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From Banking and Finance Law Daily, October 5, 2018

CFPB enters consent order with online retailer for unfair practices

By Colleen M. Svelnis, J.D.

The Consumer Financial Protection Bureau has entered into a settlement with an online retailer for the company’s actions relating to consumer debts sold to debt buyers in violation of the Consumer Financial Protection Act’s (CFPA) prohibition on unfair practices. The Bureau entered into the consent order with Bluestem Brands, Inc.; Bluestem Enterprises, Inc.; and Bluestem Sales, Inc., headquartered in Eden Prairie, Minn., and doing business as Fingerhut and Gettington.com.

According to the Bureau, Bluestem engaged in unfair acts and practices by substantially delaying forwarding post-sale payments made by consumers to Bluestem. After consumers made payments to Bluestem companies on debts that the companies had already sold to third-party debt buyers, the Bluestem companies substantially delayed sending those payments to the debt buyers.

The CFPA, 12 U.S.C. §§ 5536(a)(1)(B), prohibits "unfair" acts or practices. Under the Act, an act or practice is unfair if it causes or is likely to cause consumers substantial injury that is not reasonably avoidable and is not outweighed by countervailing benefits to consumers or to competition.

According to the consent order, Bluestem generally sells products, mostly through revolving-credit accounts and installment-credit accounts issued through its third-party partner bank, and sells charged-off accounts to third-party debt buyers. Some consumers continued to make payments on their defaulted accounts directly to Bluestem after their accounts had been sold. Where it received such direct payments, due to operational errors, Bluestem substantially delayed sending some of these consumers' payments to the third-party debt buyers.

Consent Order. Under the consent order, a civil money penalty of $200,000 was assessed against Bluestem and requires Bluestem companies to improve their processes to "timely identify and forward customer payments on accounts that they have sold to third-party debt buyers." Additionally, Bluestem must improve its companies’ processes to prevent consumers from making payments by phone or on the companies’ websites on sold accounts. Bluestem must also notify customers who make payments to its companies on sold accounts that their accounts have been sold.

The Bureau asserted that Bluestem’s delayed forwarding practice was likely to subject consumers to misleading debt-collection efforts and inaccurate credit reporting. Between 2013 and August 2016, Bluestem is said to have received more than 18,000 Direct Pays totaling more than $1 million that it delayed forwarding for at least 31 days. Additionally, since 2013 there have been more than 3,500 instances where this delay was longer than a year.

According to the consent order, by its actions, Bluestem prevented debt buyers from timely updating account balances. As a result, debt buyers were likely to subject consumers to misleading and, in some cases, completely unnecessary debt-collection efforts. Bluestem's conduct was also likely to cause some debt buyers to furnish inaccurate information to consumer-reporting agencies.

Companies: Bluestem Brands, Inc.; Bluestem Enterprises, Inc.; Bluestem Sales, Inc; Fingerhut; Gettington.com

MainStory: TopStory CFPB ConsumerCredit DebtCollection EnforcementActions FairCreditReporting UDAAP

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