Federal Trade Commission seeks public input on how's identity theft affects senior citizens

The Federal Trade Commission is seeking input from the public about the effect of identity thef on senior citizens. Senior citizens are more at risk to be victimized by identity theft due to their increased susceptibility to identity theft scams such as phishing scams, both via e-mail or over the phone. Phishing occurs when a consumer is contacted by what appears to be a reputable source and is tricked into revealing private identifiers that can be used to steal their identity. Senior citizens are also at risk because most of their Medicare cards bear their Social Security numbers, which is absolutely ignorant in this day and age. The FTC wants information about particular identity theft scams and their use to target senior citizens. The deadline to submit information to the FTC on this subject is July 15, 2012. For more information, see here - http://ftc.gov/opa/2012/04/idtheft.shtm.

Red Flag Rules do not include attorneys

As I have reported before, the FTC's Red Flag Rules regarding prevention of identity theft go into effect (allegedly) tomorrow, November 1.  The Red Flag Rules have been supposed to go into effect multiple times before, only to be delayed.  But since tomorrow is almost here, maybe they will indeed go into effect this time.

Another development is that Judge Reggie B. Walton of the United States District Court for the District of Columbia has ruled that the Red Flag Rules do not apply to law firms.  The D.C. Court agreed with the American Bar Association, finding that the Federal Trade Commission's interpretation of the Fair and Accurate Credit Transactions Act (FACTA - the amendment to the FCRA passed a few years ago) was overreaching and its application to lawyers and law firms unreasonable.

The decision turned on FACTA's definition of creditor.  Only creditors, as defined by FACTA, have to comply with the Red Flag Rules' requirements to attempt to prevent identity theft.  The Red Flag Rules require creditors to adopt written identity theft prevention procedures. 

The FTC argued that lawyers and law firms fall under the definition of "creditor" and thus have to comply with the Red Flag Rules.  Unfortunately for the FTC's argument, it was a stretch to call a law firm a creditor and Judge Walton agreed.  As a result, Judge Walton granted the ABA's motion for partial summary judgment.  This also means I don't have to write identity theft prevention procedures by tomorrow.

Report on recent FTC actions

National Mortgage Professional Magazine reported recently regarding the FTC's new leadership and the aggressive steps it is taking in the area of consumer protection.  Here's the article:

While Congress is debating the future of the proposed centralized federal enforcement agency for the financial services sector, one thing regarding enforcement has already been established: With or without the proposed Consumer Financial Protection Agency (CFPA), the Federal Trade Commission (FTC) is aggressively pursuing violations. The FTC’s new Director for the Bureau of Consumer Protection is David Vladeck, and in a little more than one month on the job, Vladeck’s actions have made some strong statements about consumer protection. In his first 45 days, there has been the creation of a task force to help repair consumer credit and prevent questionable lending practices, as well as multiple settlements and litigations filed, many in the financial services sector. This confirms his claim that the first priority at the agency will be dealing with the rise of consumer financial fraud as a result of the economic downturn.
On July 1, Director Vladeck used his first press conference as head of the Bureau of Consumer Protection to announce a nationwide, joint federal/state law enforcement initiative against scammers attempting to take advantage of consumers made vulnerable by the poor economy. Thus far, “Operation Short Change” includes 15 FTC cases, 44 law enforcement actions by the Department of Justice, and actions by at least 13 states and the District of Columbia. In its cases, the FTC alleged that defendants made false and unsubstantiated claims via the Internet, infomercials, telemarketing, robocalls or print advertisements to market get-rich-quick and other similar schemes. Several of these schemes targeted consumers with mortgage- and credit-related problems.
At the press conference, Director Vladeck noted that “thousands of people have been swindled out of millions of dollars by scammers who are exploiting the economic downturn.” The FTC also recently announced two major consumer protection enforcement actions: One involving a nationwide crackdown against scammers and the other resulting in a $3.7 million penalty.

In one of the actions, the FTC and Equifax subsidiary TALX Corporation, has agreed to settle charges that it violated federal law by failing to provide certain disclosures to users of their consumer reports and to entities that provide information for consumer reports. The proposed settlement requires TALX to pay the government a $350,000 civil penalty and bars future violations.
TALX sells income and employment history information about consumers to lenders, pre-employment screeners, and others for use in determining their eligibility for credit, employment or other purposes, which makes it a consumer reporting agency subject to the Fair Credit Reporting Act (FCRA), according to the FTC. The company allegedly violated the FCRA by not providing the “Notice to Users of Consumer Reports: Obligations of Users Under the FCRA,” which notifies users of consumer reports of their statutory obligations, including notifying individuals if the user takes adverse action against them based on their consumer report. The company also failed to provide the “Notice to Furnishers of Information: Obligations of Furnishers Under the FCRA,” which notifies furnishers—entities that furnish information for consumer reports—of their obligations to provide accurate information, correct and update inaccurate information, and reinvestigate consumer disputes.
Also in July, the FTC and California Attorney General Jerry Brown, announced “Operation Loan Lies,” a coordinated national law enforcement effort to crack down on mortgage modification scams. The operation involves 189 actions by 25 federal and state agencies against defendants who deceptively marketed foreclosure rescue and mortgage modification services. The FTC actions, which affect consumers throughout the nation, were announced in southern California, where the scams originated.
“These con artists see the high foreclosure rates as an opportunity to prey on people in distress,” FTC Chairman Jon Leibowitz stated in the release. “They promise to rescue homeowners in troubled financial waters, but after they take their money, they throw them an anchor instead of a lifeline. People facing foreclosure should avoid any company or individual that requires a fee in advance, guarantees to stop a foreclosure or modify a loan, or advises the homeowner to stop paying the mortgage company.”
The FTC announced four other lawsuits, bringing the number of mortgage foreclosure rescue and loan modification scam cases the Commission has brought to 14 since April. Twenty-three state attorneys general and other agencies are participating in the operation, taking action against 178 companies engaged in these types of deception.
To say Director Vladeck has hit the ground running is putting it lightly! The new director was named to the position after a handful of consumer watchdog groups called for FTC Chairman Leibowitz to appoint someone with “a track record as a genuine champion of consumer rights.” Prior to being named to the FTC post Vladeck was co-director of Georgetown Law Center's Institute for Public Representation, a program for civil liberties, open government and regulatory litigation. Prior to his time at Georgetown Law, he spent nearly 30 years with the Public Citizen Litigation Group, a national, non-profit consumer advocacy organization that represents consumer interests in Congress, the executive branch and the courts. Vladeck has argued a number of First Amendment and civil rights cases before the Supreme Court, and more than 60 cases before the Federal Courts of Appeal and State Courts of Last Resort.
Let these actions serve as notice to mortgage originators about being in compliance with Federal laws. If these early announcements are any indication, the FTC’s new Director of Consumer Protection Vladeck may be just what the consumer watchdogs were looking for.

ABA attempts to block Red Flags Rule's application to lawyers

The American Bar Association has filed litigation claiming that the FTC has overstepped its authority in trying to make attorneys and law firms comply with the Red Flag Rules set to go into effect November 1, 2009.  Here's the article from http://www.insurancejournal.com/:

"The American Bar Association is seeking to bar the Federal Trade Commission from applying its Red Flags Rule, designed to prevent identity theft, to practicing lawyers.
An ABA suit filed in the U.S. District Court for the District of Columbia claims that the FTC is exceeding the powers delegated to it by Congress and misinterpreting the rule. It seeks declaratory and injunctive relief in advance of pending FTC rule enforcement on Nov .1, 2009.
The rule requires creditors to implement plans to detect and respond to activity signaling possible identity theft. The FTC's original enforcement policy in October 2008 and subsequent updates provided no indication that lawyers engaged in the practice of law fell within the definition of 'creditor,' according to the ABA. Only after implementation of the rule was delayed again in April 2009 - just one day before the expiration of an initial six-month extension - did the FTC publicly announce its position that lawyers were subject to the rule.
The ABA complaint alleges that the application of the rule to practicing lawyers is 'arbitrary, capricious and contrary to law,' and that the FTC has failed 'to articulate, among other things: a rational connection between the practice of law and identity theft; an explanation of how the manner in which lawyers bill their clients can be considered an extension of credit under the FACTA; or any legally supportable basis for application of the Red Flags Rule to lawyers engaged in the practice of law.'
'Congress did not intend to cover lawyers under the rule,' said ABA President Carolyn Lamm. 'The FTC's decision to apply the Rule to lawyers is contrary to an unbroken history of state regulation of lawyers and intrudes on traditional state responsibilities.'
Lamm said the rule requires 'extensive reporting and bureaucratic compliance' that would increase the cost of legal services.
According to the ABA, nearly 30 state and local bar associations also have officially registered their opposition.
The ABA is seeking to have the Red Flags Rule's application to lawyers engaged in the practice of law declared unlawful and void."

I agree with the ABA.  I do not see how lawyers can be construed as "creditors" under FACTA. 

Obama almost gets it right

In June, President Obama released a plan to revamp the government's financial regulatory system. The primary feature of the plan is the creation of a new federal agency called the Consumer Financial Protection Agency ("CFPA") whose primary focus will be to enforce consumer protection laws.

Kudos to President Obama for recognizing the problem with the lack of enforcement of the consumer protection laws such as the FCRA. President Bush could have cared less the enforcement (or lack thereof) of the FCRA. So consumers are in much better hands now with President Obama in the White House.

But the key to increasing enforcement of the FCRA is not to switch enforcement agencies from the FTC to the CFPA. The key is to increase the penalties against violators of the FCRA, thereby making it more attractive for the nation's army of attorneys to sue the credit bureaus and furnishers who violate the FCRA. A large percentage of my practice as an attorney is comprised of representing consumers under the FCRA. It is so so so easy to find multiple violations of the FCRA in every case. The problem, though, is that it is very difficult to quantify the damage caused by these violations. IF the FCRA contained automatic damages of sufficient significance for violations of the FCRA, attorneys would flock to these cases and make the credit bureaus and furnishers toe the line or pay the fine.

Wholesale Home Lenders agrees to settle FTC claim

Wholesale Home Lenders has settled a claim filed against it by the FTC for failing to include the mandatory opt out language with its prescreened offers sent to consumers. Here's the facts from RealEstateRama.com:

"A home mortgage lender that sent prescreened offers of credit to consumers without properly informing them of their right to opt out of receiving such offers in the future has agreed to settle Federal Trade Commission charges that it violated federal law. The settlement requires the company to pay a $20,000 civil penalty and bars future violations.

Prescreened offers of credit or insurance typically are mailings sent to selected consumers based on information in their credit report indicating that they meet the offering company’s criteria. The Fair Credit Reporting Act (FCRA) permits lenders or insurers to make prescreened offers if the offer clearly and conspicuously discloses that, among other things, the consumer’s credit report was used to make the offer and that the consumer can opt out of receiving such offers in the future. The FTC’s Prescreen Opt-Out Notice Rule (Prescreen Rule) requires that each written solicitation contain a short and a long notice, and it specifies the format, type size, and content in order to make the notices simple and easy for consumers to see and understand.

According to the FTC’s complaint, the company violated the FCRA and the FTC’s Prescreen Rule by not providing opt-out notices that comply with the Rule. In some instances, for example, the notices did not contain a short notice on the front page of the solicitation as required by the Rule, or the notices did not comply with the Rule’s format requirements.

The settlement requires Metropolitan Home Mortgage, Inc., doing business as Wholesale Home Lenders, to pay a $20,000 civil penalty and bars the company from failing to comply with the Prescreen Rule. The settlement also contains record-keeping and reporting provisions to allow the FTC to monitor compliance with the order."

You can read the full article at - http://www.realestaterama.com/2009/08/18/mortgage-lender-agrees-to-settle-ftc-charges-prescreened-loan-offers-lacked-proper-opt-out-notice-ID05861.html.

FTC nails two companies for FCRA violations

The FTC has settled complaints filed against Quality Terminal Services, LLC and Rail Terminal Services, LLC for allegedly violating the Fair Credit Reporting Act by secretly using consumer reports as the basis for firing employees and rejecting job applicants but not informing the spurned workers and applicants of their rights granted by the FCRA. Here's more about this from 7thSpace.com.

"Two companies that fired workers and rejected job applicants based on background checks without informing them of their rights under the Fair Credit Reporting Act (FCRA) have agreed to settle Federal Trade Commission charges that they violated federal law. The settlements require the defendants to pay $77,000 in civil penalties and bar future FCRA violations.

Employers often conduct background checks and seek employees’ and job applicants’ credit records, criminal histories, and other background information from a consumer reporting agency (CRA) such as a credit bureau or background screening company. The FCRA requires that before taking adverse employment actions based on these consumer reports – for example, firing employees or denying job applications – employers must provide the employees or applicants with a copy of the report, identify the CRA that provided it, notify them that the CRA did not make the adverse action decision, and inform them that they have the right to obtain a free copy of the report from the CRA and dispute its accuracy. According to the FTC’s two complaints, both defendants contracted with a CRA to conduct background checks including criminal record reviews for employees and job applicants, and made hiring and firing decisions based on those background checks. The companies allegedly failed to provide the employees and applicants with pre-adverse action notices and adverse action notices as required by the FCRA.

The settlements require Quality Terminal Services, LLC and Rail Terminal Services, LLC to pay $53,000 and $24,000 in civil penalties, respectively, and to provide the FCRA-required notices in the future. The settlements also contain record-keeping and reporting provisions to allow the FTC to monitor compliance. The Center for Democracy and Technology (CDT) filed a petition with the Commission complaining of adverse action notice violations by the defendants. The FTC acknowledges CDT’s invaluable contribution in bringing these matters to the agency’s attention.

The Commission vote to refer the complaints and stipulated final orders to the Department of Justice for filing was 4-0. The action against Rail Terminal Services was filed in the U.S. District Court for the Western District of Washington; the action against Quality Terminal Services was filed in the U.S. District Court for the District of Colorado."

The whole article is here - http://7thspace.com/headlines/316906/two_companies_pay_civil_penalties_to_settle_ftc_charges_failed_to_give_required_notices_to_fired_workers_and_rejected_job_applicants.html

FTC delays enforcement of the Red Flag Rules ... again!

The Red Flag Rules, which require certain types of businesses, including some small businesses, to come up with and implement procedures to prevent identity theft, was supposed to go into effect on August 1. Key words being "supposed to". It was also supposed to go into effect on May 1 and even on November 1 of last year.

Its now delayed to November 1, 2009, one year to the day from when it was "supposed to" go into effect. Joe Campana at the Identity Theft Examiner sums up what this latest delay means:

"Further delay in enforcement may mean that many businesses will sit on the sidelines again to wait and see what happens when November 1st comes around. For most businesses, enforcement does not mean an audit, inspection or test. It simply means that if an identity theft incident occurs within a business, and there was a violation of the Red Flags Rule, then the law can be enforced by the FTC, the state attorney general or through a private right of action.

In the press release, the FTC suggests it would not enforce the law against to small low-risk businesses that are likely to 'know their customers.' Reviewing FTC enforcement of other laws over the last few years, shows that the FTC in general does not enforce laws against small businesses, and that it brings few enforcement actions, which some consumer advocates have already criticized.

This delay a compliance date may suggest that small low-risk businesses do nothing. Many already do not comply with other laws such as the FACT Act Disposal Rule, the Gramm-Leach Bliley Act and state breach notification laws. However, once an enforcement date is finalized, private citizens can sue businesses under the law if they can show harm resulting from the negligent authentication of a thief using their identity. Even today, small businesses are at risk of such lawsuits brought under common law."

As I have said before, the threat of FTC enforcement of any law is virtually meaningless. I am glad that the Red Flags Rule includes a private cause of action, thereby giving it enough teeth to actually give someone pause enough to at least attempt to comply with it. That is, if it ever actually goes into effect.

One step closer to the creation of the CFPA

Breaking news:

"Addressing the Obama Administration's proposals to reform financial regulation in the US, Barney Frank (D-MA), Chairman of the House Financial Services Committee, has promised to report legislation which would create a new Consumer Financial Protection Agency (CFPA) before the House adjourns for its August recess at the end of July."

If this legislation is passed, the CFPA will be in charge of enforcement of the consumer protection statutes including the FCRA. Of course, you will still be able to file lawsuits for violations of any of the statutes containing private causes of action. But maybe with the CFPA you can get somewhere on the non-private causes of action since the FTC can't and/or won't do anything about it.

Another good reason why Congress should create a new agency to replace the FTC

While the below article from www.statesboro.biz focuses on the Fair Debt Collection Practices Act, it is also true about the Fair Credit Reporting Act. I know of no actions against the credit bureaus recently filed by the FTC or other governmental agencies but FCRA lawsuits filed by individuals are happening every day. Too bad some of the best parts of the FCRA can only be enforced by the FTC or other governmental agencies.

Fortunately, Congress is currently considering creating a new agency to give this power to that allegedly be able to focus more on enforcing the FCRA, FDCPA and other consumer statutory schemes. Unfortunately, this will probably result in more of the same. The best (and cheapest) alternative is for Congress to allow private lawsuits for all the consumers' rights under the FCRA, FDCPA, etc. This will allow for the enforcement of these statutes without costing the government the expense of doing the enforcing. And it will allow attorneys to make money, which is then taxed as income to the attorney and thus makes the government money. This is what is typically called a "win win", but probably won't happen since this is the GOVERNMENT we are talking about. If it makes sense, it usually won't happen. But I digress.

Here's the article about the FDCPA:

"Most of 4,054 the federal consumer credit lawsuits filed so far in 2009 are Fair Debt Collection Practices Act (FDCPA) against Debt Collectors and debt collection law firms.

You can see for yourself at Justia.com.

If you ask me that’s a lot of consumers being abused by debt collectors using questionable collection tactics. This is quite troubling as it shows that for the most part the Federal Trade Commission (FTC) and state attorney general’s are not getting involved in consumer abuse as much as they should be.

These numbers also show that many debt collectors are willfully violating federal and state law to collect debts. I could see if there were maybe 75-100 (total) filed each month, but the numbers of lawsuits that consumers file themselves without the aid of federal and state law enforcement is quite staggering.

Maybe it is a good idea that consumer issues such as the FDCPA and FCRA (Fair Credit Reporting Act) be taken away from the Federal Trade Commission and to a new consumer protection agency that is being currently being proposed in congress. From all outward appearances the FTC is failing US consumers in protecting them from predatory and illegal debt collection.

What’s more the $1000.00 per incident damages outlined in the FDCPA is chump-change to many of the the large US debt collection companies, hence the large number of federal lawsuits filed against them. The Fair Debt Collection Practices act needs to be beefed up and hit debt collectors hard, right in the wallet. Put some meat in the FDCPA and once a couple of large cash awards hit the debt collectors the illegal collection tactics will dry up to a trickle.

Now let’s take a look at how many Federal consumer credit lawsuits were filed against large debt collection companies and Debt Collection law firms so far in 2009.

January 1, 2009 through July 24, 2009

Asset Acceptance – 226 lawsuits

Allied Interstate – 215 lawsuits

NCO Financial Systems (Group) – 205 lawsuits

Palisades Collections, LLC – 153 lawsuits

Allied Interstate Inc. – 98 Lawsuits

-- the above totals 897 lawsuits close to 1/4 of the total number of consumer credit lawsuits filed in 2009 --

Client Services Inc – 65 lawsuits

Midland Funding/ Midland Credit – 65 lawsuits

Mann Bracken – 60 lawsuits

Portfolio Recovery Associates – 54 lawsuits

LVNV Funding – 46 lawsuits

MRS Associates – 38 lawsuits

United Collection Bureau (aka UCB) – 31 lawsuits

First Revenue Assurance – 26 lawsuits

Alliance One – 26 lawsuits

LTD Financial Services – 32 lawsuits

West Asset Management – 23 lawsuits

Mitchell N Kay PC – 23 lawsuits

Unifund CCR Partners – 20 lawsuits

Gerald E. Moore & Associates, P.C. – 19 lawsuits

Eskanos & Adler, PC – 13 lawsuits

Scott Lowery Law Office, P.C. - 11 lawsuits

Accounts Receivable Management – 10 lawsuits

BUREAU OF COLLECTION RECOVERY – 7 lawsuits

Allen, Lewis & Associates, Inc – 5 lawsuits

I have probably overlooked a few of the larger debt collection law firms and debt collection companies, however as you can see it not just one or two lawsuits being filed against them, it is dozens and some hundreds. Feel free to search federal civil filings at Justia.com (consumer credit lawsuits) and pull others you may have been abused by.

All these lawsuits filed against debt collectors in 2009 and in the last year the Federal Trade Commission has done nothing against any of them (so far as we know). It’s extremely sad if you ask me that consumers are being harassed and the very federal enforcement agency hasn’t done anything. No wonder debt collectors violate the law, they know that the FTC is going to do anything to them. I for one, am glad that congress is thinking of creating a new consumer protection agency and take some of the Federal Trade Commissions enforcement powers away. Like the old saying goes “Use it, or lose it” and the FTC only has themselves to blame…"

Article about yet another case where Equifax mixed two consumers' files together

Yesterday in the Atlanta Journal-Constitution, there was an article about yet another case where Equifax's faulty matching logic caused two people's credit files to be merged together, creating a mixed file where the bad credit history of one person lands on the good credit report of another person. The case in the article involves twins, where Equifax places the brother's bad credit on his twin sister's credit report and refuses to fix the errors despite numerous disputes and proof provided by the sister.

Here's a quote from the article:

"For more than two years Robyn Mueller has been battling credit reporting giant Equifax, which mixed her twin brother’s data into her file, then failed to correct the errors, records show.
Mueller sent Equifax repeated dispute letters beginning in 2006 — and even copies of each sibling’s driver’s licenses, pay stubs and other records — to prove they are different people. But the problem wasn’t fixed until last summer when she sued the Atlanta-based credit bureau.

For two years the errors saddled Mueller with an Equifax credit report so troubled she had no credit score, according to Mueller and records she’s assembled as part of a federal lawsuit.
'You don’t understand how much torture I went through,' said Mueller, 39, who lives in Sugar Hill. 'All the credit bureaus, they control your life. … It’s not fair for them to steal your identity.'

...

Federal law is supposed to protect consumers from such problems, mandating that credit reporting agencies investigate and promptly correct any errors consumers report to them.
But consumer watchdog groups say the system for disputing credit report errors is badly broken and can have a devastating impact on an individual’s ability to get loans, housing, insurance and jobs. They say credit bureaus do little to investigate alleged errors and use an automated system that reduces a consumer’s complex dispute letter and supporting documents to a two- or three-digit code.

When credit bureaus refuse to correct errors, the Fair Credit Reporting Act allows consumers to bring suit to enforce the law and collect damages and attorneys fees if they prevail.

The Consumer Data Industry Association, a trade group for the credit bureaus, said the dispute system, with its electronic coding, quickly corrects errors most of the time. Serious, lingering problems are rare, said Stuart Pratt, the association’s CEO."

FYI - the CDIA is an organization that is comprised of the credit bureaus and major furnishers of credit information (credit card companies, mortgage companies, etc.). The CDIA is actually responsible for coming up with the credit bureaus' terrible procedures for "investigating" consumer disputes by merely asking the company that provided the wrong information to begin with whether it was right or not, and then, no matter what the answer, going with the answer of the furnisher and never siding with the consumer if the consumer's position contradicts that of the furnisher.

First of all, Mr. Pratt, serious, lingering problems with Equifax and the other CRAs Experian and Trans Union are not only not "rare" but are common place. I see them every day.

And, in Ms. Mueller's case, the problem is not only Equifax's complete failure to properly investigate her disputes, but also Equifax's matching logic, which fails to require an exact match of a Social Security number on an account to the consumer before placing the account on the consumer's credit report. This caused the brother's bad credit, reported to Equifax with the brother's name and Social Security number, to land on the sister's credit report under her name and Social Security number.

This is a problem that Equifax has known about since the early 1990s and has even promised to fix in order to extricate itself from a lawsuit filed against it by 18 States and again when it was sued for this same mixed file problem by the FTC. Both times, Equifax agreed to fix its matching logic to use full identifying information, including full Social Security number, but both times Equifax failed to do what it promised, to the detriment to consumers like Ms. Mueller. Good luck in your lawsuit.

Here's a link to the full article - http://www.ajc.com/feeds/content/metro/stories/2009/06/14/spotlight_credit.html?cxtype=rss&cxsvc=7&cxcat=13.