The Federal Deposit Insurance Corporation (FDIC) recently took action against Cross River Bank and “its institution-affiliated party, Freedom Financial Asset Management, LLC (FFAM), San Mateo, California, for unfair and deceptive practices.”
The FDIC says, “Cross River Bank originates C+ Loans, an unsecured debt consolidation loan product, through FFAM. C+ Loans are offered exclusively to consumers who contract with Freedom Debt Relief (FDR), a FFAM-affiliated debt settlement company. C+ Loans were marketed as a way for consumers to quickly resolve their outstanding debts. Consumers are charged a settlement fee of up to 25 percent of each debt enrolled in FDR’s program.”
The FDIC determined that Cross River Bank and FFAM violated federal law prohibiting unfair and deceptive practices, by, among other things:
- Requiring borrowers to sign loan documents without knowing the essential terms and conditions of the loan;
- Failing to inform borrowers that certain major creditors will not negotiate debts with FDR and including related debt settlement fees into C+ Loans, when in fact, borrowers had to negotiate such debts themselves;
- Misrepresenting to consumers that the C+ Loans would result in the settlement of all their debts within 30 to 45 days or 30 to 90 days, which was not true for nearly half of the consumers; and
- Misrepresenting that the consumers’ creditworthiness would improve by obtaining a C+ Loan. – Source
As far as I am aware, this is the first time the FDIC has taken action against a debt relief company who has been marketing loans.
The C+ Loans were also known as Freedom Plus Loans and marketing to consumers. According to FDIC documents, “During the period beginning June 26, 2013 through September 30, 2016, the Bank originated more than 24,000 C+ Loans, totaling approximately $470 million.”
According to the FDIC, the debt settlement loan initiative was problematic from the start, “Beginning June 26, 2013, the C+ Loan program and associated materials provided to Eligible Consumers contained material misrepresentations and omissions about the program, including benefits, features, and terms of the C+ Loan and the C+ Loan Agreement.”
As part of the FDIC Consent Order, Freedom Debt Relief seems to have their fees limited, which is part of the CFPB lawsuit against Freedom Debt Relief.
The Consent Order provides some strict controls on what FFAM and thus Freedom Debt Relief can do moving forward.
“FFAM shall not make, or allow to be made, directly or indirectly, including through an affiliate or a Third-Party Provider, any misleading or deceptive representation, statement, or omission, expressly or by implication, about any material term in connection with the C+ Loan program or any other Products/Services, or other products or services provided to or through an Insured Depository Institution. Without limiting the generality of the foregoing, FFAM shall ensure that neither it nor any affiliate or any of its Third-Party Providers makes, either directly or indirectly, any misrepresentation, expressly or by implication, about, or omit, a material term in connection with the advertising, marketing, offering, soliciting, contracting, billing, or servicing of C+ Loans, including but not limited to:
(a) Misrepresent the amount of time in which FDR will resolve a consumer’s Enrolled Debts upon obtaining a C+ Loan;
(b) Omit telling consumers which creditors either will not negotiate with FDR, thereby requiring Eligible Consumers to negotiate with those creditors by themselves, or omit telling consumers which creditors will not negotiate with FDR unless the debts have been charged off and either sold to a third party or referred to a third-party debt collector;
(c) Charge Eligible Consumers settlement fees when such consumers negotiated the settlement of their Enrolled Debts on their own or with coaching by FDR;
(d) Misrepresent or omit essential loan terms of the C+ Loan orally or in the C+ Loan Agreement;
(e) Misrepresent that consumers’ creditworthiness will improve by obtaining a C+ Loan; and
(f) Delay telling consumers that FFAM’s initial call to consumers about the C+ Loan is a solicitation for a loan. – Source
Freedom Financial Asset Management has deposited twenty million dollars to a trust account to be used for consumer restitution.
FFAM was also ordered to pay a civil money penalty of $493,500.
Consumers eligible to receive restitution and compensation from this FDIC action are not required to take any action to receive a refund check in the mail.