WASHINGTON–The Federal Trade Commission has announced actions against a number of firms for deceptive practices, while also announcing a settlement with one admitted scammer.
The FTC has taken action against a debt collection company it alleges placed bogus or highly questionable debts onto consumers’ credit reports to coerce them to pay the debts. Under a settlement with the FTC, Midwest Recovery Systems is prohibited from the practice, known as “debt parking,” and is required to delete the debts it previously reported to credit reporting agencies.
The FTC alleged that Midwest Recovery collected more than $24 million from consumers on such debts, largely by debt parking.
Also known as “passive debt collection,” debt parking can result in a consumer only finding out that a purported debt exists when his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment, the FTC said. “While the debts may not be valid, consumers can feel pressured to pay them off,” the agency added.
“The defendants parked fake or questionable debts on people’s credit reports and then waited for them to notice the damage when they were trying to get a loan or a job,” said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. “The defendants used this illegal debt parking to coerce people to pay debts they didn’t owe or didn’t recognize.”
‘Thousands of Complaints’
The FTC’s complaint alleges that Midwest Recovery received thousands of complaints each month about the purported debts from consumers, with the company itself finding that between 80% and 97% of the debts it investigated were inaccurate or not valid. In addition to payday lending debts, the complaint notes that the company parked significant quantities of medical debt, which is often a source of confusion and uncertainty for consumers because of the complex, opaque system of insurance coverage and cost sharing, the FTC said.
“In one example from the complaint, a consumer was told when applying for a mortgage that an outstanding $1,500 medical debt placed on his credit report by Midwest Recovery had lowered his credit score and jeopardized his purchase,” the FTC reported. “The consumer contacted the hospital to which the debt was owed, which told him that he only owed an $80 co-pay. In spite of that, Midwest refused to remove the $1,500 debt and threatened the consumer with a lawsuit if he didn’t pay.”
The FTC’s complaint alleges that the company and its owners, Brandon M. Tumber, Kenny W. Conway, and Joseph H. Smith, violated the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the FCRA’s Furnisher Rule.
Terms of Settlement
Under the terms of the settlement, Midwest Recovery and its owners will be prohibited from debt parking and pursuing consumers for alleged debts without a reasonable basis. The settlement also requires Midwest Recovery and Tumber to contact credit reporting agencies and request all debts reported by the company be deleted from consumers’ credit reports.
The settlement includes a monetary judgment of $24.3 million, which is partially suspended based on an inability to pay, the FTC said. Tumber and the company will be required to pay $56,748, and Tumber will also be required to sell his stake in another debt collection company and provide the proceeds from that sale to the FTC. In addition, Midwest Recovery will be required to surrender all of its remaining assets. If the defendants are found to have misrepresented their ability to pay, the full amount of the judgment would become immediately payable, according to the FTC.
Student Loan Scammer Enters Into Agreement
Separately, the FTC said student loan debt relief scammer Brandon Frere and his companies, including Ameritech Financial, have entered into an agreement with the Federal Trade Commission to settle charges they misled approximately 40,000 consumers about lowering their student loan debt.
According to the FTC’s complaint, Frere and his companies sent personalized mail to consumers that falsely claimed they were eligible for federal programs that would permanently reduce their monthly debt payments to a fixed low amount or result in total loan forgiveness.
The FTC alleged Frere and his companies charged up to $800 in illegal up-front fees to enroll consumers in a federal loan assistance program. They also charged consumers a $100-$1,200 advance fee for enrollment in a “financial education” program, followed by ongoing $49-$99 monthly membership fees for the life of the loan, which typically is 10-25 years.
The order bans Frere and his companies from providing debt relief services and prohibits them from violating the Telemarketing Sales Rule.
Criminal Complaint Filed
In December 2018, the Department of Justice filed a criminal complaint against Frere and his companies. In December 2019, Frere pleaded guilty to two counts of wire and mail fraud, and agreed to forfeit funds. In July 2020, a U.S. district court judge sentenced Frere to 42 months in prison and required him to read all victim impact statements submitted to the court. The judge will hold a restitution hearing on December 18, the FTC said.
The defendants are Ameritech Financial, also doing business as American Financial Benefits Center; AFB and AF Student Services; Financial Education Benefits Center, and Frere.
FTC Sues Operators of Mobile Banking App
The Federal Trade Commission also sued the operators of a mobile banking app, alleging they falsely promised users high interest rates on their accounts and “24/7” access to their funds.
In a complaint filed in federal court, the FTC alleges that Beam Financial Inc. and its founder and CEO Yinan Du, also known as Aaron Du, promised users of their free mobile banking app they could make transfers out of their accounts and would receive their requested funds within three to five business days. Instead, some users waited weeks or even months to receive their money despite repeated complaints to Beam, while others said they never received their money, according to the complaint.
"Beam Financial promised convenient 24/7 access to savings, but then people had to wait weeks or months to get their money," said Andrew Smith, director of the FTC’s Bureau of Consumer Protection.
According to the FTC, many consumers said Beam’s failure to provide their requested funds caused real financial harm, particularly for those who have lost income due to the COVID-19 pandemic. Many of the reviewers of the Beam app on the Apple App and Google Play stores complained they did not receive their requested withdrawals from Beam and had trouble reaching the company either by phone or by email, the complaint reads.
‘No Phone or Email’
“For example, one user complained in a review that, ‘I am still without my $2,900 and Beam doesn’t answer the phone or email. They’ve stolen my money during a pandemic,’” the FTC stated.
Consumers who did reach the California-based company said Beam blamed delays in providing the requested money on issues with unspecified “banking partners” or “technology partners” and promised the delays were temporary, according to the complaint.
In addition to making it difficult for consumers to access their funds, Beam also failed to give users the high interest rates the company promised, the FTC is alleging. “Beam repeatedly claimed that users would receive ‘the industry’s best possible rate’ of at least 0.2% or 1%, according to the complaint. In fact, many new users received a much lower interest rate of 0.04% and stopped earning any interest after requesting that Beam return their funds, the FTC said.
The FTC alleges that Beam’s misrepresentations violate the FTC Act.
FTC Says Financial Aid Assistance Firm Not So Frank
In addition, the FTC has sent a warning letter to a company that markets financial aid prep assistance to post-secondary students, notifying the company that it could potentially be misleading consumers about access to a coronavirus relief program.
The letter to the operators of Frank Financial Aid is related to the company’s claims that it gives students “everything you need” to apply for emergency grants available under the CARES Act, and that there are four identified eligibility criteria for the emergency relief.
But the FTC is alleging Frank Financial Aid’s purported assistance to students consists primarily of providing a form letter that may lack the information a student would need to apply for one of the grants from his or her school. The CARES Act program for students is administered by individual colleges and universities, and each has its own unique application process and grant eligibility criteria, the FTC noted.
The FTC’s letter also warns Frank Financial Aid about offers of cash advances that can be paid back “when your financial aid comes in” and with “no interest, no fees – ever.” The letter alleges the company’s terms, however, appear to require the advance to be paid back within 61 days, whether or not the student has received any aid from his or her college or university by that time. Additionally, Frank Financial Aid charges a $19.90 monthly fee, according to the FTC’s letter.
Prompt Action Demanded
The FTC is calling on Frank Financial Aid to take prompt action to ensure all deceptive or unlawful claims are removed or corrected, and any other required disclosures are provided. The letter gave the company until Nov. 17 to respond and cite the specific actions it has taken to address the agency’s concerns.