CFPB Pushes for Criminal Charges

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CFPB Criminal Charges

Source: web

Since being implemented nearly three years ago, the Consumer Financial Protection Bureau has mostly kept its investigations and charges against different financial entities limited to financial repercussions. That appears to be changing, however, and the CFPB is becoming aggressive in its efforts.

It’s now recommending a debt settlement company and its officers face criminal charges over a growing number of accusations.

CFPB Message is Clear

Indeed, if the U.S. consumer watchdog bureau’s first criminal referral is any indication, regulated banks and other business models might need to take notice. The message is clear and those lenders who opt for shortcuts – especially those that include working with unregulated companies or those that are engaging in illegal or unethical behaviors – now’s the time to back out. Not doing so could result in sanctions, monetary losses and now, criminal charges.

Debt Settlement Company in Crosshairs

So what’s behind all of these new concerns? Turns out, CFPB, along with federal prosecutors, approached a case involving a debt settlement company with guns blazing. Along with the typical financial “easy” charges, this time, the company is facing mail and wire fraud charges. The charges also extend to four people involved with the Mission Settlement Agency. The accusations are that they and the company victimized more than 1,000 people when they collected $50 in fees to cut consumers’ credit card and other revolving loans in half. Prosecutors say that not only did they not cut the debt, but that they continued to collect even more fees for doing little – if any – work for those consumers.

This went on for at least four years and victims were swindled out of more than $14 million. Each believed Mission was working to get their credit reports “cleaned” and paying down creditors as part of a debt repayment plan. Only $4 million was used for those purposes. The rest, say prosecutors was stolen by the company.

The Consumer Financial Protection Bureau was the agency that initially sought to pursue criminal charges. A spokesperson said this is just the first of many it will be recommending criminal courts be involved with the process. What the spokesperson didn’t elaborate on was how many companies are in the crosshairs of landing in an office with the Department of Justice. If nothing else, this should serve as a warning for other companies to closely examine who they’re working with, lest they find themselves on the wrong end of a subpoena. One spokesperson for the prosecutor’s office explained,

The more people are looking the more likely they are to find more things that people are doing wrong…In times past there were two referees on the floor in a basketball game. Now there are three. They see more.

Banks Examine Relationships with Other Entities

Paul Schieber, attorney and shareholder with Stevens & Lee, commented that

Once you get past the black and white of the new regulations, banks have to start thinking about their other relationships to see whether (this is a) relationship that the CFPB will review,

he said. He also reminded those in attendance that until this point, the CFPB had taken no aggressive actions, but that the tides were beginning to shift. It also has the power to bring in as many federal banking agencies to work alongside them. Even though it has no criminal law authority, it does have at its disposal those resources that do have that kind of authority – and it appears they’re about to take advantage of that.

The Department of Justice will ultimately make the final determination. Investigations involving deceptive, abusive or otherwise unfair practices are the first actions these law enforcement agencies will take. Complaints made to CFPB as well as legal compliance dynamics play a role as well. Meanwhile, those entities that are making changes and working towards compliance should have nothing to worry about, explained the spokesperson for CFPB. It’s those banks and other financial companies that continue to engage in criminal behaviors that stand the chance of being investigated.

Repeated Mistakes

For those who do find themselves in the crosshairs, it’s not going to be a cake walk, according to Ivan Serchuk, a partner at Todtman, Nachamie, Spizz & Johns, P.C. Serchuk, as well as a former deputy superintendent and counsel to the New York State Banking Department. He says banks will face an uphill climb should CFPB target it.

You worry about a situation where you make a repeated mistake instantly…and the government overreacts and treats you unjustly. That’s where the reputable business people – whether they are in the financial services industry or any other industry – have concerns.

He also said the mere existence of CFPB means banks will “face more scrutiny over their consumer financial products,” and that banking officials and compliance officers should already be exercising precautionary measures and paying attention to the various services and products offered to consumers for potential violations of the laws.

Even as CFPB moves forward, news broke on Tuesday of another potential problem for the agency that’s not now or ever was popular among Republicans. Turns out, the watchdog group has been experiencing a lot of employee turnover. Some say the numbers are similar to the droves that abandoned both Fannie Mae and Freddie Mac in recent years. But the reason for the high turnover? They voted to unionize. Some former employees are taking it a step further: they’re going into the mortgage sector and could likely experience impressive growth for their efforts. The reason is that they plan on redefining qualified mortgages because the standards of today make it impossible for some to qualify. In short, they say CFPB is actually working against the consumers it’s supposed to be protecting.

In fact, one of the bureau’s earliest leaders, Raj Date, has put his shingle out as a mortgage lender – and he’s managed to talk a few of the agency’s former employees into following him. He plans on providing financing options for those who aren’t ideal borrowers. He also anticipates lending volumes upwards of $300 million.

What are your thoughts on these latest trends in the financial sector? Is the CFPB living up to its obligations?

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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