On October 4, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) filed a consent order with Bluestem Brands, Inc., Bluestem Enterprises, Inc., and Bluestem Sales, Inc. (collectively Bluestem), an online retailer. In addition to agreeing to certain compliance-related measures, Bluestem was ordered to pay a civil penalty of $200,000 to the Bureau.

According to the order, the Bureau alleges that Bluestem “engaged in unfair acts and practices by substantially delaying forwarding post-sale payments made by consumers to Bluestem.” Bluestem sells charged-off accounts to third-party debt buyers. The order mentions that Bluestem does not take affirmative action to notify consumers when their account is sold. After the sale of an account, some consumers would still make payments directly to Bluestem. Bluestem delayed forwarding some of these payments to the debt buyers, which “was likely to subject consumers to misleading debt-collection efforts and inaccurate credit reporting.”

The order states that since 2013, there were 3,500 instances where the payment forwarding delay was over 365 days and 18,000 instances of at least a 31-day delay. According to the order, this was due to “operational errors” that stemmed from a conversion of Bluestem’s accounts receivable system.

In addition to the civil penalty mentioned above, Bluestem is ordered to:

  • Update its processes, systems, and controls to prevent recurrence of the issue;
  • Submit a comprehensive compliance plan to the Enforcement Director;
  • Notify the Bureau if there is any issue with compliance with the Order’s obligations; and
  • Bluestem’s Board of Directors must review all submissions required by the consent order.

insideARM Perspective

As technology advances, system conversions are inevitable. Any company that has gone through a system conversion knows that it is a hefty task to undertake. This consent order highlights the need for proper checks for all entities that touch an account to catch discrepancies, especially after a significant event like a system conversion. With that said, there are certain things not addressed in this consent order that would be helpful in evaluating the situation:

  • Did Bluestem catch these discrepancies on their own?
  • Did the purchasers report or forward to Bluestem any complaints from consumers stating that the accounts have already been resolved?
  • What percentage of total accounts sold were problematic?

While the third item doesn't diminish that, according to this consent order, at least 18,000 consumers were impacted by this issue, it's a very different situation if the error occurred 1% of the time versus 90% of the time.

One other note relates to a handshake communication, meaning a communication that lets the consumer know that the account is no longer with the entity they have been regularly communicating with. While a handshake communication would not preclude all direct payments, at least some of the consumers might have sent their payments to the purchasing entity had they received one. This wouldn't solve the issue of delayed forwarding of direct payments, but the impact of the issue might have been smaller.

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