On January 10, 2022, the Consumer Financial Protection Bureau (CFPB) issued a press release announcing it sued United Debt Holding (UDH), JTM Capital Management (JTM), United Holding Group (UHG), along with their owners Craig Manseth, Jacob Adamo, and Darren Turco. The CFPB alleges UDH, JTM, UHG, and their owners knowingly used third-party collectors who engaged in unlawful and deceptive practices. Through a statement, UHG and its owners have denied the allegations.
According to the CFPB: Manseth, Adamo, and Turco founded UHG in May 2017. Before that, Manseth owned UDH, Turco worked at UDH as a manager, and Adamo owned JTM. After UHG was formed, it managed UDH and JTM’s business. All three companies are debt purchasers and sellers.
The CFPB's Allegations:
The complaint alleges that UHG, UDH, JTM, and their owners continued to place collection accounts with vendors despite knowing that their vendors were deceiving consumers. The entities and their owners knew about these violations because their compliance teams received (1) phone call recordings where collection agents threatened suit and made false statements about credit reporting; and (2) hundreds of complaints that alleged vendors were threatening arrest, jail, or lawsuits if consumers did not pay their debts imminently. Despite the knowledge that collection vendors retained by JTM were violating federal law, UDH increased the amount of business it sent to JTM. By 2017, UDH was using JTM almost exclusively for debt placements despite objections by UDH’s compliance manager. As a result, some of the third-party companies continued making false threats and misleading statements for years.
“This debt collection ring and its operators created the conditions for rampant abuse,” said CFPB Director Rohit Chopra. “Companies cannot profit and evade liability simply by creating a maze of shape-shifting entities and enabling third parties to take advantage of consumers.”
In response to the suit, UHG issued a statement denying all allegations and pointing out that neither JTM nor UDH is currently in business. According to UHG, the CFPB’s complaint is devoid of facts, and The CFPB did not substantiate its claims despite repeated requests. Per UHG, no accounts purchased or placed by UHG are described in the CFPB’s complaint. Instead, the complaint’s allegations focus on collection activity by another debt buyer, which purchased accounts from UDH in 2015.
“The Bureau’s actions to file a lawsuit against UHG based on consumer complaints that predate UHG is surprising,” says Craig Manseth, the owner of former debt-buying firm UDH and an investor in UHG. “UHG operates a first-class compliance program that redresses all issues when we become aware o them. It’s telling that the CFPB did not allege that consumers were harmed.” UHG anticipates filing a motion to dismiss.
The full complaint filed by the CFPB can be found here.
UHG’s complete statement in response to the suit can be found here.
The broader issue here, beyond whether the CFPB’s or UHG’s version of the facts is correct, is that the CFPB will not allow the entities it supervises to place blame on a vendor. It’s clear from the complaint that the CFPB expects debt collectors to audit their vendors for compliance and terminate those that do not meet compliance standards. Further, it seems the CFPB considers audit findings by a compliance team to be evidence that the company has knowledge of vendor issues. This position is consistent with previous CFPB enforcement actions.
It’s also worth mentioning that the CFPB included in its complaint and press release an allegation that UDH continued to place accounts with JTM “despite objections by UDH’s compliance manager.” This statement is another reminder that the CFPB expects ARM entities to listen to its compliance team’s input. While perhaps not revenue generators, compliance personnel are not simply window dressing or personnel on staff to check a box on various audits.
To make sure they are protected from allegations like this from the CFPB, ARM entities should review their Compliance Management System to ensure (1) vendor audits occur regularly; (2) findings are reported to operations; (3) negative findings are addressed through remediation, reduction in business and/or termination of the vendor; and (4) that this process is captured in a written procedure. Regardless of who prevails in this he said/she said, it is clear that a do-nothing approach to audit findings is not sufficient for the CFPB.