For only the second time since Mick Mulvaney took up acting director duties, the Consumer Financial Protection Bureau (CFPB) has used its enforcement authority to take action against a company, and tapped the Dodd-Frank Act provision outlawing unfair, deceptive or abusive acts or practices (UDAAP) in doing so.
Although its $1 billion consent order issued to Wells Fargo for unfair auto and mortgage lending practices in April marked the first bureau enforcement action announced under Mulvaney, the one announced June 13 was the first one spearheaded on his watch, given published reports that the Wells Fargo matter was in the works long before he was appointed to the agency’s interim leadership role.
The bureau stated that it has entered into a settlement agreement with Security Group Inc. and its subsidiaries, over the company’s improper practices in collecting on consumer installment loans and retail sales installment contracts, both in-person and by phone.
As a result of their improper actions, the defendants must notify all customers affected by their activities, stop engaging in practices that violate the law and pay a $5 million civil money penalty.
The press release announcing the consent order, stipulating the terms of the settlement with the South Carolina-based company, as well as Security Finance Corp. and Professional Financial Services Corp., is nearly as noteworthy as the fact that it has taken more than half a year for the bureau to initiate such an action under Mulvaney.
Some of the bureau’s critics, such as Reps. Bill Huizenga (R-Ill.) and Dave Trott (R-Mich.), have called out former Director Richard Cordray for characterizing companies charged with violating consumer protection laws in an overly critical light in CFPB press releases. During an April 2017 congressional hearing, the congressmen pushed Cordray to explain why the legal language of the CFPB punitive settlements is softer than the bureau’s press statements announcing the punishments.
“[There is] a significant problem with the way the bureau has released their press releases around their consent orders,” Huizenga said during the hearing. “I would call this trial by press release.”
Huizenga also noted that defendants named in the bureau’s consent orders typically are said, per language cited from such a document, to have agreed to settlement terms “without admitting or denying any of the findings of fact or conclusions of law, except that the respondents admit the facts necessary to establish the bureau’s jurisdiction over respondents and the subject matter of this action.”
“It’s my understanding that parties entering into a consent decree with the bureau are not actually admitting guilt, correct?” Huizenga asked, to which Cordray responded: “That’s true of many orders, not necessarily all of them.” He also asserted, “We know the facts, they know the facts, they don’t have a leg to stand on.”
Whereas nearly every press release announcing an enforcement action the CFPB published under Cordray included a statement from the director condemning the harm caused to consumers by the company subject to the action, the bureau’s first such action under Mulvaney came with no statement from the acting director at all. It simply notes the name of the company subject to the action, summarizes the charges listed in the consent order and notes the restitution requirements for the company.
“As described in the consent order, the bureau found that the Security Group entities violated the Consumer Financial Protection Act by making improper in-person and telephonic collection attempts on consumer installment loans and retail sales installment contracts,” the release states. “The bureau found that these improper attempts included physically preventing consumers from leaving their homes and visiting and calling consumers’ places of work while knowing that those contacts could endanger the consumers’ employment. The bureau also found that the Security Group entities violated the Fair Credit Reporting Act by regularly furnishing inaccurate and incomplete information about consumers to credit reporting agencies.
“Under the terms of the consent order,” the release continues, “Security Group and its subsidiaries are barred from certain collection practices, and must correct certain inaccurate information about consumers they furnished to credit reporting agencies, and pay a $5 million civil money penalty.”
One detail the release does not mention is the bureau’s use of its authority to regulate unfair, deceptive or abusive acts or practices (UDAAP), which is among the agency’s most controversial abilities. Supporting its claim that the defendants engaged in “unfair” debt collection activities, the consent order lists a number of tactics that were used to intimidate and humiliate debtors, including visiting consumers’ homes and work spaces.
“Until at least December 2015, in numerous instances, respondents visited consumers’ homes and places of employment, as well as the homes of their neighbors, to collect or attempt to collect delinquent debt,” the consent order states. “Respondents continued to visit consumers’ homes until at least October 2016. In some instances, respondents also visited consumers in other public places to collect or attempt to collect debt. Between 2011 and 2016, respondents conducted or attempted more than 12 million of these in-person visits to more than 1.3 million consumers. Respondents did not inform consumers who applied for loans that respondents had a policy or practice of conducting in-person collection visits. In numerous instances, in the course of attempting to collect debt from consumers in person, respondents disclosed or risked disclosing consumers’ delinquency to third parties, disrupted consumers’ workplaces and jeopardized their employment, and humiliated and harassed consumers.”
The consent order lists numerous examples of how the defendants improperly went about attempting to collect on debts, including physically cornering them and speaking openly to them about their debts in public spaces to deliberately humiliate them.
Specifically, the consent order said that the defendants: “a. discussed debts with consumers and took payments from consumers where third parties could see or overhear, such as on a doorstep within earshot of neighbors, on a speakerphone in public, in the middle of a grocery store, through drive-thru windows at fast food restaurants, in line at a big-box retailer, and in other public locations; b. handed field cards to third parties, including consumers’ young children, for delivery to consumers; c. threatened consumers with jail, shoved them, or physically blocked a consumer from leaving private property; d. visited consumers’ places of employment even when respondents knew or should have known that the consumers were not allowed to have personal visitors there; e. visited consumers’ places of employment even when the consumers or the consumers’ employers or co-workers had informed respondents that the consumers could not be contacted at work or that future visits would endanger the consumers’ employment; f. visited consumers’ homes or places of employment multiple times, and without permission from the consumers, in a manner that was likely to reveal that they were collecting a debt, including by visiting more than 10 times in a month; g. visited the homes of consumers’ neighbors and left field cards with their neighbors; h. told third parties, while asking about the consumer, that they were from ‘Security Finance’; and i. directly informed third parties during field visits of consumers’ delinquency.”
The bureau determined that, in several instances, the defendants knew or should have known that their actions were illegal or that the consumers, their colleagues, employers and third parties previously had requested that such calls and in-person visits cease.
The consent order also notes that the defendants made multiple errors in furnishing credit information and were slow to correct inaccuracies. This resulted in harm reflected on tens of thousands of consumers’ credit reports because of inaccuracies in the date of first delinquency; inaccuracies in declining balances for charged off accounts; inaccuracies in account payment histories; and inflated and inaccurate high-credit limits.