The Federal Trade Commission (FTC) recently announced a $5.5 million monetary and injunctive settlement with auto lender Consumer Portfolio Services, Inc. (CPS) concerning allegations that the company used illegal tactics in servicing and collecting consumers’ auto loans, and failed to adopt proper quality controls, in violation of Section 5 of the FTC Act, the Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act (FCRA), and the FCRA Furnisher Rule. The fifteen count civil complaint (available here) against CPS alleged that the subprime auto loan servicer misrepresented to consumers amounts due; imposed NSF fees higher than what was permitted by contract or law; increased the principal balances of loans without basis; debited consumers checking accounts without authorization; and unlawfully disclosed debts and private financial information to families, employers, and friends of consumers. United States v. Consumer Portfolio Services, Inc., Case No. SACV14-00819 ABC (RN Bx) (C.D. Cal. May 28, 2014).
Significantly, the Complaint alleged that CPS failed “to adopt adequate policies and procedures to ensure the accuracy of its representations,” and had inadequate quality controls and faulty computer programming, which resulted in increasing consumers’ principal balances above what was actually owed and caused other consumer harms. Id. ¶ 17. The complaint further alleged that CPS’s failure to establish and implement written policies regarding the accuracy of consumer information and failure to investigate consumer disputes of fees violated the Furnisher Rule (16 C.F.R. § 660.1 et seq.) under the FCRA, which applies to all companies required to provide information to a consumer reporting agency. Increasingly federal agencies charged with enforcing consumer protection and lending laws are using the failure of a company to adopt and implement adequate quality control programs and policies as evidence of both wrongdoing and intent. Lenders should be aware that they need to have the necessary policies and quality control programs in place, and systems to monitor whether their QC policies and programs are functioning as intended.