Thanks to a reader a recent action by the Federal Trade Commission against Equifax bring up issues surrounding the purchase of leads or information from credit bureaus. In the complaint filed by the FTC, debt relief services are specifically addressed.
In this case, Equifax Information Services LLC, has agreed to settle Federal Trade Commission charges that it improperly sold lists of consumers who were late on their mortgage payments. In two separate actions, both Equifax and the companies that allegedly bought and resold the information from it will pay a total of nearly $1.6 million to resolve charges that they violated the FTC Act and the Fair Credit Reporting Act (FCRA).
The two settlements are part of the FTC’s ongoing efforts to protect consumers in financial distress and to protect consumer privacy. Equifax will pay $393,000 to resolve allegations that its inadequate procedures led to the sale of lists of consumer information to firms that should not have received them. According to the FTC, Equifax sold more than 17,000 prescreened lists of consumers to companies including Direct Lending Source, Inc., which subsequently resold some lists to third parties, who used their data to pitch loan modification and debt relief services to people in financial distress.
As part of a separate settlement, Direct Lending Source will pay a $1.2 million civil penalty,and will be barred from using or selling prescreened lists without a permissible purpose, or in connection with solicitations for debt relief or mortgage assistance relief products or services.
The FTC alleged that between January 2008 and early 2010, Equifax sold Direct Lending and its affiliates lists of people who met selected criteria – known as prescreened lists. According to the agency’s complaint, the lists contained information about millions of consumers, including sensitive information such as credit scores and whether they were 30, 60, or 90 days late on their mortgage payments.
According to the FTC, neither Direct Lending nor its affiliates, Bailey & Associates Advertising, Inc. and Virtual Lending Source, LLC, had a legally permissible purpose to obtain the prescreened lists. Under the FCRA, the only permissible purpose for obtaining a prescreened list is to make “firm offers of credit or insurance” – which are offers that will be honored if consumers meet pre-selected criteria. Using a prescreened list for general marketing purposes is not allowed. The FTC charged that Direct Lending sold the information to third parties that then used it to market products to consumers in financial distress, including companies that have been the subject of law enforcement investigations.
The FTC alleged that, in addition to providing the lists to entities without a permissible purpose and having inadequate procedures to prevent this from happening, Equifax failed to properly investigate when it learned Direct Lending was violating Equifax’s internal policies on prescreening. The FTC also alleged that Equifax knew or should have known that in many cases Direct Lending resold the lists without telling Equifax who would end up using the information.
Despite these failures, the FTC alleged Equifax continued selling prescreened lists to Direct Lending. The FTC alleged that Equifax’s failure to employ appropriate measures to control access to sensitive consumer information was unfair, in violation of Section 5 of the FTC Act.
Direct Lending and its affiliates and principals allegedly violated the FTC Act and the FCRA by: 1) obtaining prescreened lists without having a permissible purpose; 2) reselling the reports without disclosing to the consumer reporting agency that provided them who the end users would be; 3) failing to maintain reasonable procedures to ensure that prospective users had a permissible purpose to get them; 4) to the extent that firm offers of credit were made, failing to maintain a record of the criteria used to select consumers for these offers; and 5) failing to employ appropriate measures to control access to sensitive consumer financial information.
From the Complaint
From January 1, 2008 through early 2010, Defendants purchased over 17,000 prescreened lists containing the consumer report information of millions of consumers from Equifax. These lists included, among other things, consumers’ credit scores and whether they were 30, 60, or 90 days late on their mortgage payments.
Defendants sold these prescreened lists to third parties. For example, Defendants sold over 2,400 lists to entities that target consumers in financial distress for loan modification,debt relief, and foreclosure relief services. Some of the lists were sold to entities with names such as: “Save Me From Foreclosure,” “SOS Modification,” “Stop Your Lender,” “Virginia Foreclosure Prevention,” “Making Homes Affordable,” “Fight Your Credit Co.,” and “Debt Regret.”
Defendants sold prescreened lists to a number of entities that have been the subject of actions or warnings by law enforcement, including Mason Capital Group LLC. In May 2010, the California Attorney General filed a criminal complaint alleging that Mason Capital and its principals obtained at least $2.3 million from a fraudulent loan modification operation. According to the California Attorney General, Mason Capital charged more than 1,500 homeowners up-front fees ranging from $1,000 to $5,000 and promised to obtain a loan modification from the consumer’s lender. As alleged in the criminal complaint, in almost every case, no loan modification was completed as promised. The Attorney General further charged that homeowners were lured by misrepresentations contained in the solicitations and dissuaded from timely pursuing other legitimate options to modify their mortgage or stop foreclosures, and that, in some instances, homeowners realized they had been scammed too late to avoid the loss of their home.
Defendants also sold prescreened lists to Nova Key LLC. In December 2009, the Maryland Department of Labor, Licensing and Regulation (“DLLR”) issued a cease-and-desist order to Nova Key LLC for violating Maryland law by collecting $1.2 million worth of up-front fees from Maryland homeowners who were behind in their mortgage payments. According to the Maryland DLLR, Nova Key LLC failed to obtain the promised loan modifications in the majority of cases, and yet refused to refund the up-front fees they collected from distressed homeowners.
In some cases, Defendants sold the prescreened lists at issue to list brokers and others, which in turn resold the lists to unidentified downstream entities. In these instances, Defendants cannot identify the entity or individual that ultimately obtained the list. Defendants did not identify to Equifax the end-user of these consumer reports.
Defendants did not make reasonable efforts to verify that the consumer reports would only be used in connection with permissible purposes under the FCRA. For example, they did not require that each person to whom the consumer reports were resold: (1) identify each end-user, (2) certify each purpose for which the consumer reports would be used, or (3) certify that the consumer reports would be used for no other purpose. Defendants did not otherwise make reasonable efforts to verify the identifications and certifications required by the FCRA.
Defendants assert that they were obtaining prescreened lists to make “firm offers of credit” because they were financing the fees charged to consumers for the loan modification or debt relief services described above. The offer to finance the fees was a sham used to engage in target marketing directed to financially distressed consumers, and, as such, is not a “firm offer of credit.”
Defendants’ failure to employ reasonable and appropriate measures to control access to the sensitive consumer financial information they sell resulted in prescreened lists being sold to a number of entities that have been the subject of actions or warnings by law enforcement. Defendants’ lack of reasonable procedures caused or is likely to cause substantial consumer injury that is not reasonably avoidable by consumers and is not outweighed by benefits to consumers or competition. – Source
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