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Freedom Stores to provide over $2.5 million in refunds and penalties

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Today we, along with the Attorneys General of Virginia and North Carolina, announced an enforcement action against a chain of stores doing business outside military bases across the United States. Under the terms of a proposed consent order, Freedom Stores, Inc., Freedom Acceptance Corporation, and Military Credit Services LLC, as well as their owners and chief executives will be required to provide over $2.5 million in consumer redress and penalties for unfair and abusive debt-collection practices, including illegal lawsuits, unauthorized withdrawals from third-party accounts, and calls to servicemembers’ commanding officers.

Our investigation found that the companies illegally filed thousands of lawsuits in Virginia against consumers who didn’t live or purchase goods there: over 3,500 lawsuits in Norfolk, Virginia in two-plus years, almost all resulting in default judgments against consumers, some of whom didn’t even know they’d been sued until they discovered their bank accounts had been garnished.

The companies also buried a clause in the fine print of their contracts that supposedly gave the companies permission to contact the servicemember’s commanding officer. Freedom Acceptance and Military Credit Services then went on to tell servicemember’s chain-of-command about the debts, effectively pressuring the servicemember into paying the companies. These are unfair practices against military personnel, who are afraid of losing rank, pay, or even a security clearance if their commanding officer feels they are not living up to their financial obligations. We’ve heard from a number of servicemembers that they even paid a debt they knew they didn’t owe, just to avoid getting in trouble with their commander.

Like many companies dealing with servicemembers, Freedom Acceptance and Military Credit Services used the military allotment system as a quick and convenient way to get paid. But the companies also required customers to provide them with a back-up payment source in case the allotment didn’t go through for some reason. And if the companies’ allotment processor predicted that a servicemember’s allotment might fail, they went ahead and charged the back-up account without waiting to see if the allotment went through or not. So those servicemembers, when their allotment payment did go through after all, ended up making double payments, without their advance knowledge or consent, leading to overdraft fees, insufficient funds charges and problems paying their other bills.

Additionally, the companies’ debt collectors would sometimes simply take money from checking or credit accounts they had on file of family members or friends who had previously made a payment on the servicemembers’ behalf. These debits were made without notifying the family member or friend or getting consent for the charges – simply taking the cash because the companies had the account access numbers on file from a previous transaction.

We get more complaints about debt collection from servicemembers, veterans and their families than any other issue. This case is a perfect illustration of bad practices that are perpetrated against military personnel who owe a debt.

Our military families deserve better than the treatment they received from Freedom, and I applaud the action taken today by both the CFPB and state authorities to call Freedom Stores and its affiliates and owners to account.

If you are a commanding officer who is receiving calls from someone trying to collect a debt, or a servicemember who is getting threatened or victimized about a debt, we’d like to hear from you. Your complaints can help us spotlight and stop illegal actions like the ones in this case.

Sunshine for college credit card agreements

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Today, we’re releasing a report that looks at deals between financial institutions and colleges to market credit cards to students. Congress requires credit card companies to provide data on these agreements to the CFPB each year, and further requires the CFPB to look at these arrangements in an annual report.

This year we found that there are fewer schools marketing credit cards, and those that do are not making their agreements with credit card companies readily accessible to students.

College debit and prepaid card agreements have surpassed the number of credit card agreements

The Credit CARD Act of 2009 placed new restrictions on marketing credit cards to college students, and requires schools and credit card companies to disclose these agreements publicly. In 2009, there were more than a thousand such agreements in effect. By the end of last year, the number had fallen to 336. According to the Government Accountability Office, in 2013 there were at least 852 schools that had agreements to market debit or prepaid cards to students.

At the end of 2013, there were about 950,000 credit card accounts open under the terms of these agreements. At the end 2009, before the relevant provisions of the CARD Act took effect, there were more than 2 million such accounts. Payments by credit card companies to schools in connection with credit card marketing also declined from nearly $85 million in 2009 to under $43 million in 2013.

Bank of America is the dominant issuer in this market with four times as many credit card agreements in effect in 2013 as its closest competitor. The bank had more than 80 percent of all accounts open under such agreements with schools as of the end of 2013.

Most credit card agreements are with alumni associations

The number of new accounts originated in a given year has increased since 2012. Nearly three-quarters of this new account growth is accounted for by agreements between issuers and alumni associations, indicating that most new accounts likely are issued to alumni, not to students.

Schools may not be making their credit card agreements readily accessible to students

Today’s report also takes a look at how transparent colleges are being about these agreements. Credit card issuers are required to provide prior year agreements to the Bureau, but the law requires colleges and universities to disclose all their credit card agreements, including those currently in effect.

Our analysis shows that most colleges aren’t making it easy for students and the public to learn about what deals are in effect. Just seven of the 35 schools we looked at provided clear information on their websites to find this information. Using a reasonable search protocol, we were unable to locate online any information about such agreements for the remaining 80 percent of our school sample.

To evaluate the accessibility of agreements in the public domain, we identified schools with the largest number of total accounts and the largest enrollment from our agreement database – yielding 35 distinct schools with a combined total of over half a million students.

Next, we created a basic online search methodology to see if we could find the marketing deals – or information about how to obtain them – using a commercial search engine, the sitemap of the institution’s website, and, when it existed, the search engine function on the school website. We found that the overwhelming majority of schools provided no information on their website regarding the agreement. Only one of every five schools provided a link to their marketing deal or online guidance on how to obtain their marketing agreement with a credit card issuer.


Accessibility of agreements on school websites

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More transparency is needed

The CARD Act public disclosure requirement is limited to credit cards and doesn’t include other financial products marketed through schools. We have also called on financial institutions to publicly disclose agreements with schools to market other financial products to students, like debit cards, prepaid cards, and bank accounts. Making these agreements available for all financial products can help bring needed transparency to this market.

Get an in-depth view of this data by checking out the report.

Interested in whether your school or alma mater has a marketing deal with a credit card issuer? Check out our College Credit Card Agreement Database.

Have a problem with your credit card or other financial product? You can submit a complaint online or call (855) 411-2372.

Evaluating ways to promote regular saving habits among prepaid card users

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Today, we’re announcing that, as part of Project Catalyst, we’ll be working with American Express to evaluate practices to promote regular saving habits among prepaid card users. Project Catalyst is our initiative to encourage innovations that make financial products more consumer-friendly. The research will focus on saving behavior among low- and moderate-income prepaid card users who often do not have access to or use traditional savings accounts and who may face unique challenges building regular saving habits.

It’s important to save. Savings can help people achieve greater peace of mind when it comes to handling unexpected expenses and help people reach their short-term and long-term financial and life goals. To build enough savings to cover these expenses and meet certain goals, it is important to form regular saving habits.

We believe that consumers are more likely to save if they have access to the right tools. Consumers with low and moderate incomes may be less likely to have access to or use a traditional savings account and instead may use a checking or prepaid account to make purchases and save. For these consumers, who are possibly already financially strapped, having to mentally separate the money allocated to spending and saving within a single account could make saving even more challenging.

Through Project Catalyst, American Express has agreed to share insights with the Bureau from its trial program focused on encouraging users of its prepaid cards to develop regular saving habits. Through its program, American Express is evaluating the effectiveness of its product feature that allows American Express prepaid cardholders to set money aside in a savings wallet that is separate from funds used for regular transactions. Cardholders can separate money from their main prepaid account into a subaccount dedicated for savings. Funds stored in the subaccount can’t be accessed at the point of sale. When cardholders wish to use their saved funds, they need to transfer the funds in their subaccount into their main prepaid account. To promote regular saving habits among its prepaid customer base, American Express will be launching an educational marketing campaign detailing the importance and benefits of saving and will also offer promotions to encourage certain cardholders to save.

Using the insights provided by American Express, the CFPB is going to study what strategies may be effective at encouraging and making it easier for prepaid card users to develop regular saving habits. We will also study the impact and potential benefits of saving on consumer financial health. Through this work, we hope to gain a better understanding of consumer saving behavior and the effectiveness of a savings feature on prepaid accounts.

As part of Project Catalyst, we continue to encourage consumer-friendly innovations. Through collaborations such as this one, we’ll have the opportunity to improve our understanding of what works best for consumers in the consumer financial marketplace. Learn more about Project Catalyst by viewing some of our past and current initiatives, and remember to check back for more updates on this collaboration.

 

Consumer Advisory: Student loan debt relief companies may cost you thousands of dollars and drive you further into debt

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Today we took action to put an end to two student loan debt relief scams that illegally tricked borrowers into paying upfront fees for federal loan benefits. In a joint filing with Florida’s Attorney General, we shut down student loan debt relief company College Education Services and, separately, we filed a lawsuit against Student Loan Processing.US for running illegal debt relief services. We allege that both companies exploited vulnerable student loan borrowers, made false promises about their debt relief services, and charged illegal upfront fees.

We are warning all student loan borrowers who have trouble managing their student debt to watch out for scams run by companies promising “student debt relief.” These companies prey on distressed borrowers who run into trouble and struggle to figure out what comes next. In some cases, borrowers do not think their student loan servicers can help them and seek help from a third party. Others are lured in by aggressive marketing practices that target the most vulnerable student loan borrowers.

In many cases, these companies promise thousands of dollars in savings on your student debt by falsely claiming special expertise or a relationship with the Department of Education, only to enroll you in a payment plan that’s available for free for all borrowers with federal student loans — all at a cost of hundreds of dollars or more. In other cases, these companies fail to deliver on their promises, leaving you with more debt and less time to avoid financial distress or default.

Last year, we warned you that you don’t have to pay someone to help with your student loan. You should also be aware of these warning signs to help you avoid student loan debt relief scams and information on getting help if you are a victim of this scam.

Warning signs that a student loan debt relief company may be trying to rip you off:

Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before they explain how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information. Not only is free assistance available through your student loan servicer, many times taking payment for debt relief services before providing help is illegal.

Promises of immediate loan forgiveness or debt cancellation. Debt relief companies do not have the ability to negotiate with your creditors for a “special deal” under these federal student loan programs. Payment levels under income driven payment plans are set by federal law and, for most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.

Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.

Requests for your Federal Student Aid PIN. Be cautious about companies that ask for your Federal Student Aid PIN. Your PIN — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to come up with a plan and will never use your PIN to access your student loan information.

How to get help

Submit a complaint online or call us at (855) 411-2372 if you have been the victim of a student loan debt relief scam or if you are getting runaround from your student loan servicer. You should also instruct your student loan servicer that they should only provide information about your student loan directly to you.

If you have questions about repaying student loans, check out Repay Student Debt to find out how you can tackle your debt – even if you’re in default. You can learn about your options, and what you might want to specifically ask for when speaking with the company attempting to collect from you. Another great resource to visit is Ask CFPB for answers on many more of your student loan questions.

Even if you’ve fallen behind, you may have options

There are federal student loan repayment programs that can help remove the default status from your credit report. Be sure to learn about what’s available through our tools before paying hefty fees for something that likely won’t live up to your expectations or that you can get for free.

Rohit Chopra is the CFPB’s Student Loan Ombudsman. To learn more about our work for students and young Americans, visit consumerfinance.gov/students.

Consumer Advisory: 7 ways to keep medical debt in check

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Debt collection is the top complaint we’ve received since September 2013. Out of all debt types, medical collections make up 52 percent of collection accounts on credit reports, far outpacing all other types of debt.

Medical collections are so widespread, that an estimated 43 million consumers with an account in collection have medical debt. We analyzed medical collections in our latest report, to explain why medical debt is affecting so many more credit reports than any other type of debt. You can read more about how medical debt hurts your credit report.

Here are steps you can take to keep medical debt in check:

1. Review medical bills carefully

If you don’t recognize the provider, check the date of service to see if you had a medical treatment on that day. For more complicated procedures, ask for an itemized bill from the provider in order to check how much you were charged for each service. Some providers who bill you directly may have been associated with a hospital where you were treated, so you may not have known you were receiving services from them at the time you were being treated.

2. Get documentation

Prepare an organized record of all bills. If you need to dispute a bill, send a written notice to the provider and include a copy of all relevant documents, such as records from doctors’ offices or credit card statements. Do not send original documents.

3. Check your health insurance policy and make sure your provider has your correct insurance info

You should know what your insurance covers, and what it doesn’t – but first your insurance information needs to be up-to-date and accurate! A small mix up can lead to big bills for expenses that your insurance should have covered.

4. Act quickly to resolve or dispute the medical bills that you receive

If you have verified you owe the bill, try to resolve it right away. Verify whether an insurer is paying for all or part of a bill. If you delay the bill and let it end up in collections, it can have a significant impact on your credit score. If you don’t owe the bill, act quickly to dispute it.

5. Negotiate your bill

Hospitals may negotiate the amount of the bill with you. The tab may be reduced if you pay the whole amount up front. You can also try asking for the rate that people who have insurance get. The hospital might also offer a plan that enables you to pay off the debt in installments at no interest. It doesn’t hurt to ask.

6. Get financial assistance or support

Many hospitals have financial assistance programs, which may be called “charity care,” if you are unable to pay your bill. Check the deadlines, which can vary.

7. Don’t put medical bills on your credit card, if you can’t pay it

If you can’t immediately pay off a high debt on your credit card bill, you will be charged high interest, and it will look like regular debt to other creditors. Instead, ask your medical provider for a payment plan with little or no interest.

Related information about debt collection

Check out Ask CFPB to learn more about your debt collection rights and to learn about medical credit cards.

If you’re dealing with debt in general, you can consider finding a reputable credit counseling agency.

The CFPB blog aims to facilitate conversations about our work. We want your comments to drive this conversation. Please be courteous, constructive, and on-topic. To help make the conversation productive, we encourage you to read our comment policy before posting. Comments on any post remain open for seven days from the date it was posted.