Subprime auto lender Consumer Portfolio Services has agreed to pay more than $5.5 million to settle government allegations that it used illegal tactics in the servicing and collection of loans.

The Federal Trade Commission alleged that the Irvine, Calif., company collected money that its customers did not owe, and violated federal law by harassing consumers who were late in making payments.

"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," Jessica Rich, director of the FTC's bureau of consumer protection, said in a May 29 news release.

Under the proposed settlement, Consumer Portfolio Services agreed to return more than $3.5 million to 128,000 customers, in addition to paying $2 million in civil penalties. The company also agreed to forebear collections on an additional 35,000 customer accounts, according to the FTC.

In addition, the settlement requires Consumer Portfolio Services to establish a program to ensure the accuracy, integrity and completeness of its loan servicing processes. The company will be required to provide independent assessments of the program to the FTC for 10 years.

Charles Bradley, Consumer Portfolio Services' president and chief executive officer, said the company is pleased that it has resolved the government's allegations.

"We cooperated fully with the FTC during their inquiry and made several system and procedural changes related to their comments," Bradley said in a news release.

"Furthermore, we are pleased that the final settlement is consistent with our expectations. Accordingly, the amounts we've agreed to pay for customer refunds and the civil penalty are covered entirely by the legal provision expenses we've previously recognized."

The FTC's allegations, detailed in a 35-page complaint filed in federal court, included misrepresenting fees, improperly collecting fees, unilaterally modifying contracts with consumers, and making unauthorized debits from consumer bank accounts.

Consumer Portfolio Services reported net income of $21 million on revenue of $245 million in 2013. The firm provides indirect auto financing, primarily on late-model used vehicles, to consumers with past credit problems, low incomes or limited credit histories, according to its website.

The proposed settlement has yet to be approved by a federal judge.

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