the payment processors that enabled the debt collectors to access consumers' bank accounts, alleging that these parties knew about the alleged unlawful behavior.

A Lot About Allotments. On April 20, the CFPB took action against Fort Knox National Company and its subsidiary, Military Assistance Company, for allegedly charging servicemembers millions of dollars in "hidden" fees. Kentucky-based Fort Knox, through MAC, was one of the nation's largest third-party processors of military allotments. With MAC, servicemembers could set up an allotment that transferred part of their pay into a pooled bank account controlled by MAC. Servicemembers would then pay MAC a monthly service charge (typically $3-$5) to have MAC make monthly payments to creditors out of the account. Sometimes, however, excess funds accumulated in the payment account, allegedly without servicemembers' knowledge. For example, an excess, or "residual," balance might occur when a debt that a servicemember owed was fully paid off, but the servicemember had not yet stopped the automatic paycheck deductions.

The CFPB alleged that the company routinely charged recurring, undisclosed fees against these residual balances, resulting in tens of thousands of servicemembers having money slowly drained from their accounts. Under the terms of the consent order, Fort Knox and MAC are required to provide about $3.1 million in relief to harmed servicemembers.

Some Advice, Please. The Community Bank Advisory Council, an advisory group to the CFPB, met on April 22, 2015, in Washington, D.C., to discuss credit scores and credit reporting and implications for community banks. Another advisory group, the Academic Research Council, held its annual meeting on May 7, 2015, in Washington, D.C., to discuss trends in consumer finance research, the activities of consumer financial protection agencies in other countries, and recent publications produced by the CFPB's Office of Research.

Photo Op! On April 27, the CFPB released its third "Snapshot of Complaints Received from Servicemembers, Veterans and their Families." The report details the data and trends from complaints the CFPB has received from members of the military community since July 2011. Categories with the most complaints are debt collection, credit reporting, and student loans. The CFPB also released its third Fair Lending Report, detailing the Bureau's efforts to address discrimination in connection with consumer financial products and services.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook, LLP. Michael can be reached at 202-327-9705 or by email at

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