From the ARDC: Loan Modification Scammers Recruiting Lawyers

The Illinois Registration & Disciplinary Commission issued this alert today with respect to fraudulent loan modification.

Ethics Alert

Loan Modification Scammers Recruiting Lawyers

Lawyers, particularly sole and small firm practitioners, are increasingly becoming the target of loan modification scammers seeking to recruit lawyers in an effort to circumvent state and federal legislation enacted to protect homeowners from unfair or deceptive practices, including a ban on the collection of upfront fees. Lawyers, however, are generally exempt from the legislation, and these companies are making considerable efforts to exploit this loophole by soliciting, employing and partnering with lawyers to provide purported loan modification services.

Nearly 40% of the consumer complaints against these purported “loan modification” companies reviewed by the Illinois Attorney General in 2010 had some lawyer involvement. The ARDC has also received many complaints about lawyers allegedly involved in loan modification scams and several lawyers are currently facing disciplinary prosecution by the ARDC.

These relationships may violate the Illinois Rules of Professional Conduct and could result in lawyer discipline. Do not risk your license. Recognize these fraudulent schemes for what they are – scams and avoid giving assistance to these scam artists. Here are some of the red flags:

Red Flags

• Accepting fees for little or no work in exchange for allowing non-lawyers to use the lawyer’s name, retainer agreement and client trust account;
• Engaging in a widespread telemarketing operation staffed by non-lawyers;
• Allowing the lawyer’s or law firm’s name to be used in solicitations to prospective clients without actively providing legal services in connection with mortgage assistance relief services;
• Misrepresenting any material aspect of a lawyer’s or law firm’s legal services, including the likelihood of getting a favorable result, an affiliation with a governmental agency or other costs of their services;
• Paying a referral or marketing fee to a foreclosure consultant or other person for referring distressed homeowners to the lawyer;
• Sharing legal fees with non-lawyers;
• Partnering with non-lawyers in connection with offering mortgage assistance relief services;
• Failing to supervise subordinate attorney and non-attorney work product;
• Helping non-lawyers engage in the unauthorized practice of law;
• Failing to keep clients reasonably informed about their matters, including other available legal options and the potential for adverse outcomes; and
• Failing to work diligently and competently on behalf of clients.

For lawyers who offer mortgage assistance relief services as part of their practices, upfront fees or retainers can be accepted only if the lawyer performs legitimate legal services and the money is deposited in a client trust account and withdrawn only as actual legal services are performed and the client is notified prior to each withdrawal. The FTC has published a guide for lawyers, The Mortgage Assistance Relief Services Rule: A Compliance Guide for Lawyers (February 2011) as well as one for businesses, The Mortgage Assistance Relief Services Rule: A Compliance Guide for Business (February 2011)

To Report a Scam

• Illinois Attorney General -http://illinoisattorneygeneral.gov/consumers/index.html
• Illinois Department of Financial & Professional Regulation -http://www.idfpr.com/
• Federal Trade Commission - http://www.ftc.gov
• Loan Modification Scam Alert Campaign -http://www.loanscamalert.org/default.aspx

Ethics Questions?  Please  call the ARDC Ethics Inquiry Program at either of the ARDC’s offices at the telephone numbers listed below. Additional information about the ARDC Ethics Inquiry Program can be obtained at www.iardc.org/ethics.html.

Attorney Registration and Disciplinary Commission of Illinois (ARDC)

Chicago Office
One Prudential Plaza
130 East Randolph Drive, Suite 1500
Chicago, IL 60601-6219
312/565-2600 or 800/826-8625

Springfield Office
One North Old Capitol Plaza, Suite 333
Springfield, Illinois 62701-1625
217/522-6838 or 800/252-8048

Web Site: www.iardc.org

From the IABG Blog: Small Dollar Lending Guidelines from the CFPB

This post originally appeared the Illinois Asset Building Group Blog. 

The Consumer Financial Protection Bureau (CFPB)  released “Examination Procedures: Short-term, Small Dollar Lending,” (pdf) which are guidelines for examining small dollar loan products. The guidelines are written for financial institution examiners, but offer insight into the CFPB’s expectations for five key areas affecting small dollar lending:

1. Marketing
2. Application and Origination of Loans
3. Payment and Processing and Sustained Use
4. Collection, Accounts in Default, and Consumer Reporting
5. Third-Party Relationships

Publication of the guidelines accompanied a January 19, 2012 CFPB press release announcing the agency’s first-ever field hearing on the payday lending market. In that release, newly appointed CFPB Director Richard Cordray stated that the CFPB “will be giving payday lenders much more attention.”

The release states that the CFPB is authorized to regulate small dollar loans made by all institutions, including payday lenders. It says:

“The CFPB will be implementing its payday lending supervision program based on its assessment of risks to consumers, including consideration of factors such as the volume of business and the extent of state oversight. The CFPB also will be coordinating with federal and state partners to maximize supervisory capability and minimize regulatory burden. If a violation of a federal consumer financial law has occurred, the CFPB will determine whether supervisory or enforcement actions are appropriate.”

In Illinois, a state law passed in 2011 offers consumers certain protections against payday lenders. The law prohibits unlimited rollovers and requires loans are based on a borrower’s ability to pay. Even with these reforms, payday loans still are expensive. The APR on a payday loan can run as high as 400%.

Illinois consumers who can’t pay off a payday loan when it’s due are entitled to enter into an interest-free repayment plan after more than 35 days. It is against the law for lenders to issue a new payday loan if it would indebt a borrower for more than 45 days in a row.

The CFPB guidelines offer a comprehensive overview of all laws and regulations affecting small dollar lending. They also hint at practices within each topic the CFPB deems particularly important to examiners:

• Marketing: Fair marketing methods, especially with respect to the use and compensation of lead generators.

• Application and Origination of Loans: Electronic Fund Transfer (EFT) and Automated Clearing House (ACH) authorizations, fair and straightforward disclosure of loan terms, repayment terms, and consumers’ rights to dispute.

• Payment Processing and Sustained Use: Traditional compliance with Regulations B and Z, with an eye toward lenders’ use of “rollovers” and other potentially unfair or deceptive practices that may encourage debt dependence. Regulation B prohibits lenders from discriminating against credit applicants, establishes guidelines for gathering and evaluating credit information, and requires written notification when credit is denied.Regulation Z requires uniform methods for disclosing credit terms and costs.

• Collections, Accounts in Default, and Consumer Reporting: Compliance with existing Fair Debt Collection Practices Act, and use of 
”deceptive means” to collect debts.

• Third-Party Relationships: Adherence to Gramm-Leach-Bliley privacy safeguards in place with both affiliate and third-party vendor agreements.

The Illinois Asset Building Group is currently developing a small dollar loan toolkit. The toolkit will offer guidelines as well as a profitability model, enabling mainstream financial institutions to add small dollar loans to their portfolios.

Learn more about the Illinois Asset Building Group, of which Chicago Appleseed is a partner. 

Illinois Asset Building Group Launches New Website

The Illinois Asset Building Group, of which Chicago Appleseed is a member, unveiled a new website this week. Be sure to check it out at: http://www.illinoisassetbuilding.org/

An excerpt from their launch email explains the site features:

• Asset Building Blog: our blog will provide a space for IABG and our partners to share information about recent research, comment on asset building news, and share best practices from the field. In an effort to lift up the voice of the asset building practitioners, researchers and advocates, we’ll be looking for guest bloggers. Contact Lucy Mullany, IABG Coordinator, if you are interested in contributing to our blog.

• Action Alerts: As we move into the legislative session, you’ll find opportunities to take action on both state and federal asset building issues. Make sure to also sign-up to receive our action alerts via email.

• Asset Building Resources: Our new site’s resource library contains asset building policy briefs, reports, fact sheets, trainings, and program resources. Please contact us if you have a resource that you would like us to highlight.

• IABG Partners: Here you’ll find a list of our partners including community based organizations, financial institutions, asset building initiatives, and research and policy institutions. If you are already a partner, but don’t see your organization listed, please complete this form and we’ll make sure to add you ASAP!

Chicago Appleseed is currently working with the IABG on a toolkit to inform financial institutions interested in offering payday alternative loans, also called “alternative small dollar loans.”

Illinois Payday Loan Reform Takes Hold

Illinois’ payday loan and consumer installment loan laws, the Consumer Installment Loan Act and the Payday Loan Reform Act (collectively referred to as CILA / PLRA), have taken effect. This is exciting news for a state that has “more payday loan stores than McDonald’s,” according to a 2004 statement from then-Lt. Governor Pat Quinn.

CILA / PLRA creates a number of rules protecting Illinois consumers. Among other things, the law caps interest on all consumer loans (99% for loans under $4,000 and 36% for loans above that amount); bans balloon payments, which often perpetuated a cycle of loan renewal; and limits the number of consecutive days over which a borrower can be in debt to a particular lender.

Rules to implement the law were approved by the Illinois Joint Committee on Administrative Rules on April 12. These rules will be administered by the Illinois Department of Financial and Professional Regulation.

CILA / PLRA faced a minor setback when the Illinois Lending Corporation sued the State of Illinois, seeking to prevent the law’s implementation. The Illinois Attorney General was able to reach a settlement with Illinois Lending Corporation, paving the way for the laws to take effect.

The law continues to evolve through the administrative rulemaking process, which fine-tunes statutes. Two bills proposed by the lending industry are under consideration by the Illinois State Senate. The Egan Coalition for Payday Loan Reform, of which Chicago Appleseed is a member, has been active in the rulemaking process so as to ensure the fairness of rules or amendments attached to CILA / PLRA.

Payday Lenders Lose Initial Bid to Block Illinois Law

Payday Lenders won’t submit to regulation without a fight. Last Friday, Payday Lender Illinois Lending Corp sued in Cook County Court for a temporary restraining order (TRO) against Illinois’ new and modified payday loan laws, the Consumer Installment Loan Act and the Payday Loan Reform Act (CILA / PLRA).

The Egan Coalition—an Illinois group of advocates for payday lending reform, which includes Chicago Appleseed—played a central role in advocating for these pro-consumer bills, which were passed last year.

Among other things, CILA / PLRA caps interest on all consumer loans—99% for loans under $4,000 and 36% for loans above that amount. The law also prohibits companies from offering both payday loans and consumer installment loans. Illinois Lending Corp., which offers both types of loans, argued that this latter provision would irreparably harm its business.

But according to Egan Coalition member group Citizen Action/Illinois co-director Lynda Delaforgue, the provision protects consumers from being “bounced back and forth between the (consumer installment and payday) products so that they never get out of that cycle of debt.”

Apparently, Circuit Court Judge Carolyn Quinn agreed. Judge Quinn ruled against the Plaintiff, and did not issue a temporary restraining order.

Dory Rand, President of Woodstock Institute, also an Egan Coalition member group, paraphrased the court’s ruling:

The plaintiff did not show irreparable injury would result from surrender of a PLRA or CILA license and there was no showing of a likelihood of success on the merits of ILC’s legal claims. The legislature enacted the law to protect consumers from unscrupulous lenders, although not all lenders covered by the statute are presumed to be unscrupulous. For the safety and welfare of the public, the market may not operate unimpeded. Granting a TRO here would undermine the standards where plaintiff is on record as supporting the bill and waited until last minute to file.”

The fight is not over. While Illinois Lending Corp was filing suit, Illinois Rep Daniel Burke introduced a bill before the Illinois House Executive Committee; the bill would remove the dual license restriction at issue in the suit. The case is set for status on April 13th, with a hearing on April 29th. Check back with our blog for updates later next month.

Bet On Bank On Chicago

Underbanked. Unbanked. These terms, collectively, refer to individuals in our society who have limited or no relationship with a traditional bank. Yet, because banking transactions—money transfers, paycheck cashing, non-cash payments, and small loans—are an essential part of modern life, those without banking relationships regularly take their business to predatory, costly nontraditional financial service providers, such as payday lenders and check cashing stations. Using its political and economic clout, the City of Chicago is sponsoring Bank On Chicago, an effort to move these individuals into the financial mainstream.

200,000 Chicagoans are unbanked, and another 380,000 are underbanked. People are without banking relationships for a variety of reasons: distrust or fear of traditional banks, unfamiliarity with the traditional banking system, unattractive account offerings, lack of banks in certain neighborhoods, and more. Regardless of their reasons for using nontraditional financial service providers, each of these individuals pays these providers an estimated $30,000 in fees over the course of his lifetime. Bank On Chicago aims to fix that.

Bank On Chicago, which the City will formally unveil early this year, persuades area banks and credit unions to offer low-cost, easy to understand checking accounts intended for the more than half million Chicagoans who have limited or no banking relationship. In exchange for an offering a Bank On account, participating banks and credit unions will be promoted by the City on the Internet and in 16 communities identified as having the highest rate of unbanked and underbanked individuals. Bank On participants will also have an identifying decal in their front window, so that interested customers can ask for the account with confidence.

In developing a Bank On program, Chicago will be following the lead of several other cities. San Francisco created the inaugural Bank On program in 2006, and now has over 170 banks and credit unions offering affordable, transparent “starter” checking and savings accounts. Chicago also has the backing of the FDIC, which has conducted extensive research on unbanked and underbanked populations in the United States, and published the results in an interactive site: http://www.economicinclusion.gov/.

Chicago Appleseed applauds the City of Chicago (and Treasurer Stephanie D. Neely, in particular), the Alliance for Economic Inclusion, the United Way of Metro Chicago, the FDIC, and the Illinois Asset Building Group for collaborating on this critical issue of financial access. Appleseed has long advocated for financial education and access, as well as bank accountability. Recently, Appleseed joined the Illinois Asset Building Group in arguing for the profitability of small dollar loans (a non-predatory alternative to so-called payday loans) for financial institutions interested in enhancing their income while serving their communities.

Payday Loan Reform Passed by the Illinois General Assembly

On May 26, 2010, Illinois consumers scored a major victory when the Illinois House passed the Senate amendments to H.B. 537, a strong payday loan reform bill, by a vote of 108-1. Governor Quinn now has 90 days to sign the bill into law.

Payday loans are small, short term loans made at predatory interest rates that can approach 700 percent. These loans are simple to obtain and require little documentation regarding the consumer’s ability to repay the amount borrowed. Not surprisingly, borrowers often find themselves unwittingly pushed into a vicious spiral of debt, which then compounds at astronomical interest rates. H.B. 537 helps to break this cycle of debt for Illinois consumers by strengthening the consumer protections passed in the 2005 Payday Loan Reform Act.

This bill further protects Illinois consumers by:

• Ensuring reasonable interest rates of 36% for installment loans over $4,000, 99% for small consumer loans, and maintains the current rate of no more than $15.50 per $100 per two weeks for payday loans,

• Limiting the cycle of debt by ensuring that lenders cannot make a payday loan to a consumer that would result in more than 180 days of continuous indebtedness,

• Establishing a consumer reporting database to ensure that consumer protections for payday loans and small consumer loans are enforced,

• Eliminating balloon payments on all consumer installment loans,

• Keeping loans repayable by limiting monthly payments to 22.5% or 25% of a borrower’s gross monthly income,

• Eliminating additional fees, including post-default interest, court costs and attorney’s fees, and

• Ending the current practice of penalizing borrowers for paying off loans early.

The Chicago Appleseed Fund for Justice supported Senator Kimberly Lightford and the Monsignor John Egan Campaign for Payday Loan Reform’s reform efforts with targeted research that helped to show that consumers in states that have passed tough payday lending reform still have small dollar credit options available to them.

The Chicago Appleseed Fund for Justice strongly urges Governor Quinn to sign this bill into law. You too can support putting an end to 700 percent payday loans by contacting Governor Quinn at 217-782-0244 or here and asking him the sign H.B. 537 into law.