What’s at Risk at CFPB: Ability to Deliver Relief to Victims of Financial Flimflams

When a financial flim-flammer scatters to the wind or goes bankrupt, its victims are typically out of luck. But when the Consumer Financial Protection Bureau is on the case, the story can have a better ending.

Just in the past three months, the CFPB has sent over $100 million to an estimated 60,000 victims of a sham debt-relief company, Morgan Drexen, that went bust after collecting up-front fees for services it mostly never delivered.

The CFPB’s ability to bring a measure of justice to Morgan Drexen’s defrauded customers rested on authority granted by Congress. It works like this: When a solvent company is caught breaking the law, the bureau orders that company — Wells Fargo, let’s say — to make restitution to its victims. But that is only part of the remedy. The Dodd Frank Act, which set up the CFPB, gives it the additional power to levy a civil penalty — both to discourage further wrongdoing by the company involved, and as a warning to others. That money goes into a fund that the CFPB can use to deliver relief to those ripped off by malefactors who are no longer in a position to pony up.

By this means, the CFPB has delivered nearly $500 million in relief to hundreds of thousands of people, including the victims of scammers who, among other things:

Will the bureau be able to go on providing that sort of help? OMB Director Mick Mulvaney arrived at the bureau on Monday claiming to be its interim director. One of the first things he did was to announce that payments from the victim compensation fund would be suspended for at least 30 days.

No big surprise, perhaps, from an anti-consumer ideologue who has called the CFPB a “sick, sad joke,” and, as a congressman, voted again and again for measures to curb its authority, funding, and political independence.

The victims of the Morgan Drexen scam were particularly lucky to have the CFPB on their side. Down to their last dollars in many cases, they had turned to the firm to reduce their debt burden, only to get swindled. Restitution came as a happy surprise to most of them. One grateful Florida man received a check for $1550. A real helping hand for real people. — Jim Lardner

Vigil to #DefendCFPB

Joined by Rep. Jamie Raskin, consumer advocates gathered outside the headquarters of the Consumer Financial Protection Bureau today to defend the mission of an agency that’s delivered $12 billion in relief to over 29 million Americans in its short life.

“Standing up to Wall Street Banksters and Fraudsters since 2011,” read one of the signs that greeted CFPB employees heading into their offices for their first day under a new, but not yet decisively identified, leader.

The “Vigil to #DefendCFPB” came hours after Acting Director Leandra English filed a lawsuit to prevent President Trump from installing Mick Mulvaney, the director of the Office of Management and Budget, to run the consumer bureau. Mulvaney also arrived at the CFPB today, with a load of donuts for the staff.

But it will take more than donuts to legitimize Mulvaney’s role. It will take a court ruling, or Senate confirmation of a permanent replacement for Richard Cordray, who stepped down as Director of the CFPB last week.

“Acting Director English is rightly in that post until the Senate confirms a new director, and filing suit will allow the courts to resolve the matter,” said Lisa Donner, executive director of Americans for Financial Reform. “In the meantime, the CFPB still has work to do holding Wall Street to account on behalf of American consumers, and Ms. English and the CFPB staff can continue its successful run.”

Rep. Jamie Raskin of Maryland also addressed the gathering, which was broadcast via Facebook Live. “Not only does ordering President Trump’s OMB Director Mulvaney to moonlight as the CFPB director contradict the plain language of the CFPB statute but it also makes a mockery of the idea of an independent federal agency,” said Raskin, a former constitutional law professor.

The vigil became the backdrop for reports by CNN, CNBC, Fox News, and NPR on the Trump administration’s effort to hamstring the CFPB’s work. Donner also spoke to The Associated Press. The hashtag #DefendCFPB began trending on Twitter later in the day.

Raskin had harsh words for Trump’s appointees to regulatory bodies after campaigningas the champion of the little guy. Between the attempted designation of Mulvaney and the accomplished appointments of Education Secretary Betsy DeVos and EPA head Scott Pruitt, “President Trump has temporarily succeeded in putting the Joker, the Riddler and the Penguin in charge of Gotham City,” Raskin said.

Under the Dodd-Frank law that created the CFPB, the president nominates the head of the agency, who must be confirmed by the Senate. Cordray, the former director, won the votes of 66 senators in 2011.

“Now, the president should nominate someone with a track record of fighting for consumers who will enjoy bipartisan support in the Senate,” Donner said.

— Carter Dougherty

Appeals court majority is skeptical of PHH case against CFPB

Last Wednesday, a majority of judges expressed skepticism of PHH’s arguments that the CFPB’s structure is unconstitutional during oral arguments at the U.S. Court of Appeals for the D.C. Circuit in PHH Corporation vs. CFPB.

The consensus coming out of the argument is that the CFPB is the favorite to win:

Wall Street Journal: “Federal appeals court appears hesitant to rule CFPB’s structure is unconstitutional . . . . [S]ix of the 11 judges on Wednesday’s case were appointed by Democratic presidents. None of them showed signs that they were eager or willing to strike down the CFPB’s structure, and at least one of the Republican appointees, Judge Thomas Griffith, also expressed some reservations about upending the bureau. He and other judges cited past Supreme Court rulings they said were problematic for PHH’s challenge, including one from 1935 that said the president didn’t have a free hand to remove a member of the Federal Trade Commission.”

Reuters: “U.S. regulator may have edge in court arguments on its structure: A divided U.S. appeals court on Wednesday appeared to tilt slightly in favor of the Consumer Financial Protection Bureau’s arguments that its structure does not violate the Constitution . . . .”

Daily Caller: “The U.S. Court of Appeals for the D.C. Circuit seemed poised Wednesday to side with the Consumer Financial Protection Bureau (CFPB), a regulatory agency championed by Sen. Elizabeth Warren and former President Barack Obama, in a dispute over the constitutionality of the agency’s leadership structure.”

Here is what the appellate judges said …  

On the single-director structure being more accountable than a Commission:

  • Judge Millett: “Chief Justice Roberts said in Free Enterprise that the diffusion of power diffuses accountability, so having one person is more accountable than having three or five.” (Listen – 8:00)
  • Judge Griffith: “That seems to strengthen the President’s power–if you only need to get rid of one person, that seems to be strengthening the President’s power.” (Listen – 4:48)

On the importance of the CFPB’s independence:

  • Judge Pillard: “There is a pattern in the financial regulatory agencies of actually wanting to have some amount of separation, and, as I take it, it’s consistent with the Constitution and with the Executive’s authority to take care that the laws be faithfully executed–to have those people removable for inefficiency, for malfeasance in office, neglect of duty, but not have them removable because the President disagrees as a policy matter . . . [to] avoid financial cronyism in favor of faithful execution of the laws, and you’re saying that’s out of bounds?” (Listen – 22:25)

On Supreme Court precedent:

  • Judge Tatel: “But we’re an appeals court. We’re bound by Supreme Court precedent, including Morrison v. Olson…. I have not seen an argument in your brief, even if I agreed with you that there is a serious risk from the “for cause” removal provision for this director…, I don’t see how as a judge on an appeals court, bound by Morrison and Humphrey’s that I can go there… I don’t see where this court gets that flexibility… I have not heard an argument from you yet that we’re not bound by that.” (Listen – 13:23)

— Brian Simmonds Marshall

Sham Poll Tells Lobbyists What They Want to Hear

In its relatively short life, the Consumer Financial Protection Bureau has brought basic rules of fairness and transparency to credit markets, while holding predatory lenders and financial wrongdoers like Wells Fargo accountable. It has also delivered – so far – nearly $12 billion in relief to more than 29 million consumers cheated by financial companies of one kind or another.

Across party lines, poll after poll shows overwhelming support for the actual work the CFPB has been doing, and for more, not less, Wall Street regulation in general. Even most Trump voters, according to one recent survey, oppose efforts to weaken or eliminate the Consumer Bureau, and would rather see the Dodd Frank financial reforms (which created the CFPB) maintained or expanded than scaled back or repealed.

Misleading Industry-Funded Poll

So what should we make of a new industry-funded poll that supposedly demonstrates wide backing, in eight battleground states, for a move to turn the Consumer Bureau into a “bipartisan commission”?

“This poll is a quintessential example of a survey that has been designed to produce a specific result — one that is at odds with everything else we know about public opinion on consumer protection and Wall Street reform,” according to Celinda Lake and Daniel Gotoff of Lake Research Partners.

Here’s something it proves beyond any doubt: if you write a poll question artfully, you’ll get the answer you’re after. Put the label “bipartisan” on just about anything, for example, and people will say they’re for it.

Wall Street Wants Gridlock Not Bipartisanship

“This poll is built on leading language in support of what is framed as the ‘bipartisan’ option for the CFPB, and offers no alternative scenario,” Lake and Gotoff say. “In essence, it tells us that voters have a favorable disposition to the term ‘bipartisan,’ but reveals very little about how people feel about the CFPB.”

But the warm and fuzzy picture that word conjures up – of political independence, cooperation, and roll-up-your sleeves pragmatism – is a very far cry from the reality of the “bipartisan commission” sought by the lobbyists who commissioned this survey. Gridlock would be the far more likely outcome.

A truly telling survey would provide voters with information about the entities that the CFPB regulates, highlight the importance of independence — non-partisan action — in this position, according to Lake and Gotoff.

Public Backs Strong Enforcement Agencies

Polling and focus groups with transparent professional methodologies show that large majorities of voters from every demographic favor giving federal agencies the tools they need to enforce the law on the financial services industry.

Just consider the record of the various commissions charged with regulating the financial industry in the years leading up to the 2008 financial and economic meltdown. Two of them, the Federal Reserve and the Securities and Exchange Commission, could have done a lot to prevent that disaster. Neither did much of anything.

That’s the historical pattern, and that’s why the industry is so fond of this regulatory structure. The impetus for making the CFPB a commission isn’t coming from voters or consumers; it’s coming financial industry executives and lobbyists like the ones who paid for this poll – and from the far too many elected officials who seem to be prepared to do their bidding with little regard for the wishes or interests of their constituents.

— Jim Lardner

Consumer Bureau and NY Atty Gen’l Go After First Responder Scam

The list of hazards faced by first responders to the Sept 11th terror attacks is a long one. In addition to cancer, respiratory disease, and post-traumatic stress, the perils include financial scammers out to raid their medical compensation benefits.

In a federal lawsuit filed earlier this month, the Consumer Financial Protection Bureau (CFPB) and the New York Attorney General’s Office accuse a New Jersey company, RD Legal, of targeting firefighters, paramedics and police officers who rushed into the rubble of the World Trade Center.

“We allege that this company and its owner lined their pockets with funds intended to cover medical care and other critical expenses for people who are sick and sidelined,” Consumer Bureau  Director Richard Cordray said.

RD Legal’s modus operandi, according to the CFPB’s complaint, was to “swoop in” after victims had been awarded compensation but before they received it. The company would offer to “convert your settled cases into immediate cash,” and then charge illegally high interest on top of fees buried in the fine print of a long contract; some of its loans ended up costing the equivalent of 250% annual interest, the two agencies allege.

The Consumer Bureau was created after the 2008 financial crisis to do a simple job: get banks and lenders to treat people fairly. One way it does this is through enforcement actions which have so far delivered nearly $12 billion in refunds and relief to some 17 million Americans cheated by financial companies large and small.

In the RD Legal case, the Bureau is seeking to end the scam, impose monetary penalties, and force the company to return what could be millions of dollars to affected consumers. One of the potential beneficiaries is Elmer Santiago, a NYC police officer who was living in his jeep when he agreed to borrow $355,000. Eighteen months later, RD Legal handed him a bill for $860,000.

The company also pitched its services to former football players entitled to compensation from the NFL for neurological diseases such as CTE, Parkinson’s and Alzheimer’s. Contracts labeled “assignments and sale agreements” did not disclose interest rates because, RD Legal claimed, “the transaction is not a loan.”

Some people may have been seduced by the company’s promises to “cut through the red tape” and speed up their compensation. In fact, RD Legal provided no such help, according to the lawsuit.

RD Legal is a hedge fund and a player in what is known as the litigation finance industry, using wealthy investors to bankroll cash advances for lawsuits and settlements.The owner and founder of RD Legal, Roni Dersovitz, was named in the action, along with two affiliate entities. Dersovitz was previously sued by the SEC for defrauding investors and exploiting Beirut bombing victims.

— Madison Moore and Jim Lardner

 

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.

CFPB Stops and Punishes Bank’s Deceptive Telemarketing Fueled By Sales Quotas

The Consumer Financial Protection Bureau has taken an enforcement action to force Santander Bank to stop enrolling customers in overdraft protection without their informed consent. The bank has also been ordered pay a $10 million fine.

Santander, which has nearly 700 branches in 8 northeastern states, sold high-cost overdraft protection through a telemarketing contractor that enrolled some customers without their consent and lied to other customers about its cost.

The CFPB also found that the telemarketer’s employees were incentivized to cut corners by unrealistic sales quotas. Employees were fired or had their hours reduced when they failed to hit a specific sales target, a practice that encouraged the illegal behavior. As the Committee for Better Banks, the National Employment Law Project, and AFR have previously documented, sales quotas create widespread risks for consumers in the banking industry. Recognizing the problem with these employment practices, the CFPB’s order bars Santander from using outside telemarketers or imposing sales quotas on its employees to sell its overdraft products.

Santander is not the only bank to use high overdraft fees as a profit center. Banks charge billions in overdraft fees per year, costing the average consumer who pays an overdraft fee $225 per year.

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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