Fairbanks Capital will refund more than $40 million to consumers as part of a settlement of federal charges that it failed to post consumers' mortgage payments promptly and illegally imposed late fees and other charges on its customers.
Consumers should be treated fairly and honestly in the servicing of their loans, said Timothy J. Muris, Chairman of the Federal Trade Commission. 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, Todays settlement makes clear that HUD and FTC are serious about protecting consumers from those who would try to steal their American Dream.
Fairbanks is a financial services company that specializes in servicing subprime mortgage loans. Subprime lending refers to the extension of credit to consumers who are considered to be higher risk borrowers. "Servicing" means that Fairbanks does not originate loans, but collects and processes loan payments from borrowers on behalf of the owner of the mortgage notes.
|More Information The FTC's toll-free Fairbanks hotline: 1-877-862-0886. Consumers who have changed their address recently may provide updated contact information by calling the hotline. It is not necessary for consumers to take any action other than watching their mail for notice of the settlement.|
Headquartered in Salt Lake City, Fairbanks is one of the countrys largest servicers of subprime mortgage loans. In its charges, the FTC alleged that Fairbanks engaged in a myriad of unfair, deceptive, and illegal practices in collecting and processing consumers loan payments.
In addition to the $40 million to be paid by Fairbanks Capital, the company's former CEO, Thomas D. Basmajian, will personally pay $400,000 in penalties, assuming the settlements are approved by the federal district court hearing the case.
The settlement of the federal charges will be coordinated with settlement of a class action lawsuit.
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 announced today resolve the Commissions and HUDs 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 consumers 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 consumers account that the account is current and that the prior record of delinquency should be removed from the consumers 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 Commissions 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 FTCs 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.