Archives for November 2014

DC Circuit Court Hears Arguments in Cases Challenging CFPB Authority

November 22, 2014 By admin Leave a Comment

The U.S. Court of Appeals for the D.C. Circuit heard oral arguments in two cases Wednesday that challenge the CFPB’s authority to regulate financial services firms due to its one Director leadership structure. The specific arguments concerned standing to bring such suits, with the merits of the challenges pending.

In Morgan Drexen v. CFPB, a California-based legal services and debt relief firm filed suit against the CFPB in DC courts in July 2013 claiming that during the course of the Bureau’s investigation of the firm, its civil investigative demands for documents and communications exceeded the CFPB’s regulatory authority. Shortly after, the CFPB filed its own suit against Morgan Drexen in California, an enforcement action, which it says was the result of its investigation.

Drexen’s case against the CFPB was dismissed in October 2013 by a District judge in DC. (The CFPB’s enforcement case against Drexen, however, is still proceeding after surviving a motion to dismiss in January of this year.)

Wednesday’s oral arguments in DC Circuit Court were the result of Drexen’s appeal of the October 2013 ruling.

A three-judge panel heard from both sides why they feel Morgan Drexen has standing to bring the case. Although the merits of the challenge were not on the table, one of the judges offered an opening when he asked if he could get a “peek” at the merits. The attorney for Drexen quickly rattled through the familiar arguments of a one-director leadership structure for a powerful federal regulator which stands in contrast to other agencies like the FTC and SEC.

The main argument on standing was whether Morgan Drexen, and co-plaintiff Kimberly Pisinski – a solo attorney in Connecticut – were actually harmed by the CFPB’s investigative demands. The plaintiffs insist that surrendering sensitive and privileged documents, the type the CFPB requested, would cause damage to their business.

The main focus of the initial ruling against Morgan Drexen in DC court was the reluctance of the judge to take up the case due to the CFPB’s pending suit in California. The judge insisted that Morgan Drexen could raise Constitutionality questions in that suit.

In appealing the ruling in the CFPB’s enforcement action, Morgan Drexen recently filed a response to the CFPB’s motion for summary judgment in the case that lays out its complete argument.

Morgan Drexen has not been shy about its allegation against the CFPB, going so far as to launch a web site dedicated to its lawsuit against the Bureau. It claims, primarily, that the CFPB’s request for information violates consumers’ privacy.

The other case heard Wednesday, State National Bank of Big Spring, et al. v. Jacob Lew, et al., involves private plaintiffs and state attorneys general banding together in a direct challenge to the CFPB’s very existence. Jacob “Jack” Lew is the current Treasury Secretary, the cabinet that houses the CFPB.

That case argues that the bank in question, as well as two DC non-profits, are harmed by the CFPB because they incur costs as a direct result of new regulation from the CFPB. Eleven state attorneys general, all Republicans, joined the case arguing that states are subject to CFPB regulation because of their duties as receivers for failed financial institutions in liquidation.

In August 2013, a DC district court tossed the case at the CFPB’s request on standing.

DC Circuit Court Hears Arguments in Cases Challenging CFPB Authority
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Accounts Receivable Management

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Student Loan Guarantor, Owner of ED Debt Collector, Buying Corinthian College Campuses

November 22, 2014 By admin Leave a Comment

ECMC Group announced Thursday that it has entered into an agreement to acquire 56 Everest and WyoTech campuses from Corinthian Colleges Inc. and transition them from for-profit to nonprofit status. The total purchase price is $24 million.

Corinthian is the embattled former operator of more than 100 for-profit college campuses in the U.S. and Canada. Federal and state regulators and investigators have launched numerous actions against the company over its lending, funding, and debt collection practices. In July, the company and the Department of Education (ED) agreed on a plan that would shutter a dozen Corinthian campuses and sell the remainder to third parties.

ECMC is the first announced buyer of former Corinthian campuses. The company is purchasing nearly all of the Everest and WyoTech-branded campuses that are not located in California. The full list is available here.

ECMC Group is forming a non-profit subsidiary, Zenith Education Group, to facilitate the sale and run the campuses post-transaction. ECMC is the parent company of Educational Credit Management Corporation, one of the largest student loan guaranty agencies in the U.S. and an ED partner, as well as Premiere Credit of North America, a debt collection agency that collects student loans on an ED contract.

ECMC said that the transition from for-profit to non-profit status would involve transforming “the culture and education model at the acquired schools, including lowering tuition and introducing strict accountability standards for program completion and job placement rates.”

“This is an extraordinary opportunity for us to make a difference in career education by offering students a new path for gaining the in-demand skills and training that employers are seeking,” said David Hawn, president and CEO of ECMC Group. “We are bringing our resources to bear to transform Everest and WyoTech into schools that are synonymous with student success – measured by strong program completion and job placement rates.”

The transaction is subject to federal and state regulatory approval, most notably from ED. But the Education Department has already signaled its support in an official press statement released in conjunction with the acquisition announcement.

“The U.S. Department of Education announced its support today of an agreement between ECMC Group and Corinthian Colleges Inc. for ECMC Group’s newly formed nonprofit education entity, Zenith Education Group, to acquire 56 Everest and WyoTech campuses for transition to nonprofit status,” the statement rather directly read.

ED also noted that the transaction would directly impact nearly 40,000 students whose campuses would have closed if a deal did not happen soon. ED has launched a microsite to help students and former students that went through Corinthian.

Student Loan Guarantor, Owner of ED Debt Collector, Buying Corinthian College Campuses
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Accounts Receivable Management

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ACA and DBA Issue Support for Federal Action Against Rogue Collectors

November 22, 2014 By admin Leave a Comment

ACA International, the trade association for debt collectors, and DBA International, a group that represents debt buyers, issued statements Wednesday commending federal prosecutors for bringing down a large debt collection scam operation.

Federal officials with the Justice Department and FBI announced Tuesday the arrest of seven people with the firm Williams, Scott and Associates (WSA) for their roles in a fraudulent debt collection operation that over the course of five years targeted more than 6,000 consumers in all 50 states and brought in more than $4.1 million.

Both ACA and DBA noted that scams like this do significant harm to consumers and that subsequent stories about the cases have the potential to harm the ARM industry.

“Deceitful scams harm consumers and damage legitimate and ethical debt collection efforts,” said ACA CEO Pat Morris. “Our members are committed to compliance with the law and ethical means of collecting consumer debts. Unfortunately, fraud still occurs on a rare occasion. Those who purposely violate the law should be held fully accountable for their actions.”

“This case highlights how abusive and illegal practices employed by one company can shed a negative light on an entire industry,” said DBA International Executive Director Jan Stieger. “DBA International supports legal and regulatory actions against companies that prey on consumers, which is why we created our national certification program.”

ACA focused on its educational outreach programs for consumers through its Ask Doctor Debt website and noted that it “condemns fraudulent, abusive and unethical debt collection practices, and applauds government efforts to investigate and prosecute debt collection scams.”

DBA said that its efforts to police its members includes the launch of its Debt Buyer Certification Program, which “stresses responsible consumer protection, increased transparency and improved educational and operational standards within the industry, in addition to adhering to all state and federal laws and regulations.”

Both organizations took the opportunity to remind consumers and regulators that the ARM industry fills a vital role in the credit-based economy of the U.S.

ACA and DBA Issue Support for Federal Action Against Rogue Collectors
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Accounts Receivable Management

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The Smart Way to Evaluate Phone Data Providers

November 22, 2014 By admin Leave a Comment

Employing an effective debt-collection strategy, with the right information solutions provider, helps increase Right-Party Contacts (RPC) and drive operational effectiveness for any company, large or small.

The rise of consumer sophistication, government regulations and client work standards continues to drive the demand for effective collection processes—and strategic alliances with information solutions providers are a critical element to success. Your data vendor is an extension of your operation and picking the right one has never been more critical.

When it comes to choosing the right provider, however, the first rule of thumb is to realize not all partners are created equal. Effectively evaluating potential data partners is a critical step to fully leverage their resources for optimal success. During the evaluation process, it’s important to peel back the layers on the prospective partner’s processes, technology and databases, in order to choose the vendor that best meets your individual needs.

That’s why Lexis Nexis has released a free whitepaper that steps ARM companies through an effective process of evaluating phone data providers.

Employing an effective testing strategy with your information solutions providers will enable you to evaluate their strengths and weaknesses and empower you to get the most value from the data you receive.

Download Strategies for Effective Phone Data Testing today.

The Smart Way to Evaluate Phone Data Providers
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Accounts Receivable Management

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Taking Your Collections Performance to the Top

November 22, 2014 By admin Leave a Comment

Intelligent communications and customer self-serve, according to FICO, help you scale the shifting economic, regulatory and social environment.

In today’s dynamic collections environment, traditional approaches are less and less effective. New techniques—like self-serve ways for customers to resolve delinquencies from their mobile phone—produce higher ROI for collections time, effort and expense.

This whitepaper covers five ways to increase your collections effectiveness:

Contact customers in the way likely to succeed
Connect before they’re late
Resolve delinquencies in a flexible manner
Take the guesswork out of collecting
Keep getting better, faster

You can also join FICO for a related webinar, Collection and Recovery: Increasing Customer Loyalty and Reducing Reputation Risk, on Tuesday, December 16, 2014 2:00 PM – 3:15 PM EST. REGISTER.

Taking Your Collections Performance to the Top
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Accounts Receivable Management

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Collection Agency Founder Arrested by Feds and Charged in $5 million Fraud Case

November 22, 2014 By admin Leave a Comment

The U.S. Attorney in the Southern District of Indiana announced Wednesday the arrest of the owner of a former debt collection agency and the filing of fraud and other charges related to actions he took in the financing of his company and misrepresentations he made concerning his own financial situation.

Acting U.S. Attorney Josh Minkler said that Todd Wolfe defrauded a financial institution and at least one individual investor to keep his firm afloat.

Since 2009, Wolfe operated DECA Financial services in Fishers, Indiana. DECA was a full service credit collections company which at one time employed nearly 75 individuals and whose principal activity was to collect delinquent loans for health care, student loans, and financial services.

On two occasions, Wolfe allegedly filed false financial reports to BMO Harris bank inflating the assets of his company. The false reports allowed Wolfe to obtain lines of credit which he in turn used for personal expenses. Over a two and one half year period, the credit extended to Wolfe increased from $1 million to $7.5 million. Affidavits show he used some of the money to make payments on his personal residence, an automobile, personal credit card accounts, and a lake house.

“Defrauding a financial institution affects all honest, hardworking individuals,” said Minkler. “Anyone who uses their position to abuse the public’s trust will be held strictly accountable.”

Minkler further alleged that in June 2013, Wolfe agreed to sell an individual $1 million in DECA stock which represented 5 percent ownership in the company. The victim was never repaid anything for his stock purchase. Wolfe allegedly used some of the $1 million to purchase a 2011 Audi 5S automobile.

In February of this year, creditors forced Wolfe into bankruptcy. An attorney representing Wolfe and DECA filed a motion with the court stating Wolfe had a living trust worth over $14 million which could be used to repay creditors. The actual value of the trust was $52,000. The misrepresentation likely delayed the appointment of an independent trustee to oversee the operation of DECA and delay creditor’s access to books and records.

The charges filed Wednesday include bank fraud, wire fraud, and bankruptcy fraud. The government’s investigation was conducted by the FBI and the U.S. Bankruptcy Trustee.

Collection Agency Founder Arrested by Feds and Charged in $5 million Fraud Case
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CFPB Takes Actions Against Car Dealer Over Debt Collection and Credit Reporting

November 22, 2014 By admin Leave a Comment

The Consumer Financial Protection Bureau (CFPB) Wednesday took its first action against a “buy-here, pay-here” car dealer.

According to the CFPB, the dealer, DriveTime, harmed consumers by making harassing debt collection calls and providing inaccurate credit information to credit reporting agencies. DriveTime must pay $8,000,000 as a civil money penalty, end its unfair debt collection tactics, fix its credit reporting practices, and arrange for harmed consumers to obtain free credit reports.

Arizona-based DriveTime Automotive Group, Inc. and its finance company, DT Acceptance Corporation, make up the largest buy-here, pay-here car dealer in the nation. Buy-here, pay-here means that the dealer sells the car as well as originates and services the auto loan.

DriveTime’s average customer has an annual income of $37,000 to $50,000 and has a FICO score between 461 and 554. It operates 117 dealerships in 20 states and, as of December 31, 2013, held more than 150,000 outstanding auto installment contracts.

Generally, at least 45 percent of DriveTime’s auto installment contracts were delinquent at a given time. When DriveTime consumers fell behind on their installment payments, DriveTime’s extensive collections operation began calling them. DriveTime had at least 290 collection employees in two domestic call centers and 80 contractors in Barbados. These employees and contractors placed tens of thousands of collection calls each weekday. At the end of 2013, DriveTime had approximately 69,000 installment contracts past due that these employees would have been calling about.

The CFPB found that DriveTime violated federal consumer financial laws, through Dodd-Frank’s UDAAP provision, with actions such as:

Harassing borrowers at work: DriveTime collectors often called borrowers at work, and DriveTime management encouraged these calls.

Harassing borrowers’ references: DriveTime required consumers to provide the names and phone numbers of at least four references when they applied for financing. When consumers fell behind on their payments, DriveTime called these references.

Making excessive, repeated calls to wrong numbers: To reach consumers who fell behind, DriveTime frequently used third-party databases to find new phone numbers. These databases were often wrong. Upon receiving DriveTime’s calls, numerous third parties told DriveTime they had the wrong number and requested that DriveTime stop calling them. Despite such requests, DriveTime continued to make these calls. In some cases, DriveTime called these wrong numbers for over a year before stopping.

Providing inaccurate repossession information to credit reporting agencies: DriveTime furnishes consumer account information for approximately 350,000 accounts to all three major consumer reporting agencies. In a number of cases, DriveTime gave the agencies information that inaccurately reflected the timing of repossessions and dates of first delinquency.

Failing to properly handle credit information furnishing disputes: DriveTime also mishandled consumers’ complaints about the inaccurate information it had provided to the credit reporting agencies. In several instances, consumers disputed the same account information several times without the inaccurate information being corrected. In other cases, DriveTime informed the consumers in writing that the information had been corrected, when it had not been. This was a violation of the Fair Credit Reporting Act, which requires that companies properly investigate disputes.

Failing to implement reasonable procedures to ensure the accuracy of consumers’ credit information: DriveTime failed to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information it furnished to credit reporting agencies.

Enforcement Action

Pursuant to the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaging in unfair, deceptive, or abusive acts or practices or that otherwise violate federal consumer financial laws.

The CFPB’s consent order requires DriveTime to:

End unfair calling practices

Disclose collection options to consumers

Cease furnishing inaccurate repossession information

Correct credit reporting information

Provide credit reports to harmed consumers

Implement an audit program

Pay an $8 million penalty

CFPB Takes Actions Against Car Dealer Over Debt Collection and Credit Reporting
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Accounts Receivable Management

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Owner Of Debt Relief Company Sentenced to 9 Years in Federal Prison After Guilty Plea

November 22, 2014 By admin Leave a Comment

Preet Bharara, the U.S. Attorney for the Southern District of New York, announced Wednesday that Michael Levitis, the owner of Mission Settlement Agency, was sentenced in Manhattan federal court to 108 months in prison in connection with a multimillion-dollar scheme that victimized more than 1,200 financially struggling people across the country.

Mission was also sentenced today, and ordered to pay a fine of $4,393,044.

Levitis and Mission pled guilty on April 8, 2014, before U.S. District Judge Paul G. Gardephe, who also imposed today’s sentences.

Bharara said, “Michael Levitis preyed upon people across the country who, like so many Americans, were struggling to pay off their debts after the financial downturn. Through Mission Settlement Agency, Levitis lied about quick, guaranteed cures to their serious financial problems in order to trick them out of money they could not afford to lose. With his sentence today, he has been held responsible and punished for his crimes.”

Bharara also mentioned a case announced the previous day involving a debt collection scam. “As we demonstrated just yesterday through our announcement of another consumer debt-related case, this Office is committed to working with our law enforcement partners to pursue and prosecute those who seek to profit by exploiting financially struggling and vulnerable people,” he noted.

From 2009 through May 2013, at Levitis’s direction, he and his co-conspirators Denis Kurlyand, Boris Shulman, Manuel Cruz, Felix Lemberskiy, and Zakhir Shirinov systematically exploited and defrauded over 1,200 customers across the country, who were financially disadvantaged people struggling to pay their credit card debts. They tricked people into paying Mission for purported debt settlement services by lying to prospective customers about Mission’s ability to help settle their debts, the fees that Mission charged, and Mission’s purported affiliation with the federal government.

Among other things, the defendants: (1) lied about and/or concealed Mission’s fees, falsely assuring customers that Mission would charge a mere $49 per month when, in truth, Mission took thousands of dollars in fees from funds that its customers believed would be used to pay creditors, (2) deceived customers by fraudulently and falsely promising that Mission could slash their debts – typically, by 45% — when, in fact, for the majority of its customers, Mission did little or no work and failed to achieve any reduction in debt, and (3) sent prospective customers solicitation letters that falsely suggested that the agency was acting on behalf of or in connection with a federal governmental program, which letters included an image of the Great Seal of the United States and indicated that they were coming from the “Reduction Plan Administrator” of the purported “Office of Disbursement.”

As a result of the defendants’ scheme, in addition to losing money, most of Mission’s customers failed to achieve the reduction in debt that the defendants had promised them, and some of them suffered further declines in their credit ratings, were sued by their creditors, and/or fell into bankruptcy.

Mission received over $6.6 million in fees during the course of the scheme. For more than 1,200 of its customers, Mission took fees totaling nearly $2.2 million but never paid a penny to the customers’ creditors. Levitis used the money that Mission took from its customers to pay for, among other things, the operating expenses of Rasputin, a restaurant/nightclub he controlled, lease payments for two different luxury Mercedes cars, credit card bills for his mother, and expenses for parties and other events featured in a reality television show in which he starred during the course of the scheme.

In addition to his prison term, Levitis was sentenced to three years of supervised release, and ordered to pay forfeiture and restitution of $2,196,522 and a fine of $15,000. Five other defendants, Denis Kurlyand, Boris Shulman, Felix Lemberskiy, Zakhir Shirinov, and Manuel Cruz, previously pled guilty for their roles in the fraudulent scheme, and await sentencing.

The United State Postal Inspection Service and the CFPB assisted in the investigation into Mission.

Owner Of Debt Relief Company Sentenced to 9 Years in Federal Prison After Guilty Plea
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Accounts Receivable Management

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U.S. Gov’t to Test In-House Student Loan Debt Collections, Cutting Out Private ARM Firms

November 15, 2014 By admin Leave a Comment

The U.S. Treasury Department is readying a pilot program to take over the collection of some defaulted student loan accounts from the Department of Education, essentially removing the work from contracted private debt collection agencies.

There is no official confirmation of the program yet, but multiple unnamed sources within ED and Treasury have discussed the plan with numerous media outlets. The Huffington Post had the story first and The Wall Street Journal independently verified some of the information.

According to media sources, the plan would involve moving defaulted student loans to Treasury’s fiscal service bureau. The intent is to put more focus on helping struggling borrowers, most likely in the form of rehabilitating defaulted loans into current status.

It is unclear whether the initial loans would involve more recent direct federal loans or legacy guaranteed loans, or a combination of the two. Currently, ED contracts with private debt collectors to recover defaulted loans.

There is also a separate plan to do the same with student loans that are current. ED also uses private companies to service those loans under a separate contract.

The internal debt collection pilot program could begin early next year, according to sources.

Although there has been no official confirmation, at least one member of the Administration recently acknowledged that federal agencies are concerned with some of the incentives in the debt collection contracts.

Deputy Treasury Secretary Sarah Bloom Raskin said at a National Consumer Law Center conference last week that incentives embedded in the debt collection contracts may not align with an Education Department goal of rehabilitating defaulted loans to current.

“Federal student loan debt collectors need to be encouraged to remove loan accounts from default when possible, as well as deal fairly with borrowers, and the incentive structures in debt collector contracts should convey these priorities,” Raskin said in a prepared speech.

Raskin’s main objection was in the scoring of performance in the contract. Private debt collection agencies are scored based on a range of criteria, and the scores determine how much additional work each agency receives in the next scoring period. Raskin noted that the largest emphasis for performance scores is total dollars collected.

Although there has not been an update in the scoring methodology used to rank private collectors, the terms of the contract have already changed with regard to collection agency compensation.

ED awarded debt collection contracts on its small business set aside last month. The contracts signed by the 11 small business contractors allowed for a flat fee paid for rehabilitations, a departure from the previous contract that called for a commission on rehabs based on the value of the account. The new contract also awards a flat rate three times higher than the previous one for administrative resolutions (situations where collectors remove the account from default status based on certain events, like death or bankruptcy).

In addition to the changes in flat rate compensation, topline commission rates for dollars collected are lower in the new contract. So emphasis has been shifted, at least somewhat, from total dollars collected to more of a servicing and outcome-based model.

The awarding of that small business collection contract presents some issues for the planned Treasury pilot. While the unrestricted contract has yet to be awarded, there are 11 small business collection agencies that have signed on the dotted line. What happens to those contracts if the Treasury moves forward?

The Huffington Post article noted that the entire pilot plan “would be contingent on Congress providing necessary funding,” a feat that may have long odds with a shift in Congressional power slated to take effect in January.

U.S. Gov’t to Test In-House Student Loan Debt Collections, Cutting Out Private ARM Firms
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Accounts Receivable Management

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State AG Launches Enforcement Action Against Payday Lender and Affiliated Debt Collectors

November 15, 2014 By admin Leave a Comment

Pennsylvania Attorney General Kathleen G. Kane Thursday announced a consumer protection lawsuit against a Texas-based company for allegedly engineering an illegal payday loan scheme over the Internet. According to the lawsuit, the defendants allegedly targeted Pennsylvania consumers in violation of state law.

The civil lawsuit was filed in the Court of Common Pleas of Philadelphia County against Think Finance Inc. (formerly ThinkCash), TC Loan Services LLC, Elevate Credit Inc., Financial U LLC, and former Chief Executive Officer Kenneth E. Rees. Rees and the companies use an address of 4150 International Plaza, Suite 400, Fort Worth, Texas.

Payday loans are illegal in Pennsylvania. According to the lawsuit, Think Finance targets consumers in Pennsylvania using three Native American tribes, who function as the apparent lender, as a cover. In turn, Think Finance earns significant revenues from various services it charges to the tribes.

Also named in the lawsuit is an Internet marketer, Selling Source LLC, which used its “MoneyMutual” website and television commercials to generate online leads for high-rate lenders, including at least one tribal lender.

Selling Source allegedly made referrals of Pennsylvania residents to the scheme for a commission, even after it was ordered to stop those referrals in a 2011 agreement with the Pennsylvania Department of Banking. The lawsuit also includes various debt collectors as defendants, including the Washington-based law firm of Weinstein, Pinson and Riley PS, Cerastes LLC, and National Credit Adjusters LLC, which are allegedly utilized to collect debts derived from illegal loans.

According to the lawsuit, before establishing these tribal partnerships, the company allegedly used the cover of a rogue bank based in Center City Philadelphia, in what is commonly referred to as a “rent-a-bank” scheme, until the federal government shut down the bank.

A Think Finance press release in 2013 stated the company had more than $500 million in revenues – up from $100 million in 2010 – and had provided more than $3.5 billion in loans to 1.5 million consumers in the U.S. and internationally.

Attorney General Kane explained that in operating and participating in the scheme, the defendants are accused of violating several Pennsylvania laws including the Unfair Trade Practices and Consumer Protection Law, the Corrupt Organizations Act and the Fair Credit Extension Uniformity Act.

State AG Launches Enforcement Action Against Payday Lender and Affiliated Debt Collectors
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