Short Selling Alert : Consumer Portfolio Services, Inc. (NASDAQ:CPSS) . Subprime lender accused of breaking collection laws, harassing customers, more.
Consumer Portfolio Services Inc., a major subprime auto lender, agreed to pay the Federal Trade Commission more than $5.5 million to settle charges it used illegal practices to service and collect consumer loans, harassed borrowers and unlawfully disclosed consumer debts to friends, family members and employers.
As part of violations of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, Consumer Portfolio Services will pay more than $3.5 million to refund or adjust 128,000 consumers’ accounts and forgo collections on an additional 35,000 accounts.
The company will pay another $2 million in civil penalties to settle the FTC charges, the agency said today.
Under a consent decree subject to court approval, Consumer Portfolio Services will be required to change business practices to comply with federal lending and credit laws, and establish a data integrity program. The company must also provide the FTC with periodic independent assessments of the data integrity program for 10 years.
According to the FTC, Consumer Portfolio Services:
• Misrepresented fees owed in collection calls, monthly statements, payoff notices and bankruptcy filings
• Made unsubstantiated claims about amounts owed
• Improperly assessed and collected fees or other amounts
• Unilaterally modified contracts
• Failed to disclose financial effects of loan extensions
• Lied to consumers about payment methods and service fees
• Lied about verification of consumer accounts’ balances
• Disclosed existence of debts to third parties
• Called consumers at work when not permitted
• Repeatedly called and harassed third parties
• Made unauthorized debits from consumer bank accounts
• Falsely threatened to repossess a vehicle
• Manipulated caller ID
“At the FTC, we hold loan servicers responsible for knowing their legal obligations and abiding by them,” Jessica Rich, director of the FTC’s Bureau of Consumer Protection, said in a statement. “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 FTC also charged Consumer Portfolio Services with failing to establish and implement reasonable written procedures, and failing to reasonably investigate and respond in a timely manner, to consumer disputes, as required by a 2010 federal law.
In a statement, Charles E. Bradley, Jr., CEO of Consumer Portfolio Services, said the company has adopted several system and procedural changes to address the violations.
Bradley said the final settlement was consistent with the company’s expectations, and added the cost of the refunds and civil penalty will be covered by existing legal provisions.
According to the proposed consent decree, accounts serviced by the lender from Jan. 1, 2008, through June 30, 2013, may be covered by the violations.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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