The Federal Trade Commission today announced settlements with Fairbanks Capital Holding Corp., its wholly-owned subsidiary Fairbanks Capital Corp., and their founder and former CEO, Thomas D. Basmajian (collectively, Fairbanks).in separate settlements, the corporate defendants will pay $40 million in redress to consumers, and defendant Basmajian will pay $400,000 in redress.in a complaint filed in federal district court, the FTC charges Fairbanks with engaging in a variety of unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans. According to the FTC, the defendants, among other things, failed to post
consumers' mortgage payments in a timely manner and charged
consumers illegal late fees and other unauthorized fees. The
settlements are contingent on approval by a federal district court in
Massachusetts, and the settlement with the corporate defendants will
be coordinated with a related settlement in a class action lawsuit. The
case was jointly filed with the U.S. Department of Housing and
Urban Development (HUD).
Consumers should be treated fairly and honestly in the servicing of
their loans, said Timothy J. Muris, Chairman of the FTC. It is
particularly important that the Commission stop unfair or deceptive
practices in this industry, because consumers have no choice about
who services their home loans and it can be extremely difficult for
subprime borrowers to avoid an abusive servicer by refinancing or
paying off their loans.
HUD Secretary Mel Martinez said, Today's settlement makes clear
that HUD and FTC are serious about protecting consumers from
those who would try to steal their American Dream.
The message we are sending is clear those who seek to take
advantage of unsuspecting homeowners will be tracked down and
held accountable.
Subprime lending refers to the extension of credit to persons who are
considered to be higher risk borrowers. Fairbanks is a financial
services company specializing in the servicing and resolution of
subprime mortgage loans. Fairbanks does not originate loans, but
collects and processes loan payments from borrowers on behalf of
the owner of the mortgage notes. Headquartered in Salt Lake City,
Utah, Fairbanks is one of the country's largest servicers of subprime
mortgage loans. The FTC alleges that Fairbanks engaged in a myriad
of unfair, deceptive, and illegal practices in collecting and processing
consumers' loan payments.
Alleged law violations
The complaint charges Fairbanks with violating several federal laws,
including the FTC Act, the Fair Debt Collection Practices Act
(FDCPA), the Fair Credit Reporting Act (FCRA), and the Real
Estate Settlement Procedures Act (RESPA) enforced by HUD.
FTC Act Violations
The FTC alleges that, in servicing loans, Fairbanks frequently:
Failed to post consumers' mortgage payments in a timely and
proper manner, and then charged consumers late fees or
additional interest for failing to make their payments on time;
Charged consumers for placing casualty insurance on their
loans when insurance was already in place;
Assessed and collected improper or unwarranted fees, such as
late fees, delinquency fees, attorneys' fees, and other fees; and
Misrepresented the amounts consumers owed.
Fair Debt Collection Practices Act
The complaint also alleges that Fairbanks violated several provisions
of the FDCPA, in connection with collecting loans that were in default
when Fairbanks obtained them. Specifically, the FTC alleges that the
defendants falsely represented the character, amount, or legal status
of consumers' debts; communicated or threatened to communicate
credit information which was known or which should have been
known to be false, including the failure to communicate that a debt
was disputed; used false representations or deceptive means to
collect or attempt to collect a debt, or to obtain information
concerning a consumer; collected amounts not authorized by the
agreement or permitted by law; and failed to validate debts.
Fair Credit Reporting Act
The FTC alleges that the defendants furnished information about
consumers' payment status to consumer reporting agencies when they
knew or consciously avoided knowing that the information was
inaccurate. Also, when consumers informed the defendants that they
disputed the reported information, the defendants did not report the
dispute to the consumer reporting agencies.
Real Estate Settlement Procedures Act
RESPA is a federal statute that requires loan servicers to respond to
borrowers' written requests about their loans and to make timely
insurance and property tax payments on behalf of borrowers and
otherwise properly administer their escrow accounts.in the
complaint, HUD alleges that the defendants failed to timely and
adequately acknowledge, investigate, and respond to borrowers'
written requests for information about the servicing of their loans and
escrow accounts. HUD also alleges that the defendants failed to
make timely payments of escrow funds for insurance premiums and
property taxes.
The settlements
The settlements announced today resolve the Commission's and
HUD's allegations. If approved, the settlements will require the
Fairbanks corporations to pay $40 million, and Basmajian to pay
$400,000, to the FTC to be used to compensate consumers who
suffered harm from: (1) unauthorized late fees, (2) other fees
Fairbanks imposed on consumers it deemed in default, (3)
unauthorized prepayment penalties, or (4) other improper practices
by Fairbanks related to consumer defaults.
The settlements also enjoin the defendants from future law violations
and impose new restrictions on their business practices. The
settlements:
Require the defendants to accept partial payments from most
consumers and to apply most consumers' mortgage payments
first to interest and principal;
Prohibit the defendants from force placing insurance when they
know the consumer has insurance or fail to take reasonable
actions to determine whether the consumer has insurance;
Enjoin the defendants from charging unauthorized fees, and
place limits on specific fees
Require the defendants to acknowledge, investigate, and
resolve consumer disputes in a timely manner;
Require the defendants to provide timely billing information,
including an itemization of fees charged;
Prohibit the defendants from taking any action toward
foreclosure unless they have reviewed the consumer's loan
records to verify that the consumer failed to make three full
monthly payments, confirmed that the consumer has not been
the subject of any illegal practices, and investigated and
resolved any consumer disputes;
Prohibit the defendants from piling on late fees in certain
situations;
Prohibit the defendants from enforcing certain waiver
provisions in forbearance agreements that consumers had to
sign to prevent foreclosure; and
Prohibit the defendants from violating the FDCPA, the FCRA,
and the RESPA.
To provide further remedial relief to consumers harmed by its
practices, Fairbanks will correct certain open accounts that may have
been classified wrongly as delinquent, re-classify these accounts as
current, and report to any consumer reporting agency previously
provided with information about the consumer's account that the
account is current and that the prior record of delinquency should be
removed from the consumer's report.
Today, the Commission filed the two settlements in U.S. District
Court for the District of Massachusetts in Boston for approval. The
settlement with the corporate defendants will not become final until
the related class action settlement is approved in final form by the
Boston court. This process may take several months.
If the court approves it, affected consumers should receive a notice of
the settlement in the mail that will explain how they can participate in
the redress program. The Commission's toll-free consumer hotline
regarding the settlement is 1-877-862-0886. Consumers who have
changed their address recently may provide updated contact
information by calling the hotline. Consumers also can find information
about the settlement on the FTC's Web site at www.ftc. Gov. At this
time, it is not necessary for consumers to take any action other than
watching their mail for notice of the settlement.
Consumer education
Today, the Commission also has issued a consumer brochure,
Mortgage Servicing: Making Sure Your Payments Count, to help
consumers understand their rights. The brochure explains mortgage
servicers' responsibilities, in particular under the RESPA enforced by
HUD. The brochure urges consumers to keep records of their
payments, insurance coverage, and other information, and explains
how consumers can file disputes with their loan servicer. The
brochure also includes sample letters that consumers may use when
filing a dispute with their lender/servicer or with a credit bureau. The
brochure can be found at:
http://www.ftc. Gov/bcp/conline/pubs/homes/mortgserv.htm
The Commission vote authorizing the staff to file the complaint and
two separate consent orders as to the corporate defendants and
Thomas Basmajian was 5-0. They were filed in the U.S. District
Court for the District of Massachusetts on November 12. The
settlements require the court's approval.
0 comments