Hat trick? FTC charges violations in auto loan servicing, debt collection, credit reporting

Sometimes good things come in threes, like Musketeers, Bronte sisters, and Stooges.  (Shemp doesn’t count.)  But the FTC’s complaint against Consumer Portfolio Services charges the company with three distinct sets of violations – unlawful auto loan servicing, illegal debt collection, and violations of the Fair Credit Reporting Act’s Furnisher Rule – all of which spelled triple trouble for consumers.  But there’s relief on the way in the form of a multimillion dollar settlement with provisions that will change how CPS does business from here on in.

Loan servicing.  As a loan servicer, Irvine, California-based CPS collects money people owe on their auto loans – car payments, late fees, NSF charges, and the like.  But servicers aren’t free to charge unauthorized fees or change loan terms on their own, which is what the FTC said CPS did in many cases.  According to the complaint, the company misrepresented how much consumers owed, assessed higher fees than allowed by the contract or state law, changed key payment provisions, and flat-out overcharged people.  In other instances, CPS allegedly increased people’s balances through a combination of human error, poor quality control, and faulty computer programming.

Debt collection.  The FTC took issue with CPS’s practices when it was collecting debts consumers owed the company and when it was acting as a debt collector for others. The complaint alleges that the company illegally revealed the existence of consumers’ debts to friends, family, co-workers, employers, and even their references.  One particularly gutsy – and illegal – technique:  directing neighbors to place notes on people’s doors asking them to call CPS.  In addition, the FTC says CPS called people over and over again, sometimes using “Do you kiss your Mother with that mouth?” vocabulary.  But CPS didn’t stop there.  According to the complaint, the company subjected third parties to repeated harassing calls, even after they’d been told to cut it out.  Another favorite trick: overriding Caller ID so consumers couldn’t tell the call was coming from CPS.  Even when people took steps to pay, the FTC says CPS often falsely said they had to use Western Union, Moneygram, or other methods that cost extra.

Furnisher Rule.  The FTC also alleges that in many cases, CPS didn't honor its obligations under the FCRA’s Furnisher Rule.  The Rule requires companies to have procedures in place regarding the accuracy and integrity of information they give to credit bureaus.  What’s more, when a consumer disputes the accuracy of that info, the company has an obligation to conduct a reasonable investigation within a set period of time and notify the consumer about the result.  The FTC says CPS fell short on both counts.  For example, rather than really investigating, CPS often just checked the consumer’s identifying account information and payment history against what was reported to the credit bureau.  That pro forma approach might catch a typo or clerical glitch, but it wasn’t designed to address substantive errors and inaccuracies.  The complaint charges that CPS didn’t even bother to track the disputes it received, meaning it couldn’t accurately update the credit bureaus about challenged information.

The stipulated order will make sweeping changes at CPS.  The order bans deceptive loan servicing practices, unlawful collection of fees, and one-sided changes to consumers’ contracts.  It also requires the company to put a far-reaching data integrity program in place to identify risks to the accuracy and integrity of loan servicing information that could lead to errors in consumers’ accounts.  A third-party expert will assess that program periodically and report back to the FTC.

To address CPS’s debt collection practices, the order forbids a host of illegal tactics, including disclosing the existence of a person's debt to someone else.  What about contacting a third party to get the person's location information?  Under the order, the company can't “communicat[e] with any third party for the purpose of acquiring location information about the consumer unless CPS possesses a reasonable belief that it does not currently possess the consumer’s location information.”  But here's an interesting addition:  Under the order, CPS won’t be able to just shrug its shoulders and claim it had to ask because it didn't know how to find the person.  The order gives detailed illustrations of what CPS will need to establish that “reasonable” belief – for example, mail returned as undeliverable.  It also includes provisions that will take effect when a consumer tells CPS to stop calling.

To make sure CPS honors the protections of the Furnisher Rule, the company must implement written policies and beef up its procedures for handling consumer disputes.

Read the complaint and order for details, but here are three tips companies can take from the case:

• Remember to keep the "service" in loan servicing.  Loan servicers have an obligation to get it right when crediting payments, determining interest, assessing fees, etc.  That’s critical because people may not be in a position to double-check complicated calculations or know the maximum fees allowed by state law.  Savvy businesses root out slipshod work by implementing sensible in-house controls.  The alternative could be the kind of bumper-to-bumper data integrity program mandated by the CPS order.
   
• You don’t have to be a “debt collector” to be liable for illegal collection practices.  The CPS complaint is noteworthy in that the company wore two hats.  Sometimes it served as a debt collector for others, but in most cases, it acted as a creditor collecting its own debts.  Why is that distinction important?  Because the Fair Debt Collection Practices Act applies only to companies collecting debts owed to others.  But creditors shouldn’t breathe a sigh of relief just yet.  Even if you’re not covered by the FDCPA, unfair or deceptive practices are still illegal under the FTC Act.  The complaint in this case alleged FDCPA violations when CPS was a debt collector and Section 5 violations when the company was a creditor.
   
• Non-compliance can be costly.  The settlement imposes financial remedies on three fronts.  CPS has agreed to refund or adjust 128,000 consumer accounts to the tune of more than $3.5 million and forebear collections on another 35,000 accounts.  In addition, the company will pony up a $1 million civil penalty for illegal conduct when it acted as a debt collector covered by the Fair Debt Collection Practices Act and an additional $1 million for Furnisher Rule violations.