FIFTH THIRD BANK TO PAY $18 million to African-American and Hispanic auto borrowers for lending discrimination and $3 million to credit card customers for deceptive marketing practices.
Consumer Financial Protection Bureau “CFPB” and Department of Justice (DOJ) entered into an agreement with Fifth Third Bank requiring that the bank change its pricing and compensation structure in order to reduce the risks of discrimination, and to pay $18 million to harmed African-American and Hispanic borrowers. The CFPB’s action against Fifth Third’s deceptive marketing of credit card add-on products requires the bank to provide an estimated $3 million in relief to eligible harmed consumers and pay a $500,000 penalty.
It appears that Fifth Third may have let their employees or contract auto dealers run amuck because CFPB Director Richard Cordray said “Fifth Third’s move to a new pricing and compensation system represents a significant step toward protecting consumers from discrimination.”
Auto-Lending Enforcement Action
As an indirect auto lender, Fifth Third sets a risk-based interest rate, or “buy rate,” that it conveys to auto dealers. The bank then allows auto dealers to charge a higher interest rate when they finalize the deal with the consumer. This is typically called “dealer markup.” Markups can generate compensation for dealers while giving them the discretion to charge consumers different rates regardless of consumer creditworthiness. Over the time period under review, Fifth Third permitted dealers to mark up consumers’ interest rates as much as 2.5 percent.
- Resulted in African-American and Hispanic borrowers paying higher dealer markups without regard to the creditworthiness of the borrowers.
- Injured thousands of minority borrowers by charging $200 more for auto loans.
Under the CFPB order, Fifth Third must:
- Substantially reduce or eliminate entirely dealer discretion.r.
- Pay $18 million in damages for consumer harm.
- Pay to hire a settlement administrator to distribute funds to victims.
CFPB’s consent order in the auto lending matter
Credit Card Enforcement Action
The CFPB reached an an agreement with Fifth Third for deceptive acts or practices in the marketing and sales of its “Debt Protection” credit card add-on product. The telemarketers promised to allow enrolled cardholders to request the cancellation of credit card payments if they experienced certain hardships such as job loss, disability, and hospitalization. The Bureau found that Fifth Third’s telemarketers deceptively marketed the add-on product during call including: misrepresenting costs and fees for coverage; misrepresenting or omitting information about eligibility for coverage; and illegal practices in the enrollment process.
This has taken quite a while to process because in September 2012, Fifth Third ceased telemarketing the product and ceased all other enrollments in February 2013.
The CFPB’s order requires that Fifth Third provide $3 million in relief to roughly 24,500 customers, cease engaging in illegal practices, and pay a $500,000 penalty to the CFPB civil penalty fund.
The CFPB’s consent order in the credit card add-on matter.
For auto loan or credit card questions or to submit a complaint, consumers can contact the CFPB at (855) 411-2372 or visit consumerfinance.gov.
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Zombie debt buyers – Encore Capital Group (Midland Funding, Asset Acceptance) and Portfolio Recovery Associates – ordered to stop using illegal actions to collect debts.
The Consumer Financial Protection Bureau (CFPB) found that Encore Capital Group (subsidiaries also named are Midland Funding LLC, Midland Credit Management, and Asset Acceptance Capital Corp) and Portfolio Recovery Associates bought debts that were or should be noncollectable and used abusive and illegal actions to collect. The companies knew many of these debts were uncollectable, lied to the consumer in attempt to collect debts, sold debts they knew to be noncollectable to other debt buyers and churned out lawsuits using robo-signed court documents (with little or no backup documentation).
The CFPB ordered the companies to overhaul their debt collection and pay consumer refunds, plus stop collection on millions $ worth of debts. Encore must pay up to $42 million in consumer refunds and a $10 million penalty, and stop collection on over $125 million worth of debts. Portfolio Recovery Associates must pay $19 million in consumer refunds and an $8 million penalty, and stop collecting on over $3 million worth of debts.
Big Banks Plead Guilty to Criminal Charges
How large is this problem? These two companies have purchased the rights to collect over $200 billion (yes I said BILLION) in defaulted consumer debts on credit cards, phone bills, and other accounts.
Collecting Bad Debts. Specifically, the CFPB found that the companies:
- Attempted to collect on unsubstantiated or inaccurate debt
- Illegal Litigation Practices:
- Misrepresented their intention to prove debts they sued consumers over.
- Relied on misleading, robo-signed court filings to churn out lawsuits.
- Sued or threatened to sue consumers past the statute of limitations.
- Pressured consumers to make payments using misrepresentations.
- Encore falsely told consumers the burden of proof was on them to disprove the debt.
- Portfolio Recovery Associates falsely claimed an attorney had reviewed the file and a lawsuit was imminent.
- Other Illegal Collection Practices:
- Encore disregarded or failed to adequately investigate consumers’ disputes.
- Encore farmed out disputed debts to law firms without forwarding required information.
- Encore made harassing collection calls to consumers.
- Portfolio Recovery Associates misled consumers into consenting to receive auto-dialed cell phone calls.
- Stop reselling debts.
- Refund millions of dollars to consumers:
- Encore must pay up to $42 million in refunds.
- Portfolio Recovery Associates must pay $19 million in refunds.
Cease collections on millions of dollars of debt:
- Encore must stop collecting on $125 million of debt.
- Portfolio Recovery Associates must stop collecting on $3 million of debt.
- Stop collecting debts they can’t verify.
- Ensure accuracy when filing lawsuits.
- Provide consumers information before filing suit.
- Use accurate affidavits.
- Reform collection of older debts.
Pay civil money penalties:
- Encore must pay a penalty of $10 million to the CFPB’s Civil Penalty Fund.
- Portfolio Recovery Associates must pay a penalty of $8 million to the CFPB’s Civil Penalty Fund.
Want a laugh – take a look at the web sites for each of these companies. They have friendly, smiling faces and offer to “help you pay your debts”. Can you say “wolves in sheep’s clothing”? When I tried opening one my Firefox browser warned me this is a dangerous site.
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Private Student Loans and Bankruptcy – an evolving tug of war.
Just because a school calls a loan a “private student loan” does not mean it is a student loan for bankruptcy purposes. There are specifics requirements for a loan to qualify as a student loan under the Bankruptcy Code. If a loan is not a student loan then it is most likely discharged (forgiven) like medical bills and creditors cards.
So, what are the requirements of the U.S. Bankruptcy Code?
- The loan must be a “qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986.”
- Next question – what is a “qualified education loan“ under the Internal Revenue Code? It must be a loan from an “eligible educational institution.”
- How do you determine if your school is an “eligible educational institution”? Each year the Department of Education publishes a list of qualifying schools.
If your school is not on this list, the loan is not a “student loan” as defined by the Bankruptcy Code and can be discharged in bankruptcy.
- Determine whether your student loan is private or federal. Note – the above argument only works on private student loans. If you are unsure look at the National Student Loan Data System. If your loan is there you have a federal student loan, but it is not then you probably have a private loan. You should also check your credit report if you’re still unsure. (Sallie Mae and Navient have both federal and private student loans.)
- Once you have determined this is a private student loan then find out if the loan is from an “eligible educational institution.” See the list released each year by the Department of Education of qualified educational institutions. Note – make sure to look for the list for the year you received your student loans.
Beware the law is evolving every day and may change the above information. Also the court decisions may different in each state.
This information is not intended to be legal advice. In order to know your rights seek the advice of an experienced bankruptcy and student loan attorney licensed in your state.
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Chapter 13 bankruptcy cases are difficult for the debtor as well as the attorney. The debtor has to fulfill a series of requirements prior to filing as well as additional requirements subsequent to filing. The attorney does the bulk of his work upfront and fights to get paid as the case progresses. In recent weeks,+ Read More
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CONSUMER FINANCIAL PROTECTION BUREAU RELEASES NEW TOOLS AS PART OF “KNOW BEFORE YOU OWE” MORTGAGE INITIATIVE – NO MORE MORTGAGE PAYMENT SURPRISE.
Want to know what you mortgage payment will be before looking for a house or signing all the loan documents? Consumer Financial Protection Bureau (CFPB) has online tools as part of its Know Before You Owe initiative aimed at helping consumers navigate the mortgage process and avoid a mortgage payment surprise. The tools provide an interactive, step-by-step overview of the mortgage process, help home buyers decide how much they can afford to spend, and help consumers explore and use the new Know Before You Owe mortgage forms. Creditors will have to begin providing the new forms on Oct. 3, 2015, making it easier for consumers to understand mortgage options and comparison shop between multiple loan offers.
“Our new mortgage forms reduce the information gap between lenders and consumers, shedding light on a process that often feels like a mystery,” said CFPB Director Richard Cordray. “It is time consumers have more power in the mortgage process, and our new forms and online tools will help make that a reality.”
“Owning a Home” Tools
The CFPB launched “Owning a Home” as part of its Know Before You Owe mortgage initiative. These tools are designed to help everyone (experienced and new buyers) navigate the mortgage process and make decisions. Mortgages are very difficult to understand: there are different loan term, loan type and interest rate. Consumers also need to consider how much they can afford to spend on a home.
These tools include:
- Guide to the mortgage milestones.
- Monthly mortgage payment worksheet.
- Interactive sample of the new Know Before You Owe mortgage forms.
- Resources such as the closing checklist, a loan options guide and a tool to help consumers explore interest rates.
Additional tools or resources:
- Owning a Home
- Your Home Loan Toolkit
- Housing counselor locator: CFPB’s search tool.
- A Know Before You Owe mortgage initiative visual presentation with video, photos and others.
The post Ever Surprised by the Amount of Your New Mortgage Payment? appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Santander Bank fined $10 million for illegal overdraft service practices.
The Consumer Financial Protection Bureau (CFPB) ordered Santander Bank, N.A. to pay a $10 million fine for illegal marketing of overdraft services and using a telemarketing firm that signed some bank customers for the overdraft service without their consent.
According to CFPB Director Richard Cordray “Santander tricked consumers into signing up for an overdraft service they didn’t want and charged them fees. Santander’s telemarketer used deceptive sales pitches to mislead customers into enrolling in overdraft service. We will put a stop to any such unlawful practices that harm consumers.”
Why are these actions illegal?
Since 2010, federal rules have prohibited banks and credit unions from charging overdraft fees on ATM and one-time debit card transactions unless consumers specifically agreed. If consumers don’t agree, the banks may decline the transactions because of insufficient or unavailable funds, and cannot charge an overdraft fee.
The Bureau found Santander Bank’s illegal and improper practices included:
- Signing consumers up for overdraft service without their consent.
- Deceiving consumers that overdraft service was free.
- Deceiving consumers about the fees they would face if they did not opt in.
- Falsely claiming the call was not a sales pitch.
- Failing to stop its telemarketer’s deceptive tactics.
Enforcement Action – So what has CFPB ordered Santander Bank to do?
- Validate all opt-ins associated with the telemarketer.
- Not use a vendor to telemarket overdraft service.
- Increase oversight of all third-party telemarketers.
- Pay a $10 million penalty.
The full text of the CFPB’s consent order: http://files.consumerfinance.gov/f/documents/20160714_cfpb_Consent_Order.pdf
The purpose of the Consumer Financial Protection Bureau. The CFPB is “a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” For more information, visit consumerfinance.gov.
Youtube from CFPB: https://www.youtube.com/watch?v=BHMUVfjffhA&feature=youtu.be
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The National Consumer Law Center “NCLC” issued a report about what is called “installment loan contracts” or “agreements for sale”, calling them “toxic transactions”. The parties to these contracts are (1) the owner of the home/property and (2) a buyer. The owner agrees to sell the home/property to the buyer, but carries back a loan usually a long term loan, with a high-interest rate. Many times the reason for the “carry back” is because the buyer cannot qualify for a traditional loan. The report discloses that most of these contracts are focused on lower-income and minority buyers. This report goes on to point out that these contracts are “built to fail” and are “predatory in nature”, benefiting only the sellers, at the expense of the borrowers. Hence the term “toxic transactions”.
Buyers are lured by the dream of home ownership; many are first time home buyers. The buyers are misled or do not understand the financial burden caused by the high rate mortgage terms. In addition, most first time home buyers are not aware of the financial demand all home owners face – costs of repairs and maintenance. Many of these homes are already in extremely poor condition and quickly require thousands of dollars just to put them into livable condition. The sellers of these “toxic loans” count on the buyer defaulting so they can repossess the home, evict the owner and flip the house to another unsuspecting buyer. Article by the New York Times describing this nightmare.
The NCLC report focuses on a Dallas based company, Harbour Portfolio Advisors, one of the larger national firms to emerge in the contract for deed market. “The Dallas company has bought nearly 7,000 homes — most of them from the government-backed mortgage company Fannie Mae — and has been reselling them “as is,” often in need of major repairs, through contracts that critics contend lack basic consumer protections.” A great majority of these homes were located in predominantly African-American neighborhoods.
CURRENT OR POTENTIAL ACTIONS:
- The report urges the Consumer Financial Protection Bureau to take the lead in pushing for “comprehensive regulation” or pursuing enforcement actions against sellers who use predatory contracts.
- Requires that all land contracts be recorded, that they use the same standard contract and that sellers be required to pay for an independent appraisal and inspection of the home before a sale.
- The authorities in New York sent subpoenas to several companies this spring to determine how prevalent such contracts were in the state.
- The Missouri attorney general in late May issued an alert warning residents to be wary of abuses with contract for deed sales.
- New Mexico officials are also investigating reports that contract for deed home sales are targeting immigrant and Spanish-speaking populations, according to Hector Balderas, the state’s attorney general.
The post What are Toxic Transactions? Seller-Financed Home Sales appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Tax returns filed late – can the debt be discharged in bankruptcy?
Confusion reigns among the various courts responsible to interpret and apply the bankruptcy laws. The question is whether a debtor can use bankruptcy to discharge a tax debt when a tax return was filed late. Some court decisions have little to do with the law, but instead focus on the actions of the taxpayer. even the IRS does not support the conclusion of some courts (filing a tax return even one day late = non-dischargeable).
At this time the Courts of Appeals fall generally into two camps of thought:
1) The First, Fifth and Tenth Circuits have convoluted the Bankruptcy Code, federal statutes and case law in order to determine that a tax debt is not discharged if the tax return is filed even one day late.
2) The Fourth, Sixth, Seventh, Eighth and Eleventh Circuits follow a 1984 Tax Court decision known as Beard v. Commissioner, 82 T.C. 766 (1984). Of the four factors in Beard the above Courts generally focus on whether there was an honest and reasonable attempt to satisfy the requirements of tax law. Or in the case of the Eighth Circuit – determine honesty solely from the face of the tax return.
In Smith v. I.R.S. (In re Smith), 14-15857 (July 13, 2016) the Ninth Circuit joined the second camp, distinguishing itself from the 8th Circuit carve out. The court held that the return, filed eight years late and three years after the IRS’s deficiency notice, was not dischargable because it “was not an honest and reasonable attempt to comply with the tax code.”
The post Not Filing Tax Return on Time Can be Serious in Bankruptcy appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
Nebraska is the 16th biggest state in the USA, but we rank 43rd in population density. In fact, Nebraska has more cows than people by a ratio of 3 to 1.
Bankruptcy is a specialized area of laws these days, especially after enactment of the Bankruptcy Reform Act of 2005. Attorneys in sparsely populated areas of the state generally do not handle bankruptcy cases, so our firm is routinely hired by clients throughout our big state. (This is actually a wonderful aspect of practicing bankruptcy law since we get to know folks in every square inch of the state and learn about their communities.)
One challenge we face in a state that stretches 430 miles across is getting documents signed and returned in a timely fashion. This is especially critical in bankruptcy cases since we must provide the court with a precise “snapshot” of a debtor’s financial situation on the day the case is filed. Bank account balances change daily, average income calculations change monthly, and the list of debts owed changes constantly.
Like an astronomer looking at a distant galaxy through a telescope, we report of a scene that no longer exists.
Preparing bankruptcy petitions is like laying a foundation on moving soil or taking a vivid 35 mm snapshot of a speeding race car when the nearest camera is 3 days away. It is hard to provide an accurate snapshot when the information is constantly in motion. Like an astronomer looking at a distant galaxy through a telescope, we report of a scene that no longer exists.
The challenge is to get a list of debts, income and property signed and filed with the court before the information becomes outdated. Bank account balances can vary by thousands of dollars in a matter of days and debtors may be penalized for providing the court with inaccurate information. Receiving documents mailed to clients for signature may take up to two weeks.
Many clients do not have ready access to fax machines as that technology seems to be fading away. To compound the problem, debtors demand their cases to be filed immediately to stop ongoing garnishments and foreclosure. “Move fast!”, says the client. “Be accurate!”, says the court. It’s a tricky balance.
Once solution to this time/distance problem is to obtain electronic signatures. Companies that offer digital signature services, such as DocuSign, allow attorneys to obtain virtually instantaneous signatures of any document.
Digital signatures are electronic signatures that are encrypted by computer technology, and encryption process protects the document from alteration. A document that is signed digitally provides an assurance that it was signed by the sender and receiver without alteration. Parties to a digitally signed document typically receive an executed copy of the document instantly. A digital signature is similar to a notarized document or a document embossed with a seal to ensure authenticity.
Digital signatures have been authorized in the United States by the Electronic Signature in Global and International Commerce Act of 2000, (ESGICA). 11 U.S.C. 7001. The Nebraska Digital Signatures Act was enacted in 1998. In short, these laws give digital signatures the same legal effect as a penned ink signature on paper (sometimes called “wet” signatures).
MAY A DEBTOR DIGIGALLY SIGN A BANKRUPTCY PLEADING?
Federal Rule of Bankruptcy Procedure 9011 governs signatures on bankruptcy documents. The Nebraska bankruptcy court has a local rule 9011-1 regarding signatures as well:
- Petitions, lists, schedules and statements, amendments, pleadings, affidavits, and other documents which must contain original signatures or which require verification under Fed. R. Bankr. P. 1008 or an unsworn declaration as provided in 28 U.S.C. § 1746, shall be filed electronically and may include, in lieu of the actual signature, the signature form described in subsection C.
- The attorney of record or the party originating the document shall maintain the original signed document for all bankruptcy cases at least one year after the case is closed. In adversary proceedings, the parties shall maintain the original document until after the case ends and all time periods for appeals have expired. Upon request, the original document must be provided to other parties or the Court for review (Fed. R. Bankr. P. 9011 applies).
May a digital signature qualify as an “original signature” under Nebraska Local Rule 9011-1? May a bankruptcy petition be digitally signed in Nebraska?
Some bankruptcy courts appear to require “wet-ink” signatures on bankruptcy pleadings, including the Southern District of Indiana, the Northern District of Oklahoma, and the District of Maine. However, even in in these districts it is not perfectly clear that the courts require “wet-ink” signatures on paper or if the courts are merely speaking to the requirement that bankruptcy attorneys retain originally signed documents, whether in ink or digital format, for a period of years. Courts seem to use the term “wet” signatures to mean “original signatures” while overlooking the fact that digital signatures may also be used original signatures as well, thus causing confusion.
The Nebraska local rule 9011-1 does not use the term “wet” or “wet-ink” in reference to signatures, nor does Federal Rule 9011. So, in the absence of local rule explicitly requiring wet ink signatures on paper, it would appear that digital signatures do qualify as original signatures in Nebraska bankruptcy cases since both federal and state law validate digital signatures. However, a prudent attorney will seek out clarification on this topic from the court before utilizing digital signatures in bankruptcy pleadings.
BANKRUPCY COURTS SHOULD ALLOW AND PREFER DIGITAL SIGNATURES TO WET INK SIGNATURES ON PAPER
There are several reasons why bankruptcy courts should encourage the use of digital signatures:
- Documents signed digitally cannot be altered. Each page of the digital document is encrypted and stamped electronically. If altered, such a document will display an error code to warn that unauthorized changes were made to the document.
- Every page of the document is verified. Unlike wet ink signatures on paper, it is not possible to attach altered pages to the signature page. A wet ink signature on paper may be attached to 60 or more pages of bankruptcy pleadings, and there is no guarantee that the attached paperwork has not been changed.
- Digitally signed documents are instantly sent to all parties who signed. If the document is altered each party has evidence of the alteration.
- Allowing digital signatures encourages attorneys to improve the accuracy of bankruptcy documents since signatures may be obtained instantaneously if errors are discovered.
- Debtors get immediate full copies of what they signed. This makes it difficult for them to claim ignorance of what they signed.
In short, allowing digital signatures improves the integrity of court documents. It supplies debtors with full copies of what they signed immediately. It encourages attorneys to make last minute corrections and improvements to the documents. Digital signatures essentially provide something similar to a document where every page has been signed and notarized.
Selfishly I confess that digital signatures would be more convenient to use in our practice, but it is clear that they offer a superior level of transparency as well. The notion that wet ink signatures are more trustworthy is simply not supported by the facts. Hopefully Nebraska can adopt a local rule confirming the propriety of using digital signatures on bankruptcy pleadings.
Image courtesy of Flickr and Leszek Leszczynski
There are five major areas of concern when considering filing for Chapter 13 bankruptcy. 1) The first concern is the type of debt. There are certain debts that can be eliminated in a Chapter 13 at less than 100% payback. There are other debts that cannot be eliminated and must be paid back+ Read More
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