Two of the Nation’s Three Largest Credit Reporting Agencies Deceived Consumers About the Value and Cost of their Products

The Consumer Financial Protection Bureau (CFPB)’s first enforcement action of 2017 will return more than $17 million to consumers who were deceived into purchasing unneeded credit reporting products. On January 3, 2017, the CFPB issued a consent order against TransUnion, LLC (TransUnion) and Equifax Inc. (Equifax) and their respective subsidiaries and affiliates for making false claims about the usefulness and actual cost of the companies’ credit score services.

TransUnion and Equifax are two of the nation’s three largest credit reporting agencies. They collect consumers’ credit information in order to generate credit reports and scores to be used by businesses to determine whether to extend credit.  These companies also sell their own products directly to consumers, including credit scores, credit reports, and credit monitoring.

According to the order, TransUnion and Equifax told consumers that they would receive the same score typically used by lenders to determine their creditworthiness.  But that claim was false: in fact, the scores they sold to consumers were rarely used by lenders. Since at least 2011, TransUnion has been using a credit score model from VantageScore Solutions, LLC (VantageScore) — a model not used by the vast majority of lenders and landlords to assess consumers’ credit. Similarly, between July 2011 and March 2014, Equifax used its own proprietary credit score model, the Equifax Credit Score, which was in the form of “education credit scores” and thus intended for consumers’ educational use and rarely used by lenders.  In fact, the most widely used scores in lending are FICO scores.

TransUnion and Equifax also falsely advertised the price of their services.  They told consumers that their credit scores and credit-related products were free, or in the case of TransUnion, cost only “$1.” In reality, the companies required consumers to sign up for either a seven-day or 30 day free trial period of credit monitoring, which then automatically turned into a monthly subscription costing $16 or more per month, unless the consumer had cancelled by the end of the free trial. This payment structure, called “negative option billing,” was not adequately disclosed in the companies’ ads.

Credit reporting agencies are required by law to provide a free credit report once every 12 months. They are not allowed to advertise add-on services until “after the consumer has obtained his or her annual file disclosure.” The CFPB found that Equifax violated that requirement.

The CFPB has ordered TransUnion to pay more than $13.9 million in restitution to affected consumers, and Equifax to pay almost $3.8 million, in addition to fines of $3 million and $2.5 million respectively. The companies have also been directed to truthfully and clearly describe the usefulness of their credit score products, and to obtain consumer consent before enrolling anyone in automatic billing.

Consumers who want access to their credit reports for free should go to the official source: www.annualcreditreport.com. They can stagger their requests by ordering one report from each of the Big Three credit reporting agencies (Equifax, Experian, and TransUnion) every four months, essentially obtaining “credit monitoring for free.” In addition, many consumers can now get a FICO score for free through the FICO Open Access program from participating credit card companies or nonprofit credit counselors.

— Veronica Meffe

CFPB Stops Companies from Lying to Seniors about Reverse Mortgages

This month the Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for promising seniors a financial product that was too good to be true. The CFPB’s investigation determined that several of the claims the companies made in TV and print ads were not true. All three companies “tricked consumers into believing they could not lose their homes” with a reverse mortgage, CFPB Director Richard Cordray said in a statement accompanying the Bureau’s announcement of the settlements it has reached with Reverse Mortgage Solutions, Aegean Financial, and American Advisors Group,  which is the largest reverse mortgage lender in the United States.[1]

A reverse mortgage is a special type of home loan for homeowners who are 62 or older, that converts a portion of the equity that has been built up over years of paying a mortgage, into cash. Homeowners do not have to repay the loan until they pass away, sell, or move out of the house, or fail to meet the obligations of the mortgage.  These three companies promised consumers that their reverse mortgages would eliminate debt without any monthly payment obligation.  In fact, a reverse mortgage is itself a debt[2] and consumers are required to make regular payments related to the home, including for property taxes, insurance and home maintenance.[3] Consumers can default on a reverse mortgage and lose their home if they fail to comply with the terms of the loan, including making such payments.

The CFPB settlement requires the three companies to make clear and prominent disclosures of the possible dangers of reverse mortgages in their future adds, and to pay a  combined $800,000 in penalties

The CFPB provides information for consumers about reverse mortgages on its website.

— Veronica Meffe

[1] Consent Order in the Matter of American Advisors Group, No. 2016-CFPB-0026 (Filed Dec. 7, 2016), at 6 (“American Advisors Group Consent Order”).
[2] Id., at 11.
[3] Id., at 9.

CFPB Sues to Stop Scam Against Lead Poisoning Victims

The Consumer Financial Protection Bureau (CFPB) filed a lawsuit against Access Funding, LLC (Access Funding) for operating an illegal scheme that took advantage of victims of lead-paint poisoning. “Many of these struggling consumers were victimized first by toxic lead, and second by a company that saw them as little more than income streams to be courted and harvested,” the CFPB said.

Access Funding is a structured-settlement factory company that purchases payment streams from personal-injury settlement recipients in exchange for an immediate lump sum that is usually much lower that the long-term payout. Forty-nine states have enacted laws, known as Structured Settlement Protection Acts (SSPAs), which require judicial approval to protect injured people from scams.

According to the CFPB’s November 21 lawsuit, Access Funding and its partners aggressively pressured consumers to accept up-front payment amounting to about 30 percent of the present value of the money due to them,[1]  and lied to them by saying that once they had received a cash advance they were legally obligated to proceed with the transaction.[2] Knowing that many of the consumers in this case had suffered cognitive impairments from lead poisoning, the CFPB’s complaint alleges that the companies exploited their “lack of understanding” in order to lock them into these arrangements.

About 70 percent of Access Funding’s deals were done in Maryland, where it was headquartered. Many SSPAs, including Maryland’s, require consumers to consult with an independent professional advisor (IPA) before a court can approve such a deal. According to the lawsuit, Access Funding steered almost all its Maryland consumers to a single attorney, Charles Smith, who purported to act as the IPA, while having both personal and professional ties to Access Funding and its partners. Smith, who was paid directly by Access Funding, gave virtually no advice to the consumers.[3]

The lawsuit charges Access Funding with violating the federal prohibition on unfair, abusive, and deceptive acts in consumer financial transactions.[4] Reliance Funding, a successor company to Access Funding, was also named in the action, along with Michael Borkowski, CEO of Access Funding; Raffi Boghosian, Chief Operating Officer of Access Funding; Lee Jundanian, former CEO of Access Funding; and Charles Smith, the attorney who facilitated the scam. The CFPB is seeking to end the company’s unlawful practices and obtain compensation for victims, as well as a civil penalty against both companies and their partners. — Veronica Meffe

[1] Complaint at 7, CFPB v. Access Funding, LLC, No. 1:16-cv-03759-JFM (D. Md. Filed Nov. 21, 2016) (“Complaint”).
[2] Press Release, Consumer Financial Protection Bureau, CFPB Sues Access Funding for Scamming Lead-Paint Poisoning Victims Out of Settlement Money (Nov. 21, 2016) (“Press Release”).
[3] Complaint at 8-9.
[4] Press Release.

After massive bank fine, Congress considers bill to gut financial reform

Image via Brandon Doran on flickr.com

Image via Brandon Doran on flickr.com

This week, the House Financial Services Committee will consider an extraordinarily dangerous bill that takes many of the worst ideas concocted by Wall Street lobbyists and their political friends and combines them into one toxic package.

The bill, the “Financial CHOICE Act” (H.R. 5983) is authored by House Financial Services Chairman Jeb Hensarling (R-TX-5), and it not only rolls back key portions of the Dodd-Frank Act, it also guts regulations that came before it. If passed, it would make financial regulation even weaker than it was even prior to the 2008 crisis. It also eviscerates the Consumer Financial Protection Bureau (CFPB) mere days after the CFPB fined Wells Fargo $100 million for widespread unlawful sales practices and ordered Wells Fargo to issue full refunds to all scammed customers. With banks continuing to abuse their own customers we need  MORE accountability, not less.

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On the CFPB’s Fifth Birthday, Senator Warren Celebrates the Bureau’s Achievements

EW woo hoo freeze frame

This week, the Consumer Financial Protection Bureau (CFPB) turns five years old. AFR and a large number of consumer, civil rights, and community-based groups celebrated the anniversary, noting that life is better for American families and neighborhoods because the CFPB is at work fighting predatory lending and financial abuse. In addition to winning the praise of advocates, recent polling has shown that there is overwhelming, bipartisan support by the public for the work of the Bureau.

Senator Elizabeth Warren also delivered her own accolades to the Bureau in a video message that stresses the importance of its good work. In it, she notes that in just five short years, the CFPB has “ returned over $11 billion to consumers who were cheated on their mortgages, credit cards, checking accounts, and other financial products.”


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The best-paid hedge fund managers made $13 billion last year

That’s enough to end family homelessness in America

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Image credit: Pictures of Money (CC BY 2.0)

The 25 highest paid hedge fund managers in America took home $13 billion in compensation last year, according to Reuters.

They’re able to make such astronomical amounts thanks in part to the many loopholes in our financial regulation. So-called “activist” hedge funds, for example, abuse lax securities laws to gain large stakes in public companies, and then demand cost-cutting, layoffs, and more debt. These moves enrich the hedge funds while often dooming the companies they acquire.

To top it off, hedge funds are costly investments whose performance often just mirrors the stock market overall, despite charging exorbitant fees. In 2015, those fees added up to a cool $13 billion in compensation for the 25 managers at the top of Reuters’ list.

It’s hard to wrap your head around a number like $13 billion. To make it a little easier, here are a few comparisons — inspired by a report from the Coalition on Human Needs.

$13 billion could end family homelessness for ten years

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Image credit: Lavin Han (CC BY-ND 2.0)

The Department of Housing and Urban Development (HUD) has said that it would take $11 billion over ten years to provide housing subsidies to 550,000 more families — an amount that could effectively end family homelessness, since in January 2015, HUD found that 564,708 people were homeless on a given night.

And we’d still have $2 billion left over.
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House Subcommittee Considers Bill to Shred the SEC’s Tires

The many problems with the Investment Advisers Modernization Act

Shredded tires

While Americans for Financial Reform and our allies are busy campaigning for closing loopholes that are special privileges for private funds, the Majority on the Hill is proposing to do away with even the limited existing reporting requirements to protect investors and increase accountability.

On May 17th, the House Financial Services Subcommittee on Capital Markets held a hearing to discuss a bill called the Investment Advisers Modernization Act of 2016. Far from actually modernizing the industry, the bill rolls the clock back to a time when private fund advisers operated in the shadows, without meaningful oversight. The bill would enable the exploitation of investors and reduce the information available to regulators to address systemic risk by rolling back key reporting requirements, and by interfering with the Securities and Exchange Commission’s ability to investigate fraud at individual firms. (For a full breakdown of the problems with this bill, please see AFR’s opposition letter).

One of the witnesses who testified was Jennifer Taub, a Professor at Vermont Law School and author of Other People’s Houses, a book on the foreclosure crisis. Professor Taub pointed out in her written testimony that the Investment Advisers Modernization Act could not only “undermine investor protection and trust, which could inhibit or drive up the cost of capital,”  but would also “allow certain private equity advisers and other private fund advisers that have been exposed as lacking in recent SEC examinations to hide their tracks.”

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Deregulation: Bad for Cheeseburgers, Bad for Financial Markets

Cheeseburger

Image Credit: Valerie Everett (CC BY-SA 2.0)

Yesterday in the House Financial Services Committee, a new bill was considered that would weaken a key piece of financial reform. Speaking in support of the bill, Rep. Steve Stivers (R-OH) argued that this new piece of regulation was important because of “delicious cheeseburgers.”

H.R. 4166, the “Expanding Proven Financing for American Employers Act,” would create new exemptions from the rules in Dodd-Frank that require the financiers packing up new securities to retain a stake in their new products – rules put there to ensure that they have skin in the game.

The bill would allow financial firms that package up a product known as a “collateralized loan obligation,” or CLO for short, to escape the requirement that they hold onto a piece of the CLOs risk – a requirement to hold 5% of the total risk of the CLO, to be exact.

The Ranking Member of the Committee, Rep. Maxine Waters (D-CA), made a number of points against H.R. 4166:

“I’m baffled by legislation such as this… the 2008 crisis was caused – in large part – by mortgage companies that originated loans to borrowers that had no ability to repay…To address this problematic “originate to distribute” model, Dodd-Frank included an important component known as risk retention, or “skin-in-the-game.”  In essence, Congress told loan originators and securitizers to “eat their own cooking” before selling off their investments to others… H.R. 4166, takes us in the wrong direction, essentially exempting most securitizations of corporate loans from risk retention.

 

…CLOs are often used to finance private equity takeovers of companies through “leveraged buyouts.” The industry advocated for the exemption contemplated in this bill when they wrote letters to the regulators during the comment period.

Regulators heard their arguments, and rejected their proposal.  In fact, regulators pointed out that the leveraged loan market may be getting overheated, and that “characteristics of the leveraged loan market pose potential systemic risks similar to those observed in the residential mortgage market.”  …Mr. Chairman, when our banking regulators tell us there may be a bubble, I think we ought to listen.”

In response to the Ranking Member, Rep. Stivers tried out an argument…about cheeseburgers:

“Wendy’s International, a delicious food company based in my district…they have $246 million of collateralized loan obligations. Without that, they would not be able to make the delicious cheeseburgers you rely on every day.”

What Rep. Stivers doesn’t mention is that the reason Wendy’s needs so much borrowing, and is apparently pushing for weaker rules –  and the reason they are already so leveraged that they wouldn’t qualify for the exemption for responsibly underwritten loans that regulators have already granted –  is that they are doing a massive stock buyback which cashes out their shareholders. Although the buyback benefits current shareholders, it comes at the expense of leveraging up the company massively and threatening the future of franchisees. In other words, this borrowing isn’t for hamburgers, it’s to make billionaire shareholder Nelson Peltz richer to the tune of hundreds of millions of dollars.

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Will Congress Endorse Discrimination in Auto Lending?

If you’re a person of color taking out a car loan, odds are you’ll pay a significantly higher interest rate than you would if you were white. Since 2013, the Consumer Bureau has begun to tackle this long-neglected, well-documented problem, both through enforcement and by issuing a guidance on fair lending law compliance for lenders working with dealerships to finance auto purchases. Congress should be praising the Bureau for its fight against auto-loan discrimination. Instead, a shameful number of members of the House voted last month to curtail the CFPB’s work in this area.

On November 18, the House passed a bill, H.R. 1737, which would invalidate the existing guidance and impose burdensome and unnecessary new procedures on any future CFPB efforts to address the issue. The final vote was 332-96, with 88 Democrats voting in favor.

AFR and our allies will do all we can to keep this bad bill from gaining traction in the Senate or being added as a policy rider to a year-end spending measure. Thus far, over 52,000 Americans have signed petitions urging Congress to reject HR 1737. (You can add your name to AFR’s petition here). And ColorOfChange, Working Families, Center for Popular Democracy and Americans for Financial Reform (AFR) delivered over 50,000 of those petitions to the offices of House Majority Leader Paul Ryan, Minority Leader Nancy Pelosi, and Representative G.K. Butterfield, chair of the Congressional Black Caucus.

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Reforming the Federal Reserve’s Bailout Authority

Senator Elizabeth Warren speaking at Cato/AFR event on reforming the Fed's bailout authority
On September 16th, Americans for Financial Reform (AFR) joined Senators Elizabeth Warren (D-MA) and David Vitter (R-LA) for an event at the Cato Institute about reforming the Federal Reserve’s bailout authority. The discussion focused on the Federal Reserve’s unprecedented use of its Section 13(3) emergency assistance authority to provide trillions of dollars in low-interest loans to Wall Street banks during the crisis, as well as the new limits put on that authority in the Dodd-Frank Act.

AFR's Policy Director Marcus Stanley speaks about reforming the Fed's emergency lending powers.

AFR’s Policy Director Marcus Stanley speaks about reforming the Fed’s emergency lending powers

The first panel, moderated by Ylan Mui of the Washington Post, featured AFR’s policy director Marcus Stanley, and Phillip Swagel of the University of Maryland.

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