The Federal Trade Commission recently announced a consent order with a subprime auto lender for alleged violations of the Federal Trade Commission Act (FTC Act), the Fair Debt Collection Practices Act (FDCPA), and the Fair Credit Reporting Act (FCRA). The consent order is yet another indication that regulators are targeting the debt collection and the auto finance industries for compliance with consumer protection statutes.

In the stipulated consent order, Consumer Portfolio Services, Inc. (CPS) agreed to refund or adjust 128,000 consumer accounts by more than $3.5 million and forbear collection on 35,000 accounts in connection with settling the FTC Act claims. Additionally, CPS will pay $2 million in civil penalties to settle the FTC’s claims for violations of the FDCPA and FCRA. CPS also agreed to change its business practices to comply with federal law.

According to the FTC’s complaint, CPS purchases and services subprime automobile finance contracts originated by car dealers nationwide. CPS also purchases portfolios of auto loans from other lenders and provides third-party loan servicing for loans owed by other lenders. The FTC alleged that CPS’s loan servicing, debt collection, and credit reporting practices violated federal law.

Regarding loan servicing, the FTC alleged that many of CPS’s loan servicing practices violated the FTC Act. For example, the FTC alleged that CPS misrepresented fees consumers owed in collection calls and written communications with consumers, made unsubstantiated claims about the amounts consumers owed, improperly assessed and collected fees, unilaterally modified consumers’ contracts by increasing the principal balance owed, and misrepresented that consumers were required to use particular payment methods that required service fees (of which CPS received a percentage).

The FTC alleged that CPS also engaged in various collection practices that violated the FTC Act or the FDCPA. Those practices included disclosing the existence of debts to third parties, calling consumers at work when not permitted to do so, calling third parties with the intent to harass, making unauthorized debits from consumer bank accounts, and deceptively manipulating caller ID displays, often to show a local area code. The FTC alleged this conduct violated the FTC Act in instances where CPS was a creditor and the FDCPA where CPS acted as a third-party debt collector.

Finally, the FTC criticized CPS’s credit reporting policies and alleged that CPS violated the FCRA by failing to establish and implement reasonable written policies to ensure the accuracy and integrity of information furnished to credit reporting agencies. The FTC also alleged that CPS failed to reasonably and timely investigate and respond to consumer disputes because investigations confirmed only that the account balance CPS reported matched the consumer’s credit report. According to the FTC, such an investigation failed to identify any substantive reporting errors and at most caught only technological and clerical errors in transmission.

The FTC is not the only federal agency targeting debt collection practices, particularly in the area of auto finance. The CFPB has made debt collection practices a primary focus over the last two years. Most recently, the CFPB announced plans for an auto finance larger participant rulemaking.

Attorneys in Ballard Spahr’s Consumer Financial Services Group regularly advise clients on FDCPA and FCRA compliance and defend clients in lawsuits alleging violations of these and other consumer protection statutes. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

If you have questions, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, John L. Culhane, Jr. at 215.864.8535 or culhane@ballardspahr.com, Christopher J. Willis at 678.420.9436 or willisc@ballardspahr.com, or Sarah T. Reise at 678.420.9370 or reises@ballardspahr.com. 


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