A predatory lender that targeted American sailors, soldiers, airmen, and Marines will forgive $92 million in debts thanks to a joint investigation by the Consumer Financial Protection Bureau (CFPB) and 13 state attorneys general. The company and its founders are banned for life from consumer lending of all kinds.
Rome Finance and its subsidiaries set up sales kiosks near military bases where they promised servicemembers cheap financing on consumer electronics, only to lure the soldiers and their families into deceptive loans that cost far more than the sales pitch promised. The company lied to customers during the debt collection process, failed to meet legal requirements for disclosures and licensing to make the loans, and gave borrowers paperwork claiming that the annual interest on their loan “was 16 percent when in fact the APR was 100 percent or more,” the CFPB said in a statement announcing the enforcement action. The action combines work by the CFPB itself with numerous lawsuits filed against Rome subsidiaries for similar misconduct over the years by state attorneys general.
One of the company’s subsidiaries is already bankrupt, which limits the CFPB’s ability to force further penalties out of the lender. But 17,000 separate people who signed financing agreements with Rome and it subsidiaries will have those debts canceled. On top of the $92 million in debt relief, Rome will also repay some money that customers already paid under the inflated contract terms. Company owners Ronald Wilson and William Collins “shall permanently cease and desist” all activities related to consumer lending as part of the deal.
Tuesday’s action is the latest in a series of CFPB victories for consumers wronged by lenders, several of which have involved members of the armed forces. The agency’s first payday lender enforcement action back in November included violations of the Military Lending Act, which offers servicemembers and their families additional financial protections. The agency’s Office of Servicemember Affairs (OSA) received nearly 4,000 complaints about abusive debt collection attempts from military personnel, veterans, and their families in just the first 8 months of its efforts to track such complaints.
Conversations with debt collectors are one experience members of the military share with the civilians they protect. Tens of millions of other Americans are subject to the whims of collections agencies.
About 77 million Americans are in debt collections, according to a new Urban Institute study. That means that more than one third of all Americans who have a credit record of some kind have a debt in collections. One of the report’s authors called it “a stunning number” and told the Washington Post that debt collector troubles aren’t limited to low-income people or particular geographic regions.
Debt that gets passed on from its point of origin to a collections company can stay on a person’s credit report for up to 7 years. While many debt collections companies are guilty of harassing debtors and even pursuing people who don’t in fact owe what the collector’s records show, it is also common for borrowers to be completely unaware that they have a debt in collections until they ask to see their credit report, the Urban report says. Because many employers still use credit reports to evaluate job applicants, such hidden debt problems can have far greater repercussions for a person’s life than just owing a company money.
It’s become more and more common in recent years for people to get sentenced to prison time over unpaid or unpayable debts. Many of these modern-day debtors prison stories result from the court system’s increased reliance on fines and fees. Judges in Ohio had been jailing people who are unable to pay fines and court fees at such a clip that the state Supreme Court had to order a stop to the practice in February. In June, a Pennsylvania woman died in a jail cell after having been sentenced to 48 hours in jail over accumulated fines she couldn’t pay. But collections work can often land people in the clink too. Debt collectors sue as part of their collection efforts, and a borrower who fails to appear in court to respond — possibly because notice of the lawsuit never actually reached them — get hit with arrest warrants.
The CFPB has been tightening its oversight of debt collections companies since late last year. Debt collectors had previously enjoyed a “regulatory void” where no one agency was tracking their business practices, allowing a variety of nefarious tactics to take hold in the business. The basic dynamics of debt collection will always remain the same — companies buy delinquent debts from hospitals, retailers, credit card companies, and other debt originators for cents on the dollar and then try to collect enough from the consumer to turn a profit on the deal — but the new federal attention may force the industry to clean up its act.