On Friday the Bureau of Consumer Financial Protection (BCFP or Bureau) announced a settlement with National Credit Adjusters, LLC (NCA), a privately-held company headquartered in Hutchinson, Kansas, and its former CEO and part-owner, Bradley Hochstein. The company primarily collects debts for online lenders operating on tribal land. Per the announcement,
As described in the consent order, the Bureau found that NCA and Hochstein used a network of debt collection companies to collect consumer debt on NCA’s behalf. Some of those companies engaged in frequent unlawful debt collection acts and practices that harmed consumers, including by representing that consumers owed more than they were legally required to pay, or threatening consumers and their family members with lawsuits, visits from process servers, and arrest, when neither NCA nor the collection companies intended or had the legal authority to take those actions. NCA and Hochstein continued placing debt with those companies for collection with knowledge or reckless disregard of the companies’ illegal consumer debt collection practices. NCA and Hochstein also sold millions in consumer debt to one of those companies with knowledge or reckless disregard of the company’s illegal consumer debt collection practices.
Under the terms of the consent order, NCA and Hochstein are barred from certain collection practices and Hochstein is permanently barred from working in any business that collects, buys, or sells consumer debt. The order imposes a judgment for civil money penalties of $3 million against NCA and $3 million against Hochstein. As explained in the order, full payment of those amounts is suspended subject to NCA paying a $500,000 civil money penalty and Hochstein paying a $300,000 civil money penalty.
The complete Consent Order can be downloaded here.
This is an enforcement action that began during the Cordray management era of the Bureau. Reuters reported back in March of this year that Mulvaney had decided to drop the case. The article quoted NCA's attorney, Sarah Auchterlonie, saying “(Cordray) had a theory that was really out there and I think everything related to it is being pulled back,” and that the case is "dead."
It's unclear what happened between March and July that would revive the matter, but the following are highlights of the Bureau's findings:
- In addition to placing and selling accounts to the companies in question, Hochstein and NCA helped to draft and implement policies and procedures to create the false impression in original creditors that the collection agencies complied federal consumer financial laws; defending agencies when creditors raised concerns about their practices; preventing NCA's compliance personnel from conducting appropriate and effective reviews of the collection agencies; and refusing to implement corrective recommendations made by NCA's compliance personnel.
- Hochstein determined which agencies NCA would place debt with, which relationships would be terminated, and which accounts and under what terms the agencies would collect.
- Hochstein and NCA were aware of the conduct of the agencies but didn't prevent it, and continued to refer accounts to those agencies even after learning that they frequently inflated account amounts, threatened to take legal actions that NCA didn't have the intention or legal authority to take, and ignored NCA's compliance department.
- NCA and Hochstein regularly exerted control over the agencies, including providing instructions for collection conduct, setting benchmarks, moving accounts between agencies based on performance, directing agencies to hire or fire employees, and withdrawing accounts from agencies based on financial performance, but not misconduct.
The Bureau claims that consumers couldn't reasonably avoid injury because they often lacked access to the documentation indicating how much they actually owed and were unlikely to know what authority the collection agencies had to follow through on claims of legal action.
Per the Order, Hochstein is permanently restrained from acting as an officer, director, employee, agent or advisor of, or otherwise providing management, advice, direction or consultation to, any individual or business that collects, buys, or sells consumer debt.
NCA is required to submit a compliance plan to the Bureau's Enforcement Director within 30 days. The company's Board must review all submissions required by the Order (including plans, reports, programs, policies and procedures), and will have ultimate responsibility for proper and sound management of NCA. A copy of the Order must be provided to each current or future (for 5 years) member of its board, as well as any officers, managers, employees, agencies, debt buyers or others with responsibilities related to its subject matter.
Neither NCA nor Hochstein admitted (or denied) any of the findings of fact or conclusions of law in their consent to the Order.
We don't know what we don't know. Is there a lesson for others besides the obvious (avoiding the illegal alleged conduct)? It's interesting. The Order really throws Hochstein under the bus, suggesting that he knew about - or even encouraged - the illegal conduct, and allowed it in spite of the efforts of his own compliance team. The Order then requires an extensive plan for how to ensure that the company's compliance management system will operate properly in the future. I don't have access to the discovery documents, it sounds like there was indeed a compliance management system, but it was circumvented by the guy in charge. What's the right check and balance for that?
Meanwhile, an internet search for "National Credit Adjusters" and "consent order" also produced a 2016 Order from the New York State Department of Financial Services (read it in full here), which found that between 2007 and 2014 the company "pursued and collected payments made on thousands of usurious payday loan accounts" which were void and unenforceable. The company was also accused of harassing consumers by repeatedly calling them at home and at work, threatening to call employers, and pressuring family members.