Security Finance

Regarding the Security Group's consent order on the CFPB's direction

The Consumer Financial Protection Bureau (Bureau) has been suggesting for many moons that it would concentrate its execution measures on collecting. At the beginning of this week, the Bureau's comparison with Security Group Inc. Security Finance Corporation, Spartanburg, et Professional Financial Services Corp. is the first indication that the Bureau is sincerely pursuing its priority.

This assent order, which does not provide for remedies for customers and provides for a relatively low level of administrative fines, mirrors an anticipated shift in course for the Bureau. However, in characterising claims, the new office management followed the guidelines, although it promised a policy shift. Pursuant to the approval decision, the Office found that the Security Group had breached the Consumer Financial Protection Act (CFPA) by conducting improper personal debt collect visit and unreasonable debt collect discussions with customers about instalment credit and instalment agreements for retailers.

The Security Group, which runs over 900 shops in 20 states, is said to have made over 12 million personal pick-up calls to 1.3 million users over a six-year timeframe. As part of its attempt to personally recover debts from individuals, the Bureau reasoned that from 2011 to 2016, Security Group staff passed on or threatened to disclose consumers' offenses to third party, disturbed consumers' jobs and threatened their jobs, and subjected them to humiliation and harassment.

It gave instances where the company's staff could prevent physical consumer movements from going out of their houses and visit and call consumer workplaces, whilst they knew that these links could jeopardise consumer jobs. Security Group's assent order is a benchmark against the Office's benchmark with EZCORP, which is still one of the Office's most important execution measures with regard to collections practice.

At EZCORP, the Bureau also claimed dishonest practice such as the disclosure of debt to third party during EZCORP's face-to-face debt collections visit, the visit of consumers' workplaces when EZCORP knew or should have known that face-to-face visiters were not allowed, and the visit of consumers' workplaces when it was uncomfortable for the user. Under the terms of the contract, from July 2011 to December 2015, EZCORP carried out tens of thousands of face to face pick-up calls to customers at home or work.

including File No. 2015-CFPB-0031 (Instruction to the enterprise to reimburse $7.5 million to 93,000 users and to impose a fine of $3 million; prohibition on the enterprise to conduct personal pick-up calls to consumers' home and workplace in the future). Along with the EZCORP decision, the Bureau published Bulletin 2015-07 on personal debt collections for consumer debt.

The Bulletin emphasised the risks to which first and third debtors are exposed when carrying out personal collections. He affirmed that the behaviour claimed in EZCORP's assent order could amount to behaviour which is not fair and contrary to both the CFPA and the FDCPA. During September 2016, the Bureau reached a settlement with TMX Finance LLC and its affiliates, included "TitleMax", regarding its purported improper collections practice in carrying out personal inspections.

Office claimed that "some" TitleMax staff members disclosed the presence of consumers' overdue debt to third party debtors, as well as neighbours, flatmates, family members, superiors and staff, while making personal calls. However, the Bureau did not state whether TitleMax's activities actually harmed the consumer or how prevalent the company's unlawful personal debt collecting practices were.

Instead, the Bureau stressed that the simple threat of disclosing is sufficient to cover the "substantial damage" needed to find dishonest practices. The Bureau also argued that the firm had made a policy of job pick-up visit although it knew that job-seekers were not allowed in the work place, which could lead to reputation problems.

The Bureau imposed a fine of $9 million in this case, which included allegations of deceptive credit covenants. For TMX Finance LLC, see File No. 2016-CFPB-0022. The TMX informed order did not call for any remedies for users. Early this year, Deputy Director Mick Mulvaney announced in an in-house note and opinion article in the Wall Street Journal that the Bureau's assertiveness "would concentrate on measurable and inevitable damage to the end user.

However, in claiming that the Security Group's collections under Dodd-Frank were dishonest practice, the Bureau named "humiliation, discomfort and reputation damage" as the required significant mischief. Whilst these immaterial damages are quoted in the 2015-07 Collections Bulletin and are enforceable to the degree that the Bureau decides to implement the FDCPA policies under its CFPA-UDAAP agency, this is not the kind of "quantifiable" damages on which Mulvaney has pledged to concentrate the Bureau's implementation.

In particular, the Presidium's accusations against the Security Group are more similar to those against EZCORP than TMX. Safety staff debated debt in the center of a convenience store, via drive-thru window in quick service stores, in line at a big-Box retailer, and in other places of general use. In the event of fruitless missions, security staff gave maps to third party users, even the young ones, for distribution to them.

Eventually, the Bureau claimed that security guards were threatening and pushing prisoners and, in at least one case, preventing a citizen physical from exiting the house. However, despite aggressively visiting 1.3 million individuals, the Security Group will be paying $4 million less in civilian fines than TMX if "some" of its staff only put their reputation at risk to their customers.

While EZCORP has been prevented from making a personal pick-up, the Security Group's order for the Security Group's pick-up call is governed by the 5-year deployment of Sundown by the order. Whilst the security group's assent order demonstrates the Mulvaney-led office's interest in collecting money, the sanctions against the firm are unexplainably lower than those against EZCORP, TMX and other recent survey participants.

However, in view of the fact that the Bureau also found that the security group companies had infringed the Fair Trade Crime Report Act (FCRA) by providing imprecise and imperfect consumer information to consumer credit bureaus, the CFPA and FCRA infringements, taken together, did not give rise to an order to impose fines. Although the CFPB was incompatible with the remedies and redressive measures orders, it is noteworthy that the CFPB requested EZCORP to remedy the 93,000 customers who made a cash transaction to the business within 90 days of a pick-up call, but failed to give a remedy order to the Security Group, which attended one million people.

According to the approval resolution, the Security Group and its affiliates are excluded from certain debt recovery procedures and are required to rectify certain imprecise consumer information provided to commercial information providers and impose a $5 million fine under public law. The fine, which was silently advertised in an inconspicuous news bulletin that was not sent to e-mail recipients, seems modest in comparison to other sanctions against businesses that affect far fewer people.

However, the second approval decision, adopted under incumbent Mulvaney, tends to affirm that the Bureau is still interested in collecting debts. MULVANY had previously expressed its intent to focus law enforcements on cases where consumers' grievances are required and the Bureau's published data base contains (for the time being) hundred of grievances about the companies covered by the Security Group's informed undertaking order.

It seems, therefore, that despite Mulvaney's pledge to refocus on "quantifiable and inevitable damage", his pledge to refocus on recovery has been fulfilled. Furthermore, we will keep the Presiding Committee informed about further development in the area of receivables recovery.