IRVINE, Calif. — Consumer Portfolio Services Inc. (CPS) will pay more than $5.5 million to settle Federal Trade Commission (FTC) charges that it used illegal tactics to service and collect on consumer loans. According to the agency’s complaint, the subprime finance source collected money consumers did not owe, harassed consumers and third parties, and disclosed debts to friends, family and employers of victims.
The firm agreed to refund or adjust 128,000 consumer accounts totaling more than $3.5 million and forebear collections on an additional 35,000 accounts to settle charges that it violated the FTC Act. Additionally, CPS will pay $2 million in civil penalties to settle FTC charges that it violated the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA)’s Furnisher Rule.
“At the FTC, we hold loan servicers responsible for knowing their legal obligations and abiding by them,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. “The law is very clear: Loan servicers can’t charge consumers more than they owe. And they can’t threaten and harass consumers about delinquent debts.”
The order settling the charges requires CPS change its business practices to comply with the requirements of the appropriate laws. In addition, the company is required to establish and maintain a comprehensive data integrity program to ensure the accuracy, integrity and completeness of its loan servicing processes, and the data and other information it services, collects or sells. CPS must also provide the FTC with periodic independent assessments of its data integrity program for 10 years.
“We are pleased to have resolved the matter with the FTC,” CPS President and CEO Charles E. Bradley stated in a company press release. “We cooperated fully with the FTC during their inquiry and made several system and procedural changes related to their comments. Furthermore, we are pleased that the final settlement is consistent with our expectations. Accordingly, the amount we’ve agreed to pay for customer refunds and the civil penalty are covered entirely by the legal provision we’ve previously recognized.”
According to the FTC’s complaint, CPS’ loan-servicing violations included misrepresenting fees consumer owed in collection calls, monthly statements, payoff notices and bankruptcy filings. The FTC also charged the subprime finance source with making unsubstantiated claims about the amounts consumer owed, improperly assessing and collecting fees, and failing to disclose financial effects of loan extensions, among other claims.
The company’s collections violations include disclosing the existence of debts to third parties; calling consumers at work when not permitted or inconvenient; calling third parties repeatedly with intent to harass; making unauthorized debits from consumer bank accounts; falsely threatening car repossession; and deceptively manipulating Caller ID systems. Because for many of its accounts CPS is a creditor, the complaint charged that these practices violated Section 5 of the FTC Act. For those accounts where CPS is a debt collector, the complaint charged these practices violated the FDCPA.
CPS is also charged with failure to establish and implement reasonable written procedures and failure to reasonably investigate and respond timely to consumer disputes under the Furnisher Rule.
Under the order, the company will begin sending refunds to consumers and adjusting affected account balances within 90 days.
The commission’s vote to authorize the staff to refer the complaint to the U.S. Department of Justice and to approve the proposed consent decree was 4-0-1, with Commissioner Terrell McSweeny not participating. The DOJ filed the complaint and proposed consent decree on behalf of the commission in the Central District of California on May 28, 2014. The proposed consent decree is subject to court approval.