WASHINGTON — The Federal Deposit Insurance Corp. on Wednesday announced financial penalties against Cross River Bank in New Jersey and an affiliated debt settlement company over allegations that they misled consumers into obtaining debt settlement loans.
The FDIC said the $1.4 billion-asset Teaneck, N.J., bank and Freedom Financial Asset Management, based in California, misrepresented how they would settle consumer debt through a debt consolidation loan program, in which Cross River originated loans exclusively for customers of Freedom Financial.
The agency said the bank and debt settlement company failed to clarify the terms and conditions of the loan program and misled customers into thinking the program would settle debts and boost their creditworthiness.
“In fact, borrowers had to negotiate such debts themselves,” the FDIC said in a press release. The companies claimed the loan program “would result in the settlement of all their debts within 30 to 45 days or 30 to 90 days, which was not true for nearly half of the consumers.”
The companies also charged a settlement fee of up to 25% for each debt that was enrolled in the loan program.
The FDIC fined Cross River Bank $641,750, while Freedom Financial was fined $493,500. The FDIC said it has not yet determined a full restitution amount, but that $20 million has already been placed in an account to assist harmed consumers. Both parties agreed to the order without confirming or denying wrongdoing.
The FDIC also ordered Cross River Bank and Freedom Financial to implement a restitution plan for borrowers who received loans beginning in 2013. The restitution plan must be approved by the FDIC and the amount verified by an independent third party.
Officials from both companies separately released statements Wednesday saying the issues raised in the orders have already been addressed.
“We proactively addressed the issues raised by the FDIC, and do not believe any of our customers suffered any financial harm,” said Joe Toms, president of Freedom Financial Asset Management. “We are focused on continuing to deliver the best solutions to our customers.”
Richard Keil, a spokesman for Cross River Bank, said while the bank “respectfully disagrees with the FDIC’s conclusions, it accepts full responsibility in this instance and will work with FFAM to develop a restitution plan which insures that impacted consumers receive payment.”
“Ever since Cross River first became aware of these limited issues stemming from a routine examination covering a period from 2013 to early 2015, the bank has taken numerous voluntary and proactive steps to address the FDIC concerns, and all matters raised in the consent order have already been remediated,” Keil said.
Cross River Bank, which boasts partnerships with 16 lending platforms on its website, was also ordered to ramp up compliance controls, particularly for its third-party relationships. Regulators have long cautioned that they will hold banks responsible for partners, especially as more banks are partnering with fintech firms.
“As the originator of these loans, Cross River Bank is responsible for ensuring" that the loan program "operates in compliance with all applicable laws,” the FDIC said.