FDIC Enters into Settlement Agreement with State Bank

Recently, the FDIC announced a settlement agreement with a depository institution loan originator (Bank) for alleged unfair and deceptive practices in violation of the Federal Trade Commission Act (FTCA) related to the marketing and origination of Consolidation Plus Loans (C+ Loans).  The settlement agreement also alleges that the Bank violated sections of the Truth in Lending Act (TILA) and the Electronic Fund Transfer Act (EFTA).

Following a Report of Examination in 2015, in which the FDIC conducted a risk-based examination of the Bank’s compliance with various consumer protection laws and regulations, the FDIC alleged that the Bank engaged in unsafe or unsound banking practices, violated Section 5 of the FTCA, Regulation Z of TILA, and Regulation E of EFTA, with regard to the origination of C+ Loans—an unsecured debt consolidation loan product.  Among the specific actions the FDIC alleged that violated those laws were: requiring borrowers to sign loan documents without properly informing them about the essential terms and conditions of the loans consumers were obtaining; failing to inform borrowers that the related debt settlement fees in the C+ Loans had to be negotiated themselves; misrepresenting to consumers that C+ Loans would result in the settlement of all debts within a specific time frame ranging from one to three months; and requiring consumers to repay loans by preauthorized electronic fund transfers as a condition of extending credit, contrary to the EFTA and Regulation E.

As a result of entering into the Consent Order, the Bank did not admit any of the FDIC’s charges of wrongdoing, but agreed to restitution to harmed consumers, which could reach $20 million, and pay two civil money penalties: $641,750 levied against the Bank and $493,500 against a subsidiary.