United States: CFPB Settlements: It's Not Over Until It's Over

On April 26, 2017, the Consumer Financial Protection Bureau ("CFPB") broke new ground by imposing a fine – in excess of a million dollars – against a consumer financial services company for allegedly violating the terms of its prior settlement with the CFPB.

Original Case Against SNAAC

The new fine flows from a 2015 consent order between the CFPB and Security National Automotive Company, LLC ("SNAAC," an auto lender that primarily works with servicemembers) ("2015 Order"), which settled CFPB administrative claims that SNAAC had engaged in unfair, deceptive, and abusive practices in violation of the federal Consumer Financial Protection Act ("CFPA") while attempting to collect from servicemembers who fell behind on their loans. The 2015 Order required SNAAC to pay a $1 million penalty, as well as $2.275 million in consumer redress, and to submit to the CFPB a comprehensive written plan for providing such redress. A separate court order enjoined SNAAC from using aggressive debt collection tactics.

CFPB Consent Orders & Compliance

Since the CFPB assumed authority in 2011, the majority of its enforcement actions (well over one hundred to date) have settled, with many respondents citing as significant settlement factors the enormous costs of defending CFPB claims, as well as the long lag time before a CFPB administrative enforcement action is subject to federal court review. In addition to penalties and/or consumer relief, CFPB settlements have included increasingly detailed compliance terms, such as provisions prohibiting the respondent from engaging in certain business practices and/or requiring the respondent to implement new policies or procedures, provide additional training, periodically report information to the CFPB, and so forth.

Entry of a consent order may settle CFPB allegations, but it is not necessarily the end of the story. Many CFPB consent orders provide that they will terminate five years from their effective date or five years from the most recent date that the CFPB initiates any action alleging a violation of the consent order by the respondent. The CFPB may come back months (or even years) later to assess consent order compliance.

Alleged Consent Order Noncompliance in This Case

In SNAAC's case, the CFPB reviewed SNAAC's compliance with the 2015 Order, acting in part on a tip from a servicemember's father. SNAAC maintains that while it disagreed with the CFPB's concerns, it offered to pay all the disputed amounts to move forward – but that the CFPB declined SNAAC's offer and began an investigation.

Under the 2015 Order, consumer redress was supposed to consist of credits to borrower accounts, with cash refunds to borrowers who had a zero balance. The CFPB determined that SNAAC had provided a plan that purported to provide full redress, but that was actually designed to underpay affected consumers, and that SNAAC had failed to provide a significant portion of the required redress. Specifically, according to a new consent order ("2017 Order"), the CFPB alleges that SNACC:

• Issued worthless "credits" to consumers who no longer owed money on their loans. The CFPB alleges that SNAAC improperly categorized paid-in-full accounts as if they actually had a balance, thereby issuing "credits" to those consumers rather than refunds. Likewise, SNAAC allegedly also issued "credits" to consumers whose debts had been discharged in bankruptcy. The CFPB contends that such "credits" were worthless because those consumers no longer owed SNAAC money and could not use such a credit toward any new or existing loan.
• Improperly credited consumers making payments under settlement agreements. The CFPB contends that with respect to consumers who were making payments under settlement agreements with SNAAC, the auto lender based redress on the original, higher debt in place, essentially treating the borrowers as if they had never settled. The CFPB asserts that SNAAC in some instances avoided issuing a refund to those consumers, instead issuing "credits" that exceeded their settlement balances. Further, because their settlement balances were improperly credited, some consumers unknowingly overpaid SNAAC on their settlement agreements.

Interpreting its 2015 Order as a "Federal consumer financial law," the CFPB alleges that SNAAC's noncompliance with the 2015 Order is a fresh violation of the CFPA.

Consequences to SNAAC under the 2017 Order

The 2017 Order requires SNAAC to provide additional consumers redress: roughly $720,000 in refunds, $370,000 in new credits to consumers with remaining account balances, and $75,000 to the CFPB to cover the costs of distributing the refunds. Furthermore, the CFPB is hitting SNAAC with a new civil money penalty of $1.25 million, in addition to the $1 million penalty it paid under the original 2015 Order.

The Takeaway

In recent years, consumer financial services companies have operated in a regulatory environment that is both uncertain and highly charged. For the many that believe it is too expensive and distracting to fight, and it is best to put these matters behind them, the lesson here is that while that may well be the right judgment call, it is still important to pay attention to the rear view mirror. As shown in the SNACC matter, the CFPB may well review whether consent orders are being adhered to, such that companies would be wise to devote appropriate time, planning, and resources to ensure that they are in compliance with their consent order obligations.

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