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CFPB and NY AG shut down debt collection ring

The CFPB announced on Monday that it, in partnership with the New York Attorney General, filed a proposed stipulated judgment in federal court to settle its case against a debt collection enterprise and its owners and managers. The judgment would order all participants in the scheme, based in upstate New York, to exit the debt collection market after their history of deception and harassment. Their debt collection companies would also be shuttered and required to pay a total of $4 million in penalties.

The defendant companies are JPL Recovery Solutions; Regency One Capital; ROC Asset Solutions, which does business as API Recovery Solutions and Northern Information Services; Check Security Associates, which does business as Warner Location Services, Pinnacle Location Services, and Orchard Payment Processing Systems; Keystone Recovery Group; and Blue Street Asset Partners. The individual defendants are owners Christopher Di Re, Scott Croce, and Susan Croce, as well as Brian Koziel and Marc Gracie, who acted as managers of some or all of the companies.

The companies are interrelated collections businesses based out of a single location in Getzville, New York. Together, they purchased defaulted consumer debt for pennies on the dollar. The debt came from high-interest personal loans, payday loans, credit cards, and other sources. The network then attempted to collect debts from about 293,000 consumers, generating gross revenues of approximately $93 million between 2015 and 2020.

The lawsuit filed by the CFPB and the New York Attorney General in September 2020 allege that the network used deceptive and harassing methods, violating the Fair Debt Collection Practices Act and the Consumer Financial Protection Act. Specifically, the complaint alleges that the owners, managers, and companies used the following illegal tactics to collect debt:

  • Falsely threatened arrest and imprisonment
  • Lied about legal action that it never took
  • Inflated and misrepresented debt amounts owed
  • Created “smear campaigns” using social media and other methods to pressured people to pay by contacting and disclosing the debts to their immediate and distant family members, grandparents, in-laws, ex-spouses, employers, work colleagues, landlords, Facebook friends, and other known associates
  • Harassed people with repeated phone calls, calling people multiple times every day over periods lasting a month or longer.
  • Failed to provide legally mandated disclosures

The proposed stipulated judgment filed yesterday, if ordered, would require that the companies, as well as their owners and senior managers, exit the debt collection market. The defendants also must pay a $2 million penalty to the CFPB, which will be deposited into the CFPB’s victim relief fund, and a $2 million penalty to the New York Attorney General. If the defendants fail to make timely payments, however, each penalty amount due would increase to $2.5 million.


CFPB: states can enforce federal consumer protection laws

The Consumer Financial Protection Bureau yesterday announced it has issued an interpretive rule that describes states’ authorities to pursue lawbreaking companies and individuals that violate the provisions of federal consumer financial protection law. Because of the crucial role states play in protecting consumers, the Consumer Financial Protection Act (part of the Dodd-Frank Act of 2010) grants their consumer protection enforcers the authority to protect their citizens and otherwise pursue lawbreakers. The interpretive rule affirms:

  • States can enforce the Consumer Financial Protection Act, including the provision making it unlawful for covered persons or service providers to violate any provision of federal consumer financial protection law. This provision covers the Consumer Financial Protection Act itself as well as its 18 enumerated consumer laws and certain other laws, along with any rule or order prescribed by the CFPB under the Consumer Financial Protection Act, an enumerated consumer law, or pursuant to certain other authorities.
  • States can pursue claims and actions against a broad range of entities. The Consumer Financial Protection Act outlines entities over which the CFPB may exercise its enforcement authority under the statute. States are able to bring actions against a broader cross-section of companies and individuals.
  • CFPB enforcement actions do not put a halt to state actions. Sometimes states bring enforcement actions in coordination with the CFPB. A state may also bring an enforcement action to stop or remediate harm that is not addressed by a CFPB enforcement action against the same entity. Nothing in the Consumer Financial Protection Act precludes these complementary enforcement activities that serve to protect consumers at both the national and state levels.

The interpretive rule will become effective upon publication in the Federal Register.


OCC enforcement actions

The OCC has released a list of enforcement actions taken by the agency in the month of April. Included was a consent order to cease and desist and pay a $30,000 civil money penalty issued to the president and CEO of a Beauregard, Louisiana, federal savings bank.


State Small Business Credit Awards announced

Treasury has announced the first group of plans approved under the new round of the State Small Business Credit Initiative (SSBCI). The American Rescue Plan reauthorized and expanded SSBCI, which was originally established in 2010 and was highly successful in increasing access to capital for traditionally underserved small businesses and entrepreneurs. The new SSBCI builds on this successful model by providing nearly $10 billion to states, the District of Columbia, territories, and Tribal governments to increase access to capital and promote entrepreneurship, especially in traditionally underserved communities as they emerge from the pandemic. SSBCI funding is expected to catalyze up to $10 of private investment for every $1 of SSBCI capital funding, amplifying the effects of this funding and providing small business owners with the resources they need to sustainably grow and thrive. State governments submitted plans to Treasury for how they will use their SSBCI allocation to provide funding to small businesses, including through venture capital programs, loan participation programs, loan guarantee programs, collateral support programs, and capital access programs.

Today, Treasury is also announcing that it will have specialized programming to enable jurisdictions to share best practices for targeting investments in key industries and businesses owned by underserved entrepreneurs. Treasury strongly encourages jurisdictions to implement their plans in ways that support industries especially important to the U.S. economy – including small businesses that promote American manufacturing, strengthen critical supply chains, and invest in clean energy and renewables to secure our nation’s energy independence. Treasury has structured SSBCI to ensure that these funds will reach underserved small businesses and entrepreneurs in need of access to capital, including by providing $1 billion in incentive funds for jurisdictions that successfully reach underserved entrepreneurs and through its recent announcement of plans to deploy $300 million in technical assistance to reach businesses and entrepreneurs in need of assistance, including through the transfer of funds to the Minority Business Development Agency. Treasury continues to strongly encourage recipients to reach small businesses that provide jobs that pay a living wage, which will help American workers emerge stronger from the pandemic.


SBA economic injury disaster loans available

Small nonfarm business in the following counties are now eligible to apply for low‑interest federal disaster loans from the U.S. Small Business Administration:

  • Kansas: Finney, Gove, Lane, Ness and Scott
  • Idaho and Oregon: Adams, Gem,Idaho, Valley and Washington (in Idaho) and Baker and Wallowa (in Oregon)
  • Texas: Aransas, Calhoun, Chambres, Galveston, Jackson, Matagorda, Nueces, Refugio, Victoria, Bee, Brazoria, Colorado, DeWitt, Goliad, Harris, Jefferson, Jim Wells, Kleberg, Lavaca, Liberty, San Patricio, and Wharton

Small nonfarm businesses, small agricultural cooperatives, small businesses engaged in aquaculture and most private nonprofit organizations of any size may qualify for Economic Injury Disaster Loans of up to $2 million to help meet financial obligations and operating expenses which could have been met had the disaster not occurred.

Eligibility for these loans is based on the financial impact of the disaster only and not on any actual property damage. These loans have an interest rate of 2.94 percent for businesses and 1.875 percent for private nonprofit organizations, a maximum term of 30 years, and are available to small businesses and most private nonprofits without the financial ability to offset the adverse impact without hardship.


Hsu discusses risk management

Yesterday, Acting Comptroller of the Currency Michael J. Hsu discussed the importance of risk management in remarks at Bloomberg Risk & Regulation Week 2022. In his remarks, the Acting Comptroller encouraged banks to assess exposures and adjust risk profiles ahead of potential uncertainty and volatility in interest rates and loan performance. Mr. Hsu also discussed risk mitigation for counterparty and sector concentrations, and offered thoughts on underwriting trends and developments in retail and commercial credit.


CDFI Fund funding round opens

The Community Development Financial Institutions Fund has posted a Notice of Funds Availability [87 FR 30001] in today's Federal Register inviting applications for the fiscal year (FY) 2022 funding round of the Small Dollar Loan Program (SDL Program).

Through the SDL Program, the CDFI Fund provides (1) grants for Loan Loss Reserves (LLR) to enable a Certified Community Development Financial Institution (CDFI) to establish a loan loss reserve fund in order to cover the losses on small dollar loans associated with starting a new small dollar loan program or expanding an existing small dollar loan program; and (2) grants for Technical Assistance (TA) for technology, staff support, and other eligible activities to enable a Certified CDFI to establish and maintain a small dollar loan program. All awards provided through the Notice of Funds Availability.are subject to funding availability.

Applications must be submitted by 11:59 p.m. EDT on June 15, 2022 via the web portal.


HUD updates Family Self Sufficiency program

HUD has announced a rule [87 FR 30020 in today's Federal Register] to implement changes to the Family Self-Sufficiency (FSS) Program. The changes include permanently expanding the definition of an eligible family to include tenants of privately owned multifamily properties subsidized with Project-Based Rental Assistance (PBRA).

In addition to permanently expanding the Program to multifamily owners and allowing them to compete directly for services funding, the rule also expands eligibility for Program enrollment to include any adult member of the household—rather than only the Head of Household—to be more inclusive of households where the Head of Household is unable to work or increase work activity due to issues such as health conditions, disabilities, or family care taking responsibilities. The rule also expands the definition of “good cause” for a FSS client contract extension to include participants who are in active pursuit of a long-term goal that will help them get ahead, such as a college degree, as opposed to only reasons outside of the family’s control. Additionally, among other positive statutory and regulatory changes, the rule removes administratively burdensome requirements for enrollment and revises graduation requirements.

The goal of the FSS Program continues to be to enable participating low-income families to increase their earned income and meet their financial goals. Local FSS program coordinators create plans with participating families to achieve goals and connect them with services that will assist in making progress toward economic security. Families that meet program requirements and successfully complete the FSS program receive their accrued FSS escrow funds, plus interest. While no formal restrictions exist on the use of the escrowed funds, many families use the funds to help with the purchase of a home, debt reduction, post-secondary education, or to start a new business.

The rule becomes effective on June 16, 2022.


CFPB wants consistent enforcement of consumer financial protections

CFPB Director Rohit Chopra yesterday posted a CFPB Blog article to announce a new system for promoting consistent enforcement of consumer financial protections. The CFPB will issue Consumer Financial Protection Circulars to the broad set of government agencies responsible for enforcing federal consumer financial law, with guidance on how the CFPB intends to enforce federal consumer financial law.

The enforcers of federal consumer financial law include, most notably, state attorneys general and state regulators, as well as federal financial regulators such as the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration. Some federal consumer financial laws are also enforceable by other federal agencies, including the Department of Justice, the Federal Trade Commission, the Farm Credit Administration, the Department of Transportation, and the Department of Agriculture. In addition, some of these laws provide for private enforcement.

The CFPB will also release Consumer Financial Protection Circulars publicly to increase transparency for the benefit of the public and regulated entities.

Circular 2022-01, issued yesterday, describes the circulars as policy statements under the Administrative Procedures Act that will provide background information about applicable law, articulate considerations relevant to the CFPB's exercise of its authorities, and advise other parties with authority to enforce federal consumer financial law. The Director of the CFPB will authorize issuance of each Consumer Financial Protection Circular, and the CFPB will publish them on its website and in the Federal Register.


CFPB mortgage metric report - COVID 19 responses

The CFPB yesterday announced its second mortgage metrics report providing the CFPB’s observations of data obtained from 16 large mortgage servicers to identify areas of risk in the servicers’ COVID-19 pandemic response. The report addresses similar topics covered in the first report (which covered the period from December 2020 through April 2021), including call center data, COVID-19 hardship forbearance exits, delinquency, and borrower profiles for the period May through December 2021.

In summary, the CFPB's key observations are:

  • Call center hold time variability. Some servicers were outliers in the reported call metrics data, including relatively high average hold times exceeding ten minutes and call abandonment rates exceeding 30%. Borrowers may be at higher risk of obtaining untimely assistance from these servicers.
  • Delinquency and exits from forbearance. The number and rate of delinquent exits from COVID-19 hardship forbearances increased during the reporting period. Overall, 15% of loans exited forbearance in a delinquent status, with no loss mitigation in place, with some servicers reporting significantly higher figures. While servicers have made progress in working through these delinquent loans, large numbers of borrowers – over 330,000 at the 16 servicers – remained delinquent as of the end of 2021. These borrowers continue to face a risk of harm, underscoring the importance of prioritizing borrower outreach and transitions into loss mitigation solutions and the related regulatory requirements.
  • Servicer data challenges. Some servicers did not track, or were otherwise unable to provide, data for key metrics, such as the amount of time borrowers spend on Interactive Voice Response (IVR) systems before connecting to the queue to speak with a live call center agent. Some servicers also reported inconsistent data. These issues raise questions about the servicers’ ability to track and to report high-quality data and to monitor their responsiveness and compliance.
  • Borrower demographics. The collection, categorization, and maintenance of information about borrowers’ race, ethnicity and language preference varied widely among servicers in clarity and completeness. The significant variances in the level of detail and amount of available information did not allow for comparisons across servicers.
  • Borrowers with Limited English Proficiency (LEP borrowers). The number of LEP borrowers whose loans were delinquent without a loss mitigation option after exiting forbearance increased between October and December 2021, while the number of nonLEP borrowers who were delinquent without a loss mitigation option after forbearance decreased during the same period.


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