CFPB, AG’s, secure $92M in debt relief for servicemembers victimized by predatory lending

by Ballard Spahr LLP
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NOTE: We intended to post this blog entry on the Monitor on July 30 but it was inadvertently omitted.

The CFPB, after an investigation in cooperation with 13 state attorneys general, has entered into a consent order with Colfax Capital Corporation, a California consumer lending company (Colfax), and its wholly-owned subsidiary, Culver Capital, LLC, a Georgia consumer lender (Culver) (formerly known as Rome Finance Co. Inc. and Rome Finance LLC, respectively) and their principals, Ronald Wilson and William Collins. As a result of this consent order, approximately 17,000 U.S. servicemembers and other consumers will receive debt relief in the aggregate amount of approximately $92 million.

That amount represents approximately $60 million in about 12,000 financing agreements predominantly with servicemembers held by Colfax and approximately $32 million in about 5,000 similar agreements held by Culver. The relief is accomplished by ordering respondents (or anyone acting on their behalf) to cease and desist from collecting on any Rome Finance-related transactions. The Chapter 7 trustee will cooperate in this relief. Notably, despite the ban on collections of any amounts owing, the affected servicemembers and other consumers get to keep the merchandise they purchased.

Colfax is in bankruptcy as a result of a 2005 lawsuit alleging predatory sales and lending practices brought by the Tennessee Attorney General, and the Chapter 7 bankruptcy trustee has filed a non-opposition to the consent order pursuant to a duly approved compromise of controversy in the bankruptcy case. In view of the bankruptcy, the CFPB has assessed a symbolic $1.00 civil money penalty. None of the respondents admits or denies any wrongdoing or any of the stipulated facts (other than the facts necessary to establish CFPB jurisdiction) in the consent order.

The enforcement action charged the corporate respondents with a predatory lending scheme featuring ensnaring servicemembers with the promise of no money down and instant financing (in violation of UDAAP proscriptions), disguising very high finance charges by artificial inflation of the disclosed price of good purchased (in violation of Regulation Z), withholding information on billing statements (again in violation of UDAAP proscriptions), and illegal collections of void loans (in violation of certain state laws and UDAAP proscriptions).

The consent order also effects the permanent suspension and forfeiture of the corporate respondents’ business status and prohibits all respondents (or anyone acting on their behalf) from using, selling, transferring, or otherwise providing to any other person any of the corporate respondents’ intellectual property (including brand names, copyrights, trademarks, customer lists, business methods, promotional materials, and IT operating systems). The individual respondents are also permanently banned from conducting any business in the field of consumer lending. Finally, the consent order imposes a variety of disclosure obligations, operational restrictions, and ongoing reporting obligations with respect to any other businesses in which the individual respondents are involved.

Perhaps the most significant aspect of the conduct giving rise to the consent order involves the allegations of hidden charges in the marketing of products. The Bureau charged that Rome Finance and the merchants they worked with masked exorbitant finance charges by artificially inflating the disclosed price of the consumer goods being sold and, consequently, deflating the disclosed APR. For example, the CFPB cites disclosures indicating the APR was 16 percent when in fact the APR was 100 percent or more.

 

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