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.

What should be done to stop banks like Wells Fargo from scamming us?

Image via Peg Hunter (CC BY-NC 2.0) / Cropped from original

Wells Fargo’s CEO John Stumpf deserves every bit of the anger that the Senate Banking Committee directed at him for leading Wells Fargo while it created more than 2 million fake deposit and credit-card accounts, and then charged unknowing customers for them.

Stumpf has tried to lay the blame at the feet of workers. But this was not the behavior of a few out-of-control workers. The problem was systematic, and it followed from Wells Fargo’s use of high-stakes sales quotas for its employees. As the Los Angeles City Attorney’s office explained in its lawsuit, these quotas were often impossible to fulfill, and yet employees who fell short were often fired.

But Wells Fargo’s failure points to a broader problem. After all, this is hardly the first time Wells has faced scrutiny for illegal acts. As Senator Sherrod Brown (D-OH) pointed out, this is only one of 39 enforcement actions that Wells has faced in the last ten years.

Wells Fargo has racked up over $10 billion in fines for offenses from racial discrimination in mortgage lending, tomortgage fraud, to violations of the Americans with Disabilities Act.

So what should be done to stop banks from scamming us? Americans for Financial Reform has five specific proposals.

Continue reading

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.

Senator Warren on Attempts to Further Rig Our Justice System (H.R. 766)

In a speech on the Senate floor on February 3rd, Senator Elizabeth Warren described America’s criminal justice system as “rigged” in favor of big corporations and the wealthy and powerful. The Senator also condemned attempts in the House to pass H.R. 766, a bill that makes it harder to the Department of Justice to investigate and prosecute financial crimes.

The House is set to vote on H.R. 766 on February 4. Americans for Financial Reform opposes the bill, and has written to Congress voicing that opposition. [UPDATE: H.R. 766 passed the House 250–169].

Here is the complete transcript of Senator Warren’s speech:

Mr. President, across the street at the Supreme Court, four simple words are engraved on the face of the building: Equal Justice Under Law. That’s supposed to be the basic premise of our legal system: that our laws are just, and that everyone – no matter how rich or how powerful or how well-connected – will be held equally accountable if they break those laws.

 

But that’s not the America we live in. It’s not equal justice when a kid gets thrown in jail for stealing a car, while a CEO gets a huge raise when his company steals billions. It’s not equal justice when someone hooked on opioids gets locked up for buying pills on the street, but bank executives get off scot-free for laundering nearly a billion dollars of drug cartel money.

 

We have one set of laws on the books, but there are really two legal systems. One legal system is for big corporations, for the wealthy and the powerful. In this legal system, government officials fret about unintended consequences if they’re too tough. In this legal system, instead of demanding actual punishment for breaking the law, the government regularly accepts token fines and phony promises to do better next time. In this legal system, even after huge companies plead guilty to felonies, law enforcement officials are so timid that they don’t even bring charges against individuals who work there. That’s one system.

 

The second legal system is for everyone else. In this second system, whoever breaks the law can be held accountable. Government enforcement isn’t timid here – it’s aggressive, consequences be damned. Just ask the families of Sandra Bland, Freddie Gray, and Michael Brown about how aggressive they are. In this legal system, the government locks up people up for decades, ruining lives over minor drug crimes, because that’s what the law demands.

Yes, there are two legal systems – one for the rich and powerful and one for everyone else. Continue reading