NEW: Controversial rule stops financial firms from blocking lawsuits

Sparking plenty of friction in the financial industry and Congress, a federal agency announced today a new rule that bans companies like banks and credit card issuers from using arbitration clauses to keep consumers from banding together to sue them.

Financial trade groups protest this oversteps the bounds of what the Consumer Financial Protection Bureau is supposed to to do, while some of the industry’s supporters in Congress have branded it a big wet kiss to class-action attorneys.

U.S. Sen. Al Franken, D-Minn., called it a “game-changing move” to restore power to American consumers.

The Consumer Federation of America applauded the move affecting credit card, auto loan, student loan, payday loan, and other financial contracts.  The group said it will help consumers who were unknowingly and illegally overcharged to get refunds.

“The rule will help to combat the culture of companies profiting from charging illegal fees and committing other crimes against their customers,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America. “This is an important step of restoring law and order to the financial marketplace.”

CFPB said its rule bans companies from using mandatory arbitration clauses to “deny groups of people their day in court.”

As the agency explains it, many consumer financial products like credit cards and bank accounts put clauses in their contracts that force consumers to use arbitration outside of court to settle disputes. The result makes it very difficult for consumers to get together to sue a bank or financial company in a class-action suit.

“Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” said CFPB Director Richard Cordray in a statement. “These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”

But the rule took immediate fire from a powerful Republican House chairman on Monday.

“This bureaucratic rule will harm American consumers but thrill class action trial attorneys,” said U.S. Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services committee. “In releasing this rule today, Director Cordray ignored a prior request by the acting Comptroller of the Currency that he work with the OCC to resolve its potential safety and soundness concerns.”

Hensarling continued, “As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act. In the last election, the American people voted to drain the D.C. swamp of capricious, unaccountable bureaucrats who wish to control their lives.  Congress must work with President Trump to make good on this mandate by fundamentally reforming the CFPB and dismantling the Administrative State.”

The rule would take effect in 60 days and apply to contracts drawn up 180 days after that.

Industry groups said it was misguided.

“We’re disappointed that the CFPB has chosen to put class action lawyers – rather than consumers – first with today’s final rule, ” said Rob Nichols, American Bankers Association  president and CEO.  “As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking.”

Others including issuers of prepaid credit cards agreed.

The rule “will not only harm the prepaid industry, but will more critically deprive consumers of an efficient, inexpensive, and convenient manner to resolve disputes,” said Brian Tate, president and CEO of the Network Branded Prepaid Card Association.  He said it raises costs for card providers and maintained “arbitration has proven to be a faster and more affordable alternative to class action litigation.”

Experian ‘deceived’ customers with credit scores, fined $3 million

You think you are getting your “credit score.” But what if it is not really the score lenders actually use?

A federal agency said Thursday it fined credit reporting firm Experian $3 million for passing off its own proprietary credit scoring model called a PLUS score as the real deal lenders use. Experian, based in California, is one of the nation’s three biggest credit reporting agencies.

“Experian deceived consumers over how the credit scores it marketed and sold were used by lenders,” said Consumer Financial Protection Bureau Director Richard Cordray. “Consumers deserve and should expect honest and accurate information about their credit scores, which are central to their financial lives.”

An attempt to reach Experian spokesmen for a statement was not immediately successful.

The CFPB said in some cases there were “significant differences” between the PLUS Scores and the various credit scores lenders actually use.

So how do consumers know what to believe? Scores like the one produced by Experian may have an “educational” use as an approximation of where you stand. There is no single score that 100 percent of lenders use, but a common one is a FICO score, produced by a company originally known as Fair Isaac that now just goes by its initials. Some credit cards offer a free look at your FICO score as a perk.

In addition, Experian unlawfully forced consumers to view advertisements until 2014 before getting a free credit report, federal officials said.

Consumers are allowed by law to see their credit report free from big agencies like Experian once a year. The report does not show a single credit score but information the scores are typically based upon, such as what loans and other credit have been reported about the consumer. It’s worth requesting to help detect mistakes — or somebody fraudulently using your name for credit — that could lower the scores lenders use.

The fine is an example of aggressive enforcement by the CFPB. A big question to watch in the months ahead: Will a GOP-controlled Congress and executive branch rein in the agency many see as representing excessive regulation? A number of big banks and financial companies have bristled at the CFPB and legislation that created it in the previous administration.

Update: Experian said in a statement:

 “While we do not believe our practices violated the law and did not admit to any of the allegations, in the interest of moving our business forward and staying focused on delivering an exceptional product and service experience to our clients and consumers, Experian has accepted the consent order. The consent order addresses past products and marketing disclosures and does not reflect current marketing practices. Experian will execute all actions directed by the CFPB; except for limited changes, our current marketing practices are already compliant with the order.”

Feel threatened by a debt collector? You’re not alone, survey finds.

More than 25 percent of consumers contacted by debt collectors feel threatened.
More than 25 percent of consumers contacted by debt collectors feel threatened.

One-in-four consumers contacted by debt collectors felt threatened, a Consumer Financial Protection Bureau report released Thursday found.

More than 40 percent of consumers who said they were approached about a debt requested that a creditor or collector stop contacting them.

Of these consumers, three out of four said that debt collectors did not honor their request to stop contacting them.

The report was drawn from the first-ever national survey of consumer experiences with debt collectors.

“The Bureau today casts light on troubling problems in the debt collection industry,” said CFPB Director Richard Cordray.

The CFPB is working to clean up such abuses and to see that all consumers are treated with fairness, decency and respect, Cordray said.

Debt collectors are generally prohibited from tactics that tend to harass, abuse or oppress consumers.

Debt collection is a multi-billion dollar industry affecting 70 million consumers who have or are contacted about a debt in collection.

Banks and other original creditors may collect their own debts or hire third-party debt collectors. When they fail to collect debts on their own, they often sell these debts to debt buyers. The buyers may try to collect on these debts, or hire third-party debt collectors to do so.

The Consumer Experiences with Debt Collectors report is available at: http://files.consumerfinance.gov/f/documents/201701_cfpb_Debt-Collection-Survey-Report.pdf 

To illustrate consumers’ experiences with debt collection, the CFPB today is sharing personal debt collection stories from consumers. It is part of an ongoing effort to highlight issues in the debt collection marketplace and to inform consumers about their rights. These online videos highlight consumer stories about being pursued for debts that weren’t owed, consumers who felt they were contacted too often, and consumers who were threatened with jail by debt collectors. The Bureau is encouraging more consumers to tell their stories.

The consumer debt collection stories are available at: http://www.consumerfinance.gov/consumer-tools/everyone-has-a-story/debt-collection/

 

TransUnion, Equifax, ordered to pay $23 million for credit score deception

TransUnion and Equifax engaged in deceptive marketing of credit scores and products, federal regulators said Tuesday.
TransUnion and Equifax engaged in deceptive marketing of credit scores and products, federal regulators said Tuesday.

TransUnion and Equifax, two of the nation’s three largest credit reporting agencies, have been ordered to pay $23.1  million for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers.

Consumers were led to believe the scores they sold to consumers were the same scores lenders typically use to make credit decisions, which is the FICO score. However,  the scores the companies marketed  were alternative scores based on other models, the Consumer Financial Protection Bureau said Tuesday.

 

In addition, the companies falsely claimed their credit scores were free, or in the case of TransUnion, only cost “$1.” The truth was that consumers received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program, the CFPB said.

Instead, in a practice known as “negative option” marketing, unless the consumers canceled during the trial period, they were charged a recurring fee, usually $16 or more a month.

The CFPB ordered TransUnion, based in Chicago,  and Equifax, headquartered in Atlanta, to truthfully represent the value of the credit scores they provide and the cost of obtaining those scores and other services.

Between them, TransUnion and Equifax must pay more than $17.6 million in restitution to consumers and $5.5 million in fines to the CFPB.

The companies collect credit information about consumers and provide reports and scores to businesses. Through their subsidiaries, they sell credit scores, credit reports and credit monitoring services directly to consumers.

The scores that TransUnion sells to consumers are based on a model from VantageScore Solutions, LLC, which are not typically used for credit decisions.

Equifax sold scores to consumers based on its proprietary model, the Equifax Credit Score, an educational score also not typically used to make credit decisions.

TransUnion, since at least July 2011, and Equifax, between July 2011 and March 2014, violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, the CFPB said.

Equifax also violated the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months and to operate a central source, AnnualCreditReport.com, where consumers can get their report. Until January 2014, consumers getting their report through Equifax first had to view Equifax advertisements, a violation of the Act.

“We applaud the Consumer Financial Protection Bureau for taking strong and vigorous actions against TransUnion and Equifax to protect the interests of American consumers,” said National Consumer Law Center staff attorney Chi Chi Wu. “In addition to obtaining tens of millions of dollars in relief for consumers, this consent order will protect consumers from being ripped off in the future over deceptive credit monitoring products and sales practices.”

The full text of the CFPB’s Consent Order against Equifax is here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Equifax-consent-order.pdf 

The full text of the CFPB’s Consent Order against TransUnion is here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Transunion-consent-order.pdf 

More information about credit scores can be found here: http://www.consumerfinance.gov/about-us/blog/what-you-need-know-understanding-why-offers-your-credit-score-are-not-all-same/  

 

 

 

Data safe this season? Credit report firms lead agency gripe list

You might like to think credit reporting companies Equifax, Experian and TransUnion are the folks who are supposed to protect and keep your consumer data straight this holiday shopping season. But they lead all companies in the latest quarterly complaint list released Tuesday from the Consumer Financial Protection Bureau, outpacing banks led by Citibank.

Complaints from Florida increased 14 percent for June through August 2016, compared to same quarter a year earlier, ranking it among the top 20 states with the biggest increases in gripes.

credit reportCredit reporting firms compile information on more than 220 million U.S. consumers that can play a critical role in determining if people get favorable terms when they apply for loans and charge cards, apartments or even jobs or insurance. Some complaints are to be expected, but problems that consumers face in challenging or clearing up mistakes have proved persistent.

As The Palm Beach Post reported, the annual cost of ID theft has been tallied near $25 billion, more than burglary, vehicle and other forms of property theft combined.

Florida led the nation in identity theft complaints in 2015 to another federal agency, the Federal Trade Commission. The region including Miami and West Palm Beach topped the nation in reported identify theft per capita in 2014 and remained in the top three last year.

The Consumer Data Industry Association, whose members include big credit reporting companies, had no immediate comment.

Most Complaints by Company
1. Equifax
2. Experian
3. TransUnion
4. Citibank
5. Bank of America
6. Wells Fargo
7. JPMorgan Chase
8. Capital One
9. Ocwen
10. Navient Solutions Inc.

Source: Consumer Financial Protection Bureau, June-Aug. 2016

Chase customers being notified about settlement funds

Chase customers are being notified about how to collect funds from a settlement.
Chase customers are being notified about how to collect funds from a settlement.

Chase customers in Palm Beach County who are part of a $136 million nationwide settlement are beginning to receive postcards instructing them about how to collect their share.

Roughly 5,000 Chase customers in Florida will receive more than $4.6 million as part of a $136 million nationwide settlement announced in July.
JPMorgan Chase & Co. agreed to reform its unlawful credit card debt-collection practices through the joint state-federal settlement with Attorney General Pam Bondi, 47 other attorneys general, the District of Columbia, and the Consumer Financial Protection Bureau.
Florida will receive the largest remedial payment of any state in the settlement, Bondi said. In addition to the $4.6 million going to Chase customers, $1.6 million will go to the state’s general revenue fund.
Another $15.3 million will go to 47 nonprofit organizations to be used for legal services, financial literacy, and other programs related to assisting Floridians with managing debt.

The joint state-federal agreement, through an assurance of voluntary compliance with the states and a separate order with the CFPB, follows an investigation into Chase’s past debt collection practices.
The agreement requires Chase to significantly reform its credit card debt-collection practices in areas of declarations, collections litigation, debt sales and debt buying. Debt buying involves the sale of debt by creditors or other debt owners, often for pennies on the dollar, to buyers who then attempt to collect the debt at full value or sell it.
Among other reforms, the agreement requires new safeguards to help ensure debt information is accurate and inaccurate data is corrected, provides additional information to consumers who owe debts, and bars Chase’s debt buyers from reselling consumer debts to other purchasers.
Previously, initial buyers of Chase’s consumer credit card debt could resell the debt, the subsequent buyer could flip the debt to another buyer, and the process could repeat itself many times over. If initial information about the debt was incorrect or was transmitted with errors to a subsequent debt buyer, that could result in long-term harm to the consumer and leave the consumer with the difficult or even impossible burden of successfully challenging or correcting errors.
For collections litigation that was pending between Jan. 1, 2009, and June 30, 2014, Chase is also ceasing collection activity on judgments held by Chase and seeking to withdraw, dismiss or terminate any pending litigation matters and will request that credit reporting agencies not report these judgments against borrowers. Chase is required to send notice to affected borrowers that it is ceasing these collection efforts.