Category Archives: Government

FTC gains court order to stop ‘deceptive’ credit repair firm

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The Federal Trade Commission (FTC) took action against a firm that used a government website as part of its scheme connected with consumer credit reports.

This week, the FTC obtained an order halting a credit repair scheme that allegedly bilked consumers out of millions of dollars by falsely claiming they will remove negative information from credit reports, while also filing fake identity theft reports to explain negative items on customers’ credit reports.

At the request of the FTC and the Department of Justice, an FTC news release indicated a federal judge issued an injunction against Texas-based Turbo Solutions Inc., which does business as Alex Miller Credit Repair, and its owner Alex Miller.

According to a complaint filed by the Department of Justice on behalf of the FTC, the regulator alleged that Turbo Solutions and Miller operate a deceptive credit repair scheme that claims it can help repair consumers’ credit through a “two-step process,” but often fails to deliver on its promises.

The FTC said the company claims it can remove negative information from consumers’ histories through “advanced disputing” of negative items on a consumer’s credit report and by adding “credit building products” to boost credit scores, which can help consumers obtain loans and other credit at lower rates.

The complaint seeks both civil penalties and consumer redress, according to the news release.

Through the company’s website and Instagram account, Miller and his company claim, “We Delete Inaccurate and Negative Accounts,” and promise “results in 40 days,” according to the complaint.

The FTC said its complaint alleges consumers who call a phone number listed on the company’s website and Instagram account reach company representatives who often make many of the same false claims including that consumers’ credit scores would be boosted by 50 to 200 points, a violation of the Credit Repair Organizations Act (CROA) and the Telemarketing Sales Rule (TSR).

Before providing any services, however, the company illegally demands consumers pay a $1,500 fee up front, according to the complaint.

Furthermore, the regulator said Miller and his company have allegedly filed false identity theft reports — usually without customers’ knowledge — through the FTC’s identitytheft.gov website and deceptively claimed that negative items on consumers’ credit reports were the result of identity theft.

“IdentityTheft.gov is a resource for consumers, not scammers,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “Those who abuse this resource by filing fake reports can expect to hear from us.”

The FTC pointed out that credit reporting agencies may decline to remove negative items if they think an identity theft report was wrongly filed.

In fact, in many instances, the regulator said Miller and his company have failed to remove negative items from customers’ credit reports or histories and some consumers reported that their credit scores actually went down as a result of the company’s efforts.

The complaint also alleges that Miller and his company have violated CROA by failing to include disclosures detailing the cancelation policies and failing to provide all consumers with a copy of contracts they are required to sign to obtain the company’s services.

The FTC vote to refer the complaint to DOJ for filing was 4-0. The Department of Justice filed the complaint on behalf of the FTC in the U.S. District Court for the Southern District of Texas, Houston Division.

The court issued the injunction on March 18.

“Credit repair scams affect consumers who already are suffering from low credit scores,” said Principal Deputy Assistant Attorney General Brian Boynton, head of the Justice Department’s Civil Division. “The Department of Justice will use all tools at its disposal to stop credit repair agencies from engaging in unlawful conduct targeting financially vulnerable consumers.”

CFPB Ramps Up Hunt For Unfair Discrimination In Consumer Finance

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Already with a heightened interest in vehicle repossessions, the Consumer Financial Protection Bureau (CFPB) announced changes last week to its supervisory operations involving what it deems to be illegal discrimination, including in situations where fair lending laws may not apply.

The bureau explained through a news release that during the course of examining banks’ and other companies’ compliance with consumer protection rules, the CFPB will scrutinize discriminatory conduct that violates the federal prohibition against unfair practices.

The CFPB said it will closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.

The CFPB reiterated that it enforces several laws that can target discriminatory practices. Government regulators and private plaintiffs have commonly relied on the Equal Credit Opportunity Act (ECOA), a fair lending law which covers extensions of credit.

However, the bureau said certain discriminatory practices may also trigger liability under the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive and abusive acts and practices (UDAAPs).

The CFPB published an updated exam manual for evaluating UDAAPs, which notes that discrimination may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid, where that harm is not outweighed by countervailing benefits to consumers or competition.

“Consumers can be harmed by discrimination regardless of whether it is intentional. Discrimination can be unfair in cases where the conduct may also be covered by ECOA, as well as in instances where ECOA does not apply,” the CFPB said in its news release. “For example, denying access to a checking account because the individual is of a particular race could be an unfair practice even in those instances where ECOA may not apply.

The CFPB said it will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.

CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups.

The CFPB also mentioned that it will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.

“When a person is denied access to a bank account because of their religion or race, this is unambiguously unfair,” CFPB director Rohit Chopra said in the news release. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”

The updated exam manual on unfair, deceptive or abusive acts or practices can be found via this website.

Connecticut regulators launch probe of utilities over payment demands during COVID-19

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Connecticut regulators have opened an investigation into wage garnishment and payment demands by United Illuminating and Eversource of their customers during the pandemic despite a shut-off moratorium for nonpayment. Pictured here in 2018, a line crew for United Illuminating works to reattach an electrical cable in North Haven. (David Moran / Hartford Courant)

 

Connecticut regulators on Friday opened an investigation of payment demands by Eversource Energy and United Illuminating of consumers and wage garnishments the utilities obtained during the COVID-19 pandemic.

The Public Utilities Regulatory Authority acted in response to a request by the state Office of Consumer Counsel that said the utilities’ efforts, which included suing customers to recover money, violate regulators’ intent to help low-income utility customers during the public health crisis.

“From OCC’s perspective, these collection practices are in direct contradiction to (PURA’s) stated objective to protect Connecticut customers from financial distress caused by late or past due utility balances during the COVID-19 emergency,” interim Consumer Counsel Claire E. Coleman said in her request to PURA.

Responding to a request in March 2020 by Connecticut Attorney General William Tong, the Public Utilities Regulatory Authority established a moratorium halting electricity and gas shut-offs for nonpayment. State public health orders shut many businesses, leaving hundreds of thousands of utility customers unemployed and in financial distress.

SEC Joins FTC in Voicing Concerns Over AI as Risk of Regulation Looms

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Securities and Exchange Commission Chair Gary Gensler delivered his remarks on Thursday March 10 before the Investor Advisory Committee that was devoted to the use of artificial intelligence in robo-Advisory services and cybersecurity disclosures. 

Gensler, who has previously raised concerns about predictive AI in online brokers and robo-advisors during a Practicing Law Institute conference in October 2021, reiterated the important challenges that these practices may bring, namely, conflict of interest, bias and systemic risks. 

The Investor Advisory Committee tackled ethical issues and fiduciary responsibilities related to the use of artificial intelligence in robo-advising. In contrast, Mr. Gensler focuses on “digital engagement practices” and how they intersect with a variety of finance platforms. 

These practices design user experiences, and in certain situations they may raise conflicts of interest. For example, predictive data analytics, differential marketing and behavioral prompts are integrated into robo-advising and other financial technologies. Platforms, and the people behind these platforms, have to decide what factors they are optimizing, which usually should be investor´s benefits — but they could also include other factors like revenue and performance of the platform. 

Mr. Gensler reminded his audience that finance platforms have to comply with investor protections through specific duties — things like fiduciary duty, duty of care, duty of loyalty, best execution and best interest. And when a platform is also trying to optimize for its own revenue, that´s where there is a conflict with its duties to investors. 

But there is one area that seems to raise red flags, and it may require regulation to address it: behavioral nudges. When broker-dealers use these techniques to influence investors’ behavior, “they may create gray areas between what is and isn’t a recommendation — gradations that could be worth considering through rulemaking,” said Chair Gary Gensler in his remarks. 

This is an area where the SEC is not alone and other regulators around the globe are also worried. The European Union is proposing new regulation on artificial intelligence that contains very few prohibitions, but one of them is on the use of AI systems that use subliminal techniques to influence consumers’ behavior. Behavioral nudges may not necessarily fall under this category, but it shows the high degree of scrutiny that this type of practice will face. 

Read More: AI in Financial Services in 2022: US, EU and UK Regulation 

Another aspect of the use of artificial intelligence that concerns Chairman Gensler is bias, and this is a concern shared by other agencies like the Federal Trade Commission (FTC). Data used by platforms in their analytic models could reflect historical biases, and this could result in people not getting fair access and prices in the financial markets. 

Chairman Gensler didn´t suggest rulemaking may be the way forward in this area, but he instructed his staff to take a closer look.  

However, the FTC is considering a wide range of options, including new rules and guidelines, to tackle algorithmic discrimination. FTC´s Chair Lina Khan, in a letter to Senator Richard Blumenthal (D-CT), outlined her goals to “protect Americans from unfair or deceptive practices online,” and in particular, Khan said that the FTC is considering rulemaking to address “lax security practices, data privacy abuses and algorithmic decision-making that may result in unlawful discrimination.” 

“Rulemaking may prove a useful tool to address the breadth of challenges that can result from commercial surveillance and other data practices […] and could establish clear market-wide requirements,” Khan wrote. 

About: Forty-two percent of U.S. consumers are more likely to open accounts with FIs that make it easy to auto-share their banking details during sign-up. The PYMNTS study Account Opening And Loan Servicing In The Digital Environment, surveyed 2,300 consumers to examine how FIs can leverage open banking to engage customers and create a better account opening experience.

New York Amends Contact Requirements For Certain Delinquent Borrowers

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A&B ABstract: On February 24, Governor Kathy Hochul signed into law Assembly Bill 8771 (2022 N.Y. Laws 48), amending single point of contact requirements for certain delinquent borrowers.  What changes does the measure require for servicer protocols?

New York SPOC Requirements: As created effective January 2, 2022, Section 6-o of the New York Banking Law required a lender to provide a single point of contact (“SPOC”) to a borrower who: (a) is 60 or more days delinquent on a “home loan”; and (b) chooses to pursue a loan modification or other foreclosure prevention alternative.  The obligation arose in response to a written or electronic request from the borrower, and required the lender (or a servicer acting on the lender’s behalf) to provide the SPOC within 10 business days of such request.

As amended by AB 8771 retroactive effect to its creation, the section: (a) applies the SPOC obligation to any borrower who is 30 or more days delinquent; and (b) no longer conditions the obligation on an affirmative request from the borrower.  The amended section also authorizes the Superintendent of Financial Services to establish rules and regulations relating to the SPOC requirement.

Impact of the Amendment: The amendment brings Section 6-o of the Banking Law closer to the language of New York’s Mortgage Loan Servicer Business Conduct Regulations (“Part 419” of the Superintendent of Financial Services Regulations).  Since its adoption in final form in December 2019, Rule 419.7 has required a servicer to “assign a single point of contact to any borrower who is at least 30 days delinquent or has requested a loss mitigation application (or earlier at a servicer’s option).”  (Emphasis added.)  As we have discussed, both requirements are in contrast to the CFPB’s Mortgage Servicing Rules, which requires assignment of a SPOC to borrowers who are 45 days delinquent.  However, there are a few notable distinctions.

First, Section 6-o does not define a “single point of contact,” leaving open whether only one individual may serve that role with respect to any particular borrower.  Part 419 provides the SPOC may be either “an individual or designated group of servicer personnel each of whom has the ability and authority to perform the responsibilities” of the SPOC as set forth in Rule 419.7(b).  Part 419 further clarifies, however, that if a servicer designates a group of personnel to fulfill the SPOC responsibilities, “the servicer shall ensure that each member of the group is knowledgeable about the borrower’s situation and current status in the loss mitigation process, including the content and outcome of any communication with the borrower.”

Second, Part 419 specifies the obligations of a servicer and a designated SPOC for a delinquent borrower.  Specifically, Part 419:

  • requires the SPOC to “attempt to initiate contact with the borrower promptly following the assignment of the single point of contact to the borrower;”
  • specifies the responsibilities of the SPOC with respect to the borrower’s participation in loan modification or loss mitigation activities;
  • requires coordination with other servicer personnel (in particular, to ensure that foreclosure proceedings are halted when required by Part 419); and
  • requires the SPOC to remain assigned and available to the borrower until either the borrower’s account becomes current or the servicer determines that the borrower has exhausted all loss mitigation options available from or through the servicer.

Section 6-o, by contrast, does not include such specifications.  However, by granting the Superintendent rulemaking authority, the amended section leaves open the possibility that such requirements may be established by rule.

Finally, the requirement under Rule 419.7 provides broad coverage, extending to any mortgage loan serviced by a servicer within the scope of Part 419 (i.e., all first- and subordinate-lien forward and reverse mortgage loans) where the borrower (a) is 30 days or more delinquent, or (b) has requested a loss mitigation application.  By contrast, the requirement under Section 6-o applies to a narrower subset of residential mortgage loans.  The obligation extends only to a “home loan,” defined under Section 6-l of the Banking law to be limited to forward mortgages secured by one- to four-family residential property that, at origination, do not exceed the Fannie Mae conforming loan limit (among other conditions).  Further, the obligation under Section 6-o requires both that the borrower meet the delinquency threshold (30 or more days) and have chosen to pursue a loan modification or other foreclosure prevention alternative.

Takeaways:  Given the distinctions between the obligations to which a lender is subject under Section 6-o (and which it may delegate to a servicer), and those to which a servicer is subject under Part 419, we recommend careful review and coordination of loss mitigation procedures to ensure the proper fulfillment of SPOC obligations for delinquent borrowers in New York.  Further given the retroactive effective date of the measure, the need for such review is urgent.