A national subprime auto lender will pay more than $5.5 million to settle Federal Trade Commission charges that it used illegal tactics to service and collect consumers’ loans, including collecting money consumers did not owe, harassing consumers and third parties and disclosing debts to friends, family and employers.

Consumer Portfolio Services Inc. (CPS), based in Irvine, Calif., will refund or adjust 128,000 consumers’ accounts more than $3.5 million and forebear collections on an additional 35,000 accounts to settle charges it violated the FTC Act.

CPS will pay another $2 million in civil penalties to settle FTC charges that it violated the Fair Debt Collection Practices Act and the Fair Credit Reporting Act’s Furnisher Rule.

The company’s collection 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.

Because for many of its accounts CPS is a creditor, the complaint charges these practices violated Section 5 of the FTC Act. For those accounts where CPS is a debt collector, the complaint charges these practices violated the FDCPA.

"At the FTC, we hold loan servicers responsible for knowing their legal obligations and abiding by them," said Jessica Rich, director, 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 to change its business practices to comply with the requirements of the appropriate laws. The company also 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 also must provide the FTC with periodic independent assessments of its data integrity program for 10 years. According to the complaint, CPS’ loan-servicing violations include:

    •    Misrepresenting fees consumers owed in collection calls, monthly statements, pay-off notices, and bankruptcy filings;
    •    Making unsubstantiated claims about the amounts consumers  owed;
    •    Improperly assessing and collecting fees or other amounts;
    •    Unilaterally modifying contracts by, for example, increasing principal balances;
    •    Failing to disclose financial effects of loan extensions;
    •    Misrepresenting that consumers must use particular payment methods requiring service fees; and
    •    Misrepresenting that the company audits verified consumer accounts balances.

CPS is 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.

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