FCO Holding, Inc., Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., FCO Worldwide, Inc. and Michael E. Sobota

Documents in this case

• Complaint · Sept. 2019 · 26 p.
• Stipulation · Dec. 2021 · 37 p.

Case summary

FCO Holding, Inc., Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., FCO Worldwide, Inc., and Michael E. Sobota

On September 25, 2019, the Bureau filed a complaint in federal court in the District of Maryland against Maryland-based debt collector FCO Holding, Inc. and its subsidiaries, Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., and FCO Worldwide, Inc. (collectively, FCO). Also named as a defendant in the Bureau’s lawsuit is Michael E. Sobota, the chief executive officer, president, director, and owner of FCO Holding, Inc. The Bureau alleged that FCO, which furnishes information to consumer reporting agencies, violated the Fair Credit Reporting Act and Regulation V by failing to maintain reasonable policies and procedures regarding the accuracy and integrity of the information it furnishes, including the handling of consumer disputes, failing to conduct reasonable investigations of certain consumer disputes, and failing to cease furnishing information that was alleged to have been the result of identity theft before it made any determination whether the information was accurate. In addition, the Bureau alleged that FCO and Sobota violated the Fair Debt Collection Practices Act when FCO represented that consumers owed certain debts when, in fact, FCO did not have a reasonable basis to assert that the consumers owed those debts. On October 27, 2021, the court entered a stipulated final judgment and order, which requires defendants to pay a $850,000 civil money penalty and put in place policies and procedures to prevent future violations.

Complaint (Sept. 2019)

PDF of this document (26 pages)

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND Southern Division

Bureau of Consumer Financial Protection 1700 G Street NW Washington, DC 20552, Plaintiff, v.

Fair Collections & Outsourcing, Inc. 12304 Baltimore Avenue, Suite E Beltsville, MD 20705 (Prince George’s County) Fair Collections & Outsourcing of New England, Inc.

12304 Baltimore Avenue, Suite E Beltsville, MD 20705 (Prince George’s County), FCO Worldwide, Inc.

12304 Baltimore Avenue, Suite E Beltsville, MD 20705 (Prince George’s County), FCO Holding, Inc.

12304 Baltimore Avenue, Suite E Beltsville, MD 20705 (Prince George’s County), and Michael E. Sobota 806 Riverside Drive Ormond Beach, FL 32176, Defendants.

Complaint for a Civil Case Civil Action No.

The Bureau of Consumer Financial Protection (Bureau) brings this action against Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., FCO Worldwide, Inc., FCO Holding, Inc. (collectively FCO or the FCO entities), and Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 1 of 26

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Michael E. Sobota, FCO’s chief executive officer, president, director, and owner, and alleges as follows:

INTRODUCTION 1.

FCO and Sobota operate the largest debt-collection company in the multiunit-housing industry, and they collect debt on behalf of large apartment complexes, including student and military housing, and assisted-living facilities. 2.

FCO routinely furnishes information to consumer-reporting agencies (CRAs) but has failed to maintain reasonable policies and procedures regarding the accuracy and integrity of the information it furnishes, including the handling of consumer disputes, as required by federal law.

3.

FCO has failed to conduct reasonable investigations of certain consumer disputes and has failed to cease furnishing information that was alleged to have been the result of identity theft before it made any determination of whether the information was accurate.

4.

In addition, FCO and Sobota have collected debt without a reasonable basis to assert it was owed.

5.

The Bureau brings this action based on Defendants’ violations of § 1036(a)(1)(A) of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5536(a)(1)(A); § 623 of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s-2; § 1022.42 of Regulation V, 12 C.F.R. § 1022.42; and § 807 of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692e.

Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 2 of 26

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JURISDICTION AND VENUE 6.

This Court has subject-matter jurisdiction over this action because it is brought under “Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), by an agency of the United States, 28 U.S.C. § 1345, and presents a federal question, 28 U.S.C. § 1331. 7.

Venue is proper in this district because Defendants are located, reside, or do business in this district. 12 U.S.C. § 5564(f). THE PARTIES 8.

The Bureau is an independent agency of the United States charged with regulating the offering and provision of consumer financial products and services under “Federal consumer financial law,” 12 U.S.C. § 5491(a). The Bureau has independent litigating authority to enforce these laws. 12 U.S.C. § 5564(a), (b). 9.

Defendant Fair Collections & Outsourcing, Inc. (FCO, Inc.) is a Maryland corporation with its principal place of business at 12304 Baltimore Avenue, Suite E, Beltsville, MD 20705. FCO, Inc. collects debt on behalf of multi-unit-housing developments and furnishes information about consumers to CRAs. At all times material to this Complaint, FCO, Inc. has transacted business in this district. 10.

Defendant Fair Collections & Outsourcing of New England, Inc. (FCO NE) is a Maryland corporation with its principal place of business at 12304 Baltimore Avenue, Suite E, Beltsville, MD 20705. FCO NE collects debt on behalf of multi-unithousing developments and furnishes information about consumers to CRAs. At all times material to this Complaint, FCO NE has transacted business in this district. 11.

Defendant FCO Worldwide, Inc. (FCO WW) is a Maryland corporation with its principal place of business at 12304 Baltimore Avenue, Suite E, Beltsville, MD 20705. FCO WW collects debt on behalf of multi-unit-housing developments and Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 3 of 26

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furnishes information about consumers to CRAs. FCO WW also operates a call center in Makati City, Philippines. At all times material to this Complaint, FCO WW has transacted business in this district.

12.

Defendant FCO Holding, Inc. (FCO Holding) is a Maryland corporation with its principal place of business at 12304 Baltimore Avenue, Suite E, Beltsville, MD 20705. FCO Holding collects debt on behalf of multi-unit-housing developments and furnishes information about consumers to CRAs through its wholly-owned subsidiaries FCO, Inc., FCO NE, and FCO WW. At all times material to this Complaint, FCO Holding has transacted business in this district.

13.

FCO, Inc., FCO NE, FCO WW, and FCO Holding are under common control and operate out of a combined headquarters. The entities commingle funds and share common employees, common officers, common ownership, and strategic leadership such that they constitute a single business enterprise. 14.

FCO, Inc., FCO NE, FCO WW, and FCO Holding operate under the business names of “Fair Collections & Outsourcing” and “FCO” and share a common website: www.fco.com. In oral and written communications to consumers, the entities hold themselves out as “Fair Collections & Outsourcing” and “FCO.” 15.

Defendant Michael E. Sobota is the 100% owner of FCO Holding, which, in turn, owns 100% of FCO, Inc., FCO NE, and FCO WW. He is an officer and director of various FCO entities, including the chief executive officer, the president, and a director of FCO Holding, FCO NE, and FCO, Inc.

16.

At all times material to this Complaint, Sobota has had unilateral managerial responsibility, financial control, and ultimate decision-making authority for FCO. He has also materially participated in the conduct of FCO’s affairs. According to Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 4 of 26

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FCO, Sobota is responsible for “determining, implementing, and ensuring” FCO’s policies and procedures, including FCO’s Manual. At all times material to this Complaint, Sobota has transacted business in this district. 17.

At all times material to this Complaint, FCO has furnished consumeraccount information to CRAs. The consumer-account information FCO has collected and provided is used or expected to be used in connection with a decision regarding the offering or provision of a consumer-financial product or service and furnishing this information is a service offered or provided for use by consumers primarily for personal, family, or household purposes. This activity is a consumer-financial product or service under the CFPA. 12 U.S.C. § 5481(5), (15)(A)(ix). 18.

At all times material to this Complaint, FCO, Inc., FCO NE, FCO WW, and FCO Holding have been “covered persons” under the CFPA because they engage in offering or providing a consumer-financial product or service. 12 U.S.C. § 5481(5), (6), (15)(A)(ix).

19.

At all times material to this Complaint, FCO Holding has been a “related person,” and therefore a “covered person,” under the CFPA. 12 U.S.C. § 5481(25)(C)(i). 20.

At all times material to this Complaint, FCO, Inc., FCO NE, FCO WW, and FCO Holding have been “persons” under the FCRA. 15 U.S.C. § 1681a(b). 21.

At all times material to this complaint, FCO, Inc., FCO NE, FCO WW, and FCO Holding have regularly furnished information relating to consumers to CRAs for inclusion in consumer reports. Therefore, they have been “furnishers” under Regulation V. 12 C.F.R. § 1022.41(c).

22.

At all times material to this Complaint, all Defendants have been “debt collectors” under the FDCPA because they have regularly collected or attempted to Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 5 of 26

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collect, directly or indirectly, debts owed or due or asserted to be owed to another or have used an instrumentality of interstate commerce or the mails in a business the principal purpose of which is collecting debts. 15 U.S.C. § 1692a(6). COMMON ENTERPRISE 23.

At all times material to this Complaint, FCO, Inc., FCO NE, FCO WW, and FCO Holding have operated as a common enterprise that shares common ownership, management, address, office space, and employees, and commingles funds. 24.

FCO, Inc., FCO NE, FCO WW, and FCO Holding have operated as a common enterprise while engaging in unlawful conduct, including the violations of law described herein.

25.

Because FCO, Inc., FCO NE, FCO WW, and FCO Holding have operated as a common enterprise, each of them is jointly and severally liable for the acts or practices alleged.

FACTUAL BACKGROUND FCO’s Handling of Indirect Disputes 26.

FCO furnishes information about debt collection accounts to CRAs, including the nationwide CRAs Equifax, Experian, and TransUnion (NCRAs), and is currently furnishing information about approximately 500,000 accounts. 27.

The FCRA allows consumers to dispute furnished information with a CRA (referred to as an “indirect dispute”) or directly with a furnisher (referred to as a “direct dispute”).

28.

FCO receives indirect disputes through the Online Solution for Complete and Accurate Reporting (“E-OSCAR”). E-OSCAR is a web-based system developed by Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 6 of 26

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the NCRAs for processing Automated Credit Dispute Verifications, which refers to the form that accompanies a consumer’s indirect dispute. 29.

When a consumer submits an indirect dispute about a debt furnished by FCO to one of the NCRAs, it is routed to FCO through E-OSCAR. Any supporting documentation submitted by the consumer to the NCRA with the dispute is also sent to FCO through E-OSCAR. In addition, the NCRAs assign a code to each dispute, reflecting the subject matter of the dispute.

30.

Upon receipt, FCO generally has 30 days to conduct a reasonable investigation of a dispute, as required by FCRA§ 623(b)(1), and to submit a response through E-OSCAR that the disputed information should be deleted, modified, or verified as being accurate as reported.

31.

If FCO does not respond to an indirect dispute within 30 days, FCRA § 611(a)(5)(A) requires that the CRA promptly delete the disputed information from the disputing consumer’s file or modify the item, as appropriate, based on the results of the CRA’s own investigation. As a result, if FCO does not timely respond to an indirect dispute concerning information it furnished about a consumer, the disputed information may be deleted from the consumer’s credit file by the CRA. 32.

FCO receives and responds to about 10,000 indirect disputes each month. 33.

At all times material to this Complaint, FCO has assigned all indirect disputes to be handled on a centralized basis by several employees in its call center in Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 7 of 26

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Makati City, Philippines. The employees are ostensibly supervised by FCO’s compliance manager, who works in Maryland.

34.

In 2016 and 2017, four employees in FCO’s call center were primarily responsible for responding to all of the indirect disputes that FCO received. 35.

FCO has provided limited to no affirmative training to its employees about how to conduct reasonable investigations of indirect disputes. While employees have been permitted to ask questions of FCO’s compliance manager, if they asked no questions, they have received limited guidance.

36.

FCO has not provided employees any training on the requirements of the FCRA as they relate to the handling of indirect disputes. 37.

FCO has not monitored the pace at which employees respond to the NCRAs concerning indirect disputes, except to ensure that FCO has responded to all indirect disputes within the time period prescribed by the FCRA, so that the disputed information would not be deleted from consumers’ credit reports by a CRA. 38.

FCO employees have resolved indirect disputes at a fast pace that generally allowed for only a limited review. For example, from August 2017 to November 2017, FCO employees resolved indirect disputes at an average rate of about 17 disputes per hour, assuming that they did nothing but resolve disputes in an 8-hour day.

39.

Some employees have resolved indirect disputes far more quickly than others. For example, Employee A was assigned to review all indirect disputes with supporting documentation submitted by consumers, which are about one third of the total indirect disputes FCO receives each month. Employee A maintained the fastest pace of all employees, resolving about 22 disputes an hour on average from August 2017 Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 8 of 26

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to November 2017, assuming she did nothing but resolve disputes in an 8-hour day. On one day in September 2017, Employee A resolved indirect disputes with supporting documentation at a rate of 33 disputes an hour.

40.

During the calendar year 2017, FCO employees purported to verify disputed information as being accurate in response to indirect disputes at a rate of 92.2%.

FCO’s Policies and Procedures Regarding Indirect Disputes 41.

For at least seven years, FCO provided limited written guidance to the employees who responded to indirect disputes. From November 2010 through at least December 2017, FCO provided its employees with a document it called the “E-OSCAR Manual” or “Manual,” which provided limited instructions on how to respond to certain categories of disputes. During that time, the Manual was FCO’s only written policy and procedure regarding the handling of indirect disputes. 42.

The Manual was drafted by FCO’s compliance manager and authorized by Sobota, who is the only person with authority to change FCO’s policies and procedures. 43.

The Manual provided limited instructions for responding to certain types of indirect disputes.

44.

For example, if a dispute is associated with an account that has been paid, the Manual does not instruct employees to conduct an inquiry into the substance or nature of the dispute. Instead, the Manual instructs employees to verify the information as accurate based on the fact that the account has been paid and the disputing consumer’s Social Security number matches the information in FCO’s account database. 45.

For disputes relating to an account that a consumer alleges is the result of identity theft or fraud, or that the consumer otherwise alleges does not belong to him or Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 9 of 26

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her, the Manual instructs employees to verify the disputed information as accurate if the disputing consumer’s Social Security number and name match the information in FCO’s account database. The Manual does not instruct employees to conduct a further inquiry that considers the substantive information provided in a consumer’s dispute. 46.

For many other types of disputes, the Manual provides no guidance. 47.

The Manual does not instruct employees to review and consider the supporting documentation, if any, submitted by consumers and transmitted to FCO by the NCRAs through E-OSCAR, before responding to an indirect dispute. 48.

The Manual contains a vague and general statement that “each dispute is different and should be viewed on its own merit,” but the Manual does not provide instructions on determining which disputes have merit and which do not. 49.

The Manual contains another vague statement that employees should “confirm other information as accurate on the dispute,” but the Manual does not explain what that instruction requires employees to do. When read in context, the instruction appears limited to confirming a consumer’s basic identifying information against the information in FCO’s account database regardless of the nature or substance of the dispute.

50.

The Manual does not require employees to save or record any of the information from the E-OSCAR system, including supporting documentation submitted by consumers, into FCO’s account database. As a result, FCO cannot reliably determine whether a dispute is identical or related to one it previously received or otherwise review the dispute history on an account.

Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 10 of 26

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51.

In establishing the Manual in 2010, FCO did not consider and incorporate appropriate guidelines from Appendix E of Regulation V, 12 C.F.R. Part 1022, which is the implementing regulation for the FCRA. Specifically, FCO did not: a. establish and implement policies reasonably designed to promote the objective of conducting reasonable investigations of consumer disputes and taking appropriate actions based on the outcome of such investigations;

b. address the following specific, appropriate components in developing its policies and procedures:

i. establishing and implementing appropriate internal controls regarding the accuracy and integrity of information about consumers furnished to consumer reporting agencies, such as by implementing standard procedures and verifying random samples of information provided to consumer reporting agencies; ii. training staff that participates in activities related to the furnishing of information about consumers to consumer reporting agencies to implement the policies and procedures;

iii. conducting reasonable investigations of disputes; iv. conducting a periodic evaluation of its own practices, consumer reporting agency practices of which the furnisher is aware, investigations of disputed information, means of communication, and other factors that may affect the accuracy and integrity of information furnished to consumer reporting agencies; and Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 11 of 26

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c. identify practices or activities that can compromise the accuracy or integrity of information furnished, such as by: i. reviewing FCO’s historical records relating to accuracy or integrity or to disputes;

ii. considering the types of errors, omissions, or other problems that may have affected the accuracy or integrity of information FCO has furnished; and iii. considering feedback received from consumer reporting agencies, consumers, or FCO staff.

For at Least Seven Years, FCO Did Not Review or Update the Manual to Ensure its Effectiveness 52.

Between November 2010 and at least December 2017, FCO did not revise the Manual, while continuing to distribute the Manual to its employees as guidance for how to do their jobs.

53.

Between November 2010 and at least December 2017, FCO did not seek to determine whether the instructions in the Manual were effective in leading employees to conduct reasonable investigations of indirect disputes. Specifically, FCO did not audit the work of its dispute-handling employees to determine whether they were following the policy and, if so, whether that resulted in reasonable investigations of disputes. More generally, FCO did not audit the work of its employees to determine whether they were complying with the FCRA.

54.

FCO did not update the Manual in response to two instances of major technical changes to E-OSCAR in 2013 and 2016 that significantly changed the process Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 12 of 26

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of responding to indirect disputes. Instead, FCO continued to distribute the out-of-date Manual to employees to instruct them on how to do their jobs. 55.

Between November 2010 and at least December 2017, FCO also failed to update its policies and procedures despite its knowledge that indirect disputes were not being appropriately investigated. Instead, FCO turned a blind eye to problems. 56.

For example, FCO received multiple consumer complaints and threats of lawsuits from 2008 through at least 2014 regarding indirect disputes handled by Employee A. After each instance, FCO’s compliance manager determined that Employee A had purported to verify as accurate information that was clearly inaccurate on its face. 57.

In addition, FCO knew that its dispute-handling employees were not consistently reviewing the supporting documentation that accompanied certain indirect disputes.

58.

Despite this knowledge, FCO made no changes to its policies and procedures regarding investigations of indirect disputes for at least seven years. Instead, FCO continued to assign its employees a high workload with little supervision or guidance. FCO did not further supervise or check the work of Employee A despite knowing that she was repeatedly verifying false information. 59.

In establishing and implementing its policies and procedures, FCO did not consider feedback from consumers including, but not limited to, the consumers who threatened to sue FCO because their disputes were not investigated. 60.

In establishing and implementing its policies and procedures, FCO also failed to consider and incorporate feedback received from at least one NCRA. In 2017, FCO received an inquiry from that NCRA about FCO’s indirect dispute response trends. The NCRA observed that FCO had a high rate of verification in response to indirect Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 13 of 26

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disputes as compared to peer furnishers and asked FCO to review its indirect dispute handling policies and procedures to determine whether it was verifying information that should have been modified or deleted.

61.

FCO did not comply with the NCRA’s request and, instead, responded to the NCRA with a misleading description of the thoroughness of FCO’s dispute investigations. Specifically, an FCO manager told the NCRA that FCO obtains original supporting documentation before taking on any new debt and that FCO reviews such original documents before responding to indirect disputes. FCO Has Failed to Conduct Reasonable Investigations of Indirect Disputes 62.

When responding to indirect disputes, FCO employees generally apply the limited instructions in the Manual.

63.

In numerous instances, when responding to indirect disputes, FCO employees have only made a threshold determination that an account was paid. FCO employees have conducted no investigation of the substance of such disputes before purporting to verify the disputed information as accurate. 64.

In numerous instances, when responding to indirect disputes alleging identity theft, FCO employees have only confirmed that the disputing consumer’s Social Security number matched what was in FCO’s files before purporting to verify the disputed information as accurate.

65.

In other instances of disputes alleging identity theft, FCO employees have only checked the disputing consumer’s Social Security number and name, or other unspecified identifying information before purporting to verify the disputed information as accurate.

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66.

These circular inquiries in response to identity theft allegations merely confirm the same information that FCO furnished in the first place. FCO employees have conducted no further investigation of the disputes before purporting to verify the disputed information as accurate.

67.

In numerous instances, when responding to indirect disputes alleging identity theft, FCO employees have sent consumers blank identity theft affidavits for completion. FCO has made the receipt of such an affidavit a prerequisite to conducting more than a cursory investigation of a consumer’s identity theft dispute. In some instances, FCO employees have conducted no further investigation of the consumers’ disputes before purporting to verify the disputed information as accurate. 68.

In numerous instances, when responding to indirect disputes that had an E-OSCAR code reflecting that the consumer disputed the account as “not his/hers” and that were accompanied by supporting documentation from consumers, FCO employees have not reviewed or considered the supporting documentation before purporting to verify the disputed information as accurate.

69.

In numerous instances, FCO employees have only checked whether the disputing consumer’s Social Security number matched what was in FCO’s account files when the question of whether the Social Security number matched was not relevant or responsive to the subject matter of the consumer’s disputes. In these instances, FCO employees conducted no further investigation of the consumers’ disputes before purporting to verify the disputed information as accurate. 70.

In numerous instances, with respect to disputes alleging identity theft or fraud or other circumstances under which a reasonable investigation of the dispute required review of original supporting documentation, FCO employees have purported Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 15 of 26

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to verify disputed information as accurate without obtaining or reviewing such original supporting documentation.

71.

In numerous instances, FCO employees do not appear to have reviewed FCO’s account files before verifying information as accurate in response to an indirect dispute. For example, employees have noted that a letter accompanying the consumer’s dispute in E-OSCAR was the same as one that FCO had previously received, and subsequently conducted no investigation of the dispute before purporting to verify the disputed information as accurate. But FCO’s account files show that FCO had not previously received a letter from that consumer. FCO Has Continued Furnishing Disputed Information After Consumers Sent Identity Theft Reports 72.

In addition to the indirect dispute process discussed above, consumers can dispute debts by contacting FCO directly.

73.

In numerous instances, consumers have sent FCO police reports or other official reports filed by consumers with a federal, state, or law enforcement agency that have subjected the consumers to criminal penalties for the filing of false information. In those reports, consumers have alleged that their FCO accounts were the result of identity theft or fraud. Those documents are “identity theft reports” under FCRA § 603(q)(4) and 12 C.F.R. 1022.3(i).

74.

FCO has received identity theft reports from consumers via mail at FCO’s regular address for consumer correspondence, or via email or facsimile at the instruction of FCO employees.

75.

In numerous instances, FCO has continued to furnish information concerning such FCO accounts before or without determining that the account was not Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 16 of 26

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the result of identity theft or fraud and, therefore, without knowing that the information is correct. At most, FCO employees have noted that the account was disputed, if it had not previously been disputed.

FCO Has Collected Debts in Portfolios With High Rates of Dispute and Cancellation Without Substantiating the Debts

76.

When a consumer indicates that he or she disputes a debt, FCO employees are instructed to indicate that the account is disputed. But because FCO does not reasonably investigate many indirect disputes, FCO does not determine whether much of the disputed information is accurate or verifiable. 77.

Certain portfolios of debt have been disputed by consumers at rates that are relatively high compared to the average dispute rate on the portfolios of debt that FCO collects.

78.

For the relatively few disputes that FCO does investigate, FCO may seek additional information from clients. In numerous instances, clients have informed FCO that they could provide no documentation to support certain debts. For certain portfolios, the apartment building has been sold and the client is no longer in possession of the supporting documentation for any of the debts associated with that building. In other instances, clients have repeatedly failed to produce documents if and when FCO requests them.

79.

For certain portfolios, the relatively high rates of consumer disputes and inability to obtain additional information are warning signs that put FCO on notice that there may be problems with the accuracy or reliability of the information about the debts in those portfolios.

80.

When collecting on certain portfolios of debt that contained warning signs Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 17 of 26

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as discussed above, FCO has not obtained or reviewed additional information that would provide a reasonable basis to continue to assert that the active debts in the portfolio are owed.

81.

Nonetheless, FCO has made the same express and implied representations to consumers that the debts were owed when collecting on portfolios of debt with warning signs as has done for all other portfolios—namely, that FCO had a reasonable basis for asserting that the debts were owed. ROLE OF INDIVIDUAL DEFENDANT MICHAEL E. SOBOTA 82.

Sobota is the 100% owner of FCO Holding, which, in turn, owns 100% of FCO, Inc., FCO NE, and FCO WW. He is an officer and director of various FCO entities, including the chief executive officer, the president, and a director of FCO Holding, FCO NE, and FCO, Inc.

83.

At all times material to this Complaint, acting alone or in concert with others, Sobota has formulated, directed, controlled, or participated FCO’s acts and practices, including the acts and practices set forth in this Complaint. 84.

Sobota has ultimate authority and exercised unilateral managerial control over FCO’s policies, procedures, and strategic decisions, including with respect to the collection of debt and the handling of consumer disputes. 85.

According to FCO, Sobota is responsible for “determining, implementing, and ensuring” FCO’s policies and procedures, including FCO’s Manual. 86.

Sobota is the only person with authority to change FCO’s policies and procedures.

87.

As FCO’s sole shareholder, CEO, and president, Sobota has unilateral financial control over FCO and has received personal financial gain from the illegal Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 18 of 26

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practices discussed herein.

THE FAIR CREDIT REPORTING ACT AND REGULATION V

COUNT I

(FCO’s violations of Regulation V)

88.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

89.

The Furnisher Rule, Part E of Regulation V, requires in 12 C.F.R. § 1022.42 that a furnisher of consumer information: a.

establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the information relating to consumers that it furnishes to a consumer reporting agency, which must be appropriate to the nature, size, complexity, and scope of the furnisher’s activities;

b.

consider and incorporate the appropriate guidelines set forth in Appendix E of 12 C.F.R. Part 1022 in developing such policies and procedures; and c.

review such policies and procedures periodically and update them as necessary to ensure their continued effectiveness. 90.

FCO has failed to establish or implement reasonable written policies and procedures regarding the accuracy and integrity of the information FCO furnished to consumer reporting companies, specifically with respect to FCO’s handling of indirect disputes. Instead, FCO’s Manual, which was authorized by Sobota, directed employees to conduct perfunctory and inadequate investigations of indirect disputes and is not appropriate to the nature, size, complexity, or scope of FCO’s furnishing activities. Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 19 of 26

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91.

FCO has failed to consider or incorporate the appropriate guidelines set forth in Appendix E of 12 C.F.R. Part 1022 in developing its policies and procedures regarding the handling of indirect disputes. 92.

For at least seven years, FCO failed to review its indirect dispute handling policies and procedures and update them as necessary to ensure their continued effectiveness. Instead, despite knowing that its policies and procedures were outdated and ineffective, FCO continued to distribute the same policies and procedures to employees as guidance for how to do their jobs. 93.

Therefore, FCO has violated 12 C.F.R. § 1022.42. COUNT II (FCO’s violations of the CFPA based on its violations of Regulation V) 94.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

95.

The CFPA defines “Federal consumer financial law” to include most provisions of the Fair Credit Reporting Act and to include its implementing regulation, Regulation V. 12 U.S.C. § 5481(12)(F), (14). 96.

The FCO entities are “covered persons” under the CFPA. 12 U.S.C. § 5481(6).

97.

Under the CFPA, a covered person’s violation of a Federal consumer financial law, which includes enumerated consumer laws and rules thereunder, violates the CFPA. 12 U.S.C. §§ 5536(a)(1)(A), 5481(14). 98.

FCO’s violations of Regulation V, described in Count I, constitute violations of § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A). Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 20 of 26

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COUNT III (FCO’s violations of FCRA § 623(b)(1)) 99.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

100. Under § 623(b)(1) of the FCRA, when a furnisher of information to a CRA receives a notice of dispute regarding the completeness or accuracy of the reported information from a CRA in accordance with the provisions of § 611(a)(2) of the FCRA, the furnisher is required to conduct a reasonable investigation and review all relevant information provided by the CRA. The furnisher must then report the results of the investigation to the CRA.

101.

In numerous instances, FCO has not conducted a reasonable investigation, or any investigation, when it has received a notice of dispute from a CRA under the provisions of § 611(a)(2) of the FCRA.

102.

In addition, in numerous instances, FCO has not reviewed all relevant information provided by the CRA when it has received a notice of dispute from a CRA under the provisions of § 611(a)(2) of the FCRA. 103.

Therefore, FCO has violated § 623(b)(1) of the FCRA, 15 U.S.C. § 1681s- 2(b)(1).

Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 21 of 26

Page 23

COUNT IV (FCO’s violations of the CFPA based on its violations of FCRA § 623(b)(1)) 104.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

105.

The CFPA defines “Federal consumer financial law” to include most provisions of the Fair Credit Reporting Act and to include its implementing regulation, Regulation V. 12 U.S.C. § 5481(12)(F), (14). 106.

The FCO entities are “covered persons” under the CFPA. 12 U.S.C. § 5481(6).

107.

Under the CFPA, a covered person’s violation of a Federal consumer financial law, which includes enumerated consumer laws and rules thereunder, violates the CFPA. 12 U.S.C. §§ 5536(a)(1)(A), 5481(14). 108. FCO’s violations of FCRA § 623(b)(1), described in Count III, constitute violations of § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A). COUNT V (FCO’s violations of FCRA § 623(a)(6)(B)) 109.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

110.

Section 623(a)(6)(B) of the FCRA specifies that a furnisher, upon receipt of an “identity theft report” sent to the address specified by the furnisher for receiving such reports, “may not furnish such information that purports to relate to the consumer to any consumer reporting agency, unless the furnisher subsequently knows or is informed by the consumer that the information is correct.” Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 22 of 26

Page 24

111.

In numerous instances, FCO has received identity theft reports from consumers relating to account information furnished by FCO. FCO has continued furnishing information about those accounts before or without conducting an investigation into the accuracy of the information FCO was furnishing. Instead, FCO has only marked the accounts as disputed. As a result, FCO has furnished such information without knowing whether it was correct.

112.

Therefore, FCO has violated § 623(a)(6)(B) of the FCRA, 15 U.S.C. § 1681s- 2(a)(6)(B).

COUNT VI (FCO’s violations of the CFPA based on their violations of FCRA § 623(a)(6)(B)) 113.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

114.

The CFPA defines “Federal consumer financial law” to include most provisions of the Fair Credit Reporting Act and to include its implementing regulation, Regulation V. 12 U.S.C. § 5481(12)(F), (14). 115.

The FCO entities are “covered persons” under the CFPA. 12 U.S.C. § 5481(6).

116.

Under the CFPA, a covered person’s violation of a Federal consumer financial law, which includes enumerated consumer laws and rules thereunder, violates the CFPA. 12 U.S.C. §§ 5536(a)(1)(A), 5481(14). 117.

FCO’s violations of FCRA § 623(a)(6)(B), described in Count V, constitute violations of § 1036(a)(1)(A) of the CFPA. 12 U.S.C. § 5536(a)(1)(A). Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 23 of 26

Page 25

FAIR DEBT COLLECTION PRACTICES ACT COUNT VII (All Defendants’ violations of FDCPA § 807) 118.

The Bureau incorporates by reference the allegations contained in Paragraphs 1-87 of this Complaint.

119.

Sections 807 and 807(10) of the FDCPA, 15 U.S.C. § 1692e, e(10), prohibit debt collectors from using any false, deceptive, or misleading representation or means in connection with the collection of any debt.

120.

In numerous instances, in connection with the collection of debts, Defendants, directly or indirectly, expressly or by implication, have represented that they have a reasonable basis to assert that consumers owed certain debts. 121.

In truth and in fact, in numerous instances, the representations set forth in paragraph 120 were false, deceptive, or misleading at the time the representations were made because Defendants did not have a reasonable basis to assert that the consumers owed those debts, based on their past course of dealing with specific portfolios of debts. For example, warning signs such as a high rate of consumer disputes and an inability to obtain documentation for the portfolio when attempting to resolve disputes have indicated that certain portfolios had widespread problems such as unreliable or missing data or debts that otherwise could not be substantiated. Nonetheless, Defendants have continued to represent that consumers owed the claimed amounts on existing and new debts in the portfolios without obtaining or reviewing additional information that would provide a reasonable basis for such claims. Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 24 of 26

Page 26

122.

In doing so, Defendants have used false, deceptive, or misleading representations or means to collect or attempt to collect any debt, in violation of §§ 807 and 807(10) of the FDCPA, 15 U.S.C. § 1692e, 1692e(10). 123.

Therefore, Defendants have violated §§ 807 and 807(10) of the FDCPA, 15 U.S.C. § 1692e, § 1692e(10).

PRAYER FOR RELIEF WHEREFORE, the Bureau requests that the Court, as permitted by 12 U.S.C. § 5565:

a. permanently enjoin Defendants from committing future violations of the FCRA, Regulation V, the FDCPA, and the CFPA, and enter such other injunctive relief as appropriate;

b. impose civil money penalties against Defendants; c. award such relief as the Court finds necessary to redress injury to consumers resulting from Defendants’ violations of the CFPA, FCRA, Regulation V, and FDCPA, including but not limited to refund of moneys paid, restitution, disgorgement or compensation for unjust enrichment, and payment of damages;

d. order Defendants to pay the Bureau’s costs incurred in connection with proceeding with this action; and e. award additional relief as the Court may determine to be just and proper.

Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 25 of 26

Page 27

Dated: September 25, 2019 Respectfully submitted,

CARA M. PETERSEN Acting Enforcement Director DAVID M. RUBENSTEIN Deputy Enforcement Director THOMAS KIM Assistant Deputy Enforcement Director

__/s/_Jessica Rank Divine_________ Jessica Rank Divine (District of Maryland Bar No. 810852; New York Bar No. 4544573) Carl L. Moore (District of Maryland Bar No. 811325; Maryland Attorney No. 0912160268) Enforcement Attorneys Bureau of Consumer Financial Protection 1700 G Street, NW Washington, DC 20552 Telephone (Divine): 202-435-7863 Telephone (Moore): 202-435-9107 Fax: 202-435-7722 [email protected] [email protected]

Attorneys for the Bureau of Consumer Financial Protection

Case 8:19-cv-02817-GJH Document 1 Filed 09/25/19 Page 26 of 26

Stipulation (Dec. 2021)

PDF of this document (37 pages)

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Case 8:19-cv-02817-GJH Desument 56-1F leg 4%8/16)o1P 4ngyd of G#/a6

UNITED STATESDISTRICTCOURT, Ls

DISTRICT OF MARYLAND

Bureau of Consumer Financial Case No. 8:19-cv-02817-GJH : f : Protection,

Plaintiff, [PROPOSED ]STIPULATED

FINALJUDGMENT AND

V. ORDER Fair Collections & Outsourcing, Inc., et al.,

Defendants.

The Bureau of Consumer Financial Protection (“Bureau”) commenced this civil action on September 25, 2019, to obtain injunctive relief and civil penalties from Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., FCO Worldwide, Inc., FCO Holding, Inc., and Michael E. Sobota (“Sobota”). The Complaint alleges violations of Section 1036 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. 8 5536(a), Section 623 of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s-2, Section 1022.42 of Regulation V, 12 C.F.R. § 1022.42, and Section 807 of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692e, in connection with the Defendants’ collection of debt and furnishing

of consumer information.

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The Bureau and Defendants agree to entry of this Stipulated Final Judgment and Order (“Order”), without adjudication of any issue of fact or law, to settle and resolve all matters in dispute arising from the conduct alleged in the Complaint.

THEREFORE, it is ORDERED:

FINDINGS

1. This Court has jurisdiction over the parties and the subject matter of this action.

2. Defendants neither admit nor deny any allegations in the Complaint, except as specified in this Order. For purposes of this Order, Defendants admit the facts necessary to establish the Court’s jurisdiction over them and the subject matter of this action.

3. Defendants waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order and any claim they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each Party agrees to bear its own costs and expenses, including, without limitation, attorneys’ fees.

4. Entry of this Order is in the public interest.

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DEFINITIONS

5. The following definitions apply to this Order:

a. “Accuracy” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Subpart E of the Furnisher Rule, 12 C.F.R. 1022.41(a), including “that information a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer correctly (1) [rJeflects the terms of and liability for the account or other relationship; (2) [rleflects the consumer’s performance and other conduct with respect to the account or other relationship; and (3) [i]dentifies the appropriate consumer.”

b. “Consumer Reporting Agency” or “CRA” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 603 of the FCRA, 15 U.S.C. § 1681a(f) and includes “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or

other information on consumers for the purpose of

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furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”

c. “Corporate Defendants” means Fair Collections & Outsourcing, Inc., Fair Collections and Outsourcing of New England, Inc., FCO Holding, Inc., FCO Worldwide, Inc. (collectively d/b/a “FCO”), and their successors and assigns.

d. “Defendants” means Individual Defendant and the Corporate Defendants, individually, collectively, or in any combination.

e. “Direct Dispute” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Subpart E of Regulation V, 12 C.F.R. pt. 1022.41(b), and includes “a dispute submitted directly to a furnisher (including a furnisher that is a debt collector) by a consumer concerning the accuracy of any information contained in a consumer report and pertaining to an account or other relationship that the furnisher has or had with the

consumer.”

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f. “Effective Date” means the date on which the Orderis entered by the Court.

g. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate.

h. “Identity Theft Report” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in Section 603(q)(4) of the FCRA, 15 U.S.C. § 1681a(q)(4) and 12 C.F.R. § 1022.3(i), as set forth in Appendix A of this Order.

i. “Indirect Dispute” means a notice to a person ofa dispute made by a consumer, directly or indirectly through a reseller, to a Consumer Reporting Agency regarding the completeness or accuracy of any item of information provided by the person to a Consumer Reporting Agency.

j. “Individual Defendant” means Michael E. Sobota and any other names by which he may be known.

k. “Integrity” is synonymous in meaning and equal in scope to the definition of the term, as of the Effective Date, in

Subpart E of the Furnisher Rule, 12 C.F.R. 1022.41(d) and

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Section I(b)(2) of Appendix E to Subpart E of the Furnisher Rule, including “that information that a furnisher provides to a consumer reporting agency about an account or other relationship with the consumer (1) [i]s substantiated by the furnisher’s records at the time it is furnished; (2) [i]s furnished in a form and manner that is designed to minimize the likelihood that the information may be incorrectly reflected in a consumer report; thus, the furnished information should: (A) [i]nclude appropriate identifying information about the consumer to whom it pertains; and (B) [bJe furnished in a standardized and clearly understandable form and manner and with a date specifying the time period to which the information pertains; and (3) [i]Jncludes the credit limit, if applicable and in the furnisher’s possession.”

1. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against any Defendant based on substantially the same facts as described

in the Complaint.

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ORDER CONDUCT RELIEF I IT IS ORDERED that:

6. The Corporate Defendants and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, may not violate Sections 623(a) (6) or 623(b)(1) of the FCRA, 15 U.S.C. §§ 1681s-2(a)(6), (b)(1), or Section 1022.42 of Regulation V, 12 C.F.R. pt. 1022.42.

7. The Corporate Defendants must take the following affirmative actions:

a. Policies and Procedures: within 75 days of the Enforcement

Director’s determination of non-objection to the selection of an independent consultant, as set forth in paragraph 10, in consultation with the independent consultant, the Corporate Defendants shall modify or update existing written policies and procedures regarding the Accuracy and Integrity of the information that they furnish to Consumer Reportin g

Agencies, or shall establish new written policies and

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Case 8:19-¢v-02817-63H Besument 56-1Filesbys/1elo1P ang’ Of G36

procedures, as necessary to ensure that they have reasonable written policies and procedures regarding the Accuracy and Integrity of information furnished. In so doing, the Corporate Defendants must consider the guidelines in Appendix E of Regulation V and incorporate them where appropriate. Without limiting the foregoing, the Corporate Defendants’ written policies and procedures related to the handling of consumer disputes must, ata minimum, (1) set forth detailed instructions for conducting investigations of all consumer disputes, including Direct and Indirect Disputes, and disputes that include Identity Theft Reports; (2) require a documented description of the steps taken to investigate each dispute; and (3) require retention of supporting documentation that accompanies disputes.

b. Within 30 days after receiving the Enforcement Director’s non-objection to the Compliance Plan, as set forth in paragraphs 13 and 14, the Corporate Defendants shall implement the written policies and procedures required by

paragraph 7.a.

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c. Internal Controls: within 75 days of the Enforcement

Director's determination of non-objection to the selection of an independent consultant, in consultation with the independent consultant, the Corporate Defendants shall modify or update existing written policies and procedures, or shall establish new written policies and procedures, as necessary to ensure that they have written policies and procedures setting forth a system of internal controls regarding the Accuracy and Integrity of the information about consumers that the Corporate Defendants furnish to CRAs (Internal Controls). The purpose of the Internal Controls will be to identify practices or activities of the Corporate Defendants that could compromise the Accuracy or Integrity of information furnished to CRAs and to evaluate the effectiveness of the Corporate Defendants’ policies, procedures, and methods used to furnish consumer information. Without limiting the foregoing, the Internal Controls must, ata minimum, require that the Corporate Defendants regularly (1) assess the Accuracy and Integrity of

the information they have provided to CRAs; (2) assess

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Case 8:19-cv-02817-GJH Document 56-1FienbaQ8 71621? 4ayeQOlcia6

whether the Corporate Defendants’ responses to disputes have complied with the FCRA and the Furnisher Rule; (3) assess whether the Corporate Defendants’ furnishing of information, including the investigation of and responses to consumer disputes, otherwise complies with the FCRA, the Furnisher Rule, and the Corporate Defendants’ written policies and procedures; (4) take prompt corrective action to address any failures to comply with the FCRA, the Furnisher Rule, or the Corporate Defendants’ written policies and procedures; and (5) update the Corporate Defendants’ policies and procedures, or the implementation of those policies and procedures, as necessary to address any compliance failures identified through the Internal Controls. d. Within 15 days after receiving the Enforcement Director’s non-objection to the Compliance Plan, the Corporate Defendants shall implement the Internal Controls.

e. Identity Theft Report Review Program: within 75 days of the

Enforcement Director’s determination of non-objection to the selection of an independent consultant, in consultation

with the independent consultant, the Corporate Defendants

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Case 8:19-cv-02817-GJH Doeeument 56-1 Fiera We1eo1Paagyeh ofot6

will establish an identity theft report review program to identify instances in which the Corporate Defendants received Identity Theft Reports directly from consumers prior to the Effective Date and take steps to ensure that their handling of those Identity Theft Reports complies with Section 623(a)(6) of the FCRA, 15 U.S.C. § 1681s-2(a)(6) (Identity Theft Report Review Program).

i. The Identity Theft Report Review Program shall require the Corporate Defendants, in consultation with the independent consultant, to develop and implement a process to identify Identity Theft Reports that the Corporate Defendants received directly from a consumer by mail, email, or facsimile prior to the Effective Date and that are associated with accounts with respect to which the Corporate Defendants (1) have furnished information to a CRA within the 7-year period immediately preceding the Effective Date and have not otherwise instructed the CRA to delete such information, or (2) may furnish information to aCRA

on or after the Effective Date.

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ii. Ata minimum, foreach Identity Theft Report identified in the Identity Theft Report Review Program, the Corporate Defendants shall (1) determine whether the Corporate Defendants previously conducted an investigation into the consumer’s claim of identity theft; and (2) if the Corporate Defendants did not conduct an investigation that determined the disputed information was correct, cease furnishing information about the consumer, and resume furnishing information about the consumer only after such an investigation has been conducted and the disputed information has been determined to be correct.

f. Within 30 days after receiving the Enforcement Director’s non-objection to the Compliance Plan, the Corporate Defendants shall implement the Identity Theft Report Review Program and, within go days of receiving non-

objection, shall complete the review.

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[Illegible in the scan: 1 paragraph of unreadable text omitted. See the PDF for the original.]

IT IS FURTHER ORDERED that:

8. Defendants and their officers, agents, servants, employees, and attorneys, and all other persons in active concert or participation with them who have actual notice of this Order, whether acting directly or indirectly, may not violate Sections 807 and 807(10) of the FDCPA, 15 U.S.C. § 1692e, e(10), including by representing, expressly or by implication, that Defendants havea reasonable basis to assert that consumers owe debts when, in fact, Defendants do not have a reasonable basis to make those assertions.

9. Defendants must take the following affirmative actions:

a. Within 75 days of the Enforcement Director’s determination of non-objection to the selection of an independent consultant, in consultation with the independent consultant, the Defendants shall modify or update existing written policies and procedures regarding the intake of new collection accounts, or shall establish new written policies and procedures, as necessary to ensure that they have written intake policies and procedures designed to evaluate

the quality, completeness, Accuracy, and Integrity of

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Case 8:19-cv-02817-GJH Deeument 56-1Fileneue/18}o1P ange al G36

account information provided by a client before commencing collections on an account; and

b. Within 75 days of the Enforcement Director’s determination of non-objection to the selection of an independent consultant, in consultation with the independent consultant, Defendants shall modify or update existing written policies and procedures, or establish new policies and procedures, as necessary to ensure that they have policies and procedures to monitor, evaluate, and address trends in disputes and other indicia of unreliability, including but not limited to relatively high dispute rates without explanation or the inability to obtain information from creditors upon request, regarding portfolios that contain accounts that any Corporate Defendant commences collecting or furnishing after the Effective Date; and

c. Within 75 days of the Enforcement Director’s determination of non-objection to the selection of an independent consultant, in consultation with the independent consultant, Defendants shall develop a program to review portfolios that

contained accounts that Defendants furnished to a CRA

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within the 7-year period immediately preceding the Effective Date or that were in an unpaid status as of the Effective Date (the Portfolio Review Program); and evaluate whether the portfolios may reflect indicia of unreliability, including but not limited to, relatively high dispute rates without explanation or the inability to obtain information from creditors upon request, and shall address, as appropriate, any issues identified;

d. Within 15 days after receiving the Enforcement Director’s non-objection to the Compliance Plan, as set forth in paragraphs 13 and 14, the Defendants shall implement the written policies and procedures required by paragraphs 9(a)- (b);

e. Within 30 days of receiving the Enforcement Director’s nonobjection to the Compliance Plan, the Corporate Defendants shallimplement the Portfolio Review Program set forth in paragraph 9(c), and, within 90 days of receiving non-

objection, shall complete the review.

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II

Independent Consultant’s Report and Compliance Plan

IT IS FURTHER ORDERED that:

10. Within 15 days of the Effective Date, Defendants shall submit the names and curriculum vitae of one or more independent consultants, with specialized experience in consumer-information furnishing and debt collection, to the Enforcement Director, who shall have the discretion to make a determination of non-objection. The Enforcement Director shall make such determination within 10 days, or direct the Defendants to select one or more different independent consultants. If the Enforcement Director directs the Defendants to select one or more different independent consultants, the Defendants shall do so within 20 days, and submit the names and curriculum vitae of the newly-identified independent consultant(s) to the Enforcement Director, who may then make a determination of non-objection within 5 days.

11. Within 20 days of the Enforcement Director’s determination of non-objection, the Defendants shall engage the independent consultant to conduct an independent review of Defendants’ furnishing of consumer

information and collection of debt. The purposes of the review must be to:

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a. Make recommendations to develop, implement, and maintain policies and procedures to ensure managementlevel oversight of and commitment to compliance with the FCRA and FDCPA;

b. Make recommendations to develop, implement, and maintain policies and procedures, and other applicable employee guidance to address the acts and practices that are the subject of this Order;

c. Make recommendations to develop, implement, and maintain employee training to address the acts and practices that are the subject of this Order;

d. Make recommendations to develop, implement, and maintain monitoring, testing, and other compliance oversight and internal controls to address the acts and practices that are the subject of this Order; and

e. Make recommendations regarding implementation of the requirements of Section I of this Order, consistent with the deadlines set forth in this Order;

12. Within 90 days of the Enforcement Director’s determination of

non-objection to the selection of the independent consultant, the

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independent consultant(s) must prepare a written report detailing the findings of the review (the “Independent Consultant Report”), and provide the Independent Consultant Report to the Defendants. 13. Within 30 days of receiving the Independent Consultant

Report, the Defendants must:

a. Develop a plan (the “Compliance Plan”) to:

i. correct any deficiencies identified in the Independent Consultant Report;

li. implement any recommendations or explain in writing why a particular recommendation is not being implemented;

lil. address each action required by Section I this Order;

iv. set forth specific timeframes and deadlines for implementation of the steps described above; and

b. Submit the Independent Consultant Report and the Compliance Plan to the Enforcement Director. 14. The Enforcement Director will have the discretion to make a determination of non-objection to the Compliance Plan orto direct the Defendants to revise it. If the Enforcement Director directs the Defendants

to revise the Compliance Plan, the Defendants must make the requested

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revisions and resubmit the Compliance Plan to the Enforcement Director within 20 days.

15. After receiving notification that the Enforcement Director has made a determination of non-objection to the Compliance Plan, the Defendants must implement and adhere to the steps, recommendations, deadlines, and timeframes outlined in the Compliance Plan.

MONETARY PROVISIONS III Order to Pay Civil Money Penalty IT IS FURTHER ORDERED that:

16. Under Section 1055(c) of the CFPA, 12 U.S.C. 8 5565(c), by reason of the violations of law alleged in the Complaint and continuin g until the Effective Date, and taking into account the factors in 12 U.S.C. § 5565(c)(3), Defendants must pay a civil money penalty of $850,000 to the Bureau.

17. Within 10 days of the Effective Date, Defendants must pay the civil money penalty by wire transfer to the Bureau or to the Bureau’s agent

in compliance with the Bureau’s wiring instructions.

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18. The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by Section 1017(d) of the CFPA, 12 U.S.C. §5497(d).

19. Defendants must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, Defendants may not:

a. Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or

b. Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order.

20. Individual Defendant agrees that the civil penalty imposed by the Order represents a civil penalty owed to the United States Government, is not compensation for actual pecuniary loss, and, thus, as to Individual Defendant, it is not subject to discharge under the Bankruptcy Code under 11 U.S.C. § 523(a)(7).

21. Inthe event of any default on Defendants’ obligations to make

payment under this Order, interest, computed under 28 U.S.C. § 1961, as

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amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment, and will immediately become due and payable.

22. Defendants relinquish all dominion, control, and title to the funds paid under this Order to the fullest extent permitted by law and no part of the funds may be returned to Defendants.

23. The facts alleged in the Complaint will be taken as true and be given collateral estoppel effect, without further proof, in any proceeding based on the entry of the Order, or in any subsequent civil litigation by or on behalf of the Bureau, including in a proceeding to enforce its rights to any payment or monetary judgment under this Order.

24. Under31U.S.C.§ 7701, Defendants, unless they already have done so, must furnish to the Bureau their taxpayer-identification numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.

25. For1o years after the Effective Date, within 30 days of the entry of a final judgment, order, or settlement in a Related Consumer Action, Defendants must notify the Enforcement Director of the final judgment, order, or settlement in writing. That notification must indicate the amount

of redress, if any, that Defendants paid or is required to pay to consumers

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and describe the consumers or classes of consumers to whom that redress has been or will be paid. To preserve the deterrent effect of the civil money penalty in any Related Consumer Action, Defendants may not argue that Defendants are entitled to, nor may Defendants benefit by, any offset or reduction of any monetary remedies imposed in the Related Consumer Action because of the civil money penalty paid in this action or because of any payment that the Bureau makes from the Civil Penalty Fund. If the court in any Related Consumer Action offsets or otherwise reduces the amount of compensatory monetary remedies imposed against Defendants based on the civil money penalty paid in this action or based on any payment that the Bureau makes from the Civil Penalty Fund, Defendants must, within 30 days after entry of a final order granting such offset or reduction, notify the Bureau and pay the amount of the offset or reduction to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.

26. Under Section 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C.8 1681 b(a)(4), any Consumer Reporting Agency may furnisha

consumer report concerning any Defendant to the Bureau, which may be

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used for purposes of collecting and reporting on any delinquent amount arising out of this Order.

COMPLIANCE PROVISIONS IV Reporting Requirements IT IS FURTHER ORDERED that:

27. Defendants must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company; the creation or dissolution ofa subsidiary, parent, or affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Defendants; or a change in any Defendant’s name or address. Defendants must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.

28. Within 7 days of the Effective Date, each Defendant must:

a. Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau

may use to communicate with Defendant;

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b. Identify all businesses for which Defendant is the majority owner, or that Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses;

c. Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales;

d. Identify Individual Defendant’s telephone numbers and all email, Internet, physical, and postal addresses, including all residences; and

e. Describe in detail Individual Defendant’s involvement in any business for which he performs services in any capacity or which he wholly or partially owns, including Defendant’s title, role, responsibilities, participation, authority, control, and ownership.

29. Corporate Defendants must report any change in the information required to be submitted under paragraph 28 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner. For 20 years after the Effective Date,

Individual Defendant must report any change in the information required

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to be submitted under paragraph 28 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner.

30. Within 90 days of receiving notice of non-objection to the Compliance Plan, and again one year after receiving notice of non-objection to the Compliance Plan, each Defendant must submit to the Enforcement Director an accurate written compliance progress report sworn to under penalty of perjury (Compliance Report), which, ata minimum:

a. Lists each applicable paragraph and subparagraph of the Order and describes in detail the manner and form in which each Defendant has complied with each such paragraph and subparagraph this Order;

b. Describes in detail the manner and form in which each Defendant has complied with the Compliance Plan; and

c. Attaches a copy of each Order Acknowledgment obtained

under Section V, unless previously submitted to the Bureau.

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V Order Distribution and Acknowledgment IT 1S FURTHER ORDERED that,

31. Within 7 days of the Effective Date, each Defendant must submit to the Enforcement Director an acknowledgment of receipt of this Order, sworn under penalty of perjury.

32. Within 30 days of the Effective Date, Corporate Defendants and Individual Defendant, for any business for which he is the majority owner or which he directly or indirectly controls must deliver a copy of this Order to each ofits board members and executive officers, as well as to any managers, employees, service providers, or other agents and representatives who have responsibilities related to the subject matter of the Order.

33. For5years from the Effective Date, Corporate Defendants and Individual Defendant, for any business that offers or provides a product or service related to the subject matter of this Order for which he is the majority owner or which he directly or indirectly controls, must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section IV, any future board members and executive

officers, as well as to any managers, employees, service providers, or other

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agents and representatives who will have responsibilities related to the subject matter of the Order before they assume their responsibilities.

34. Defendants must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons receiving a copy of this Order under this Section.

35. Within 90 days of the Effective Date, Defendants must provide the Bureau with a list of all persons and their titles to whom this Order was delivered through that date under paragraphs 32 and 33 anda copy of all signed and dated statements acknowledging of receipt of this Order under paragraph 34.

VI Recordkeeping IT IS FURTHER ORDERED that

36. Defendants must create, for at least 5 years from the Effective Date, including for any business for which Individual Defendant, individually or collectively with any other Defendant, is a majority owner or which he directly or indirectly controls, the following business records:

a. All documents and records necessary to demonstrate full

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compliance with each provision of this Order, including all submissions to the Bureau.

Defendants must retain these documents for at least 5 years after creation and make them available to the Bureau upon the Bureau’s request. 37. Defendants must retain, for at least 5 years from the Effective Date or 5 years after creation, whichever is longer, including for any business for which Individual Defendant, individually or collectively with any other Defendant, is a majority owner or which he directly or indirectly controls, the following business records:

a. All consumer complaints regarding the collection of debt or furnishing of consumer information (whether received directly or indirectly, such as through a third party), and any responses to those complaints.

b. Records showing, for each employee providing services related to debt collection or the furnishing of consumer information, if available, that person’s: name; telephone number; email, physical, and postal address; job title or position; dates of service; and, if applicable, the reason for termination.

c. Records showing, for each service provider providing

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services related to debt collection or the furnishing of consumer information, if available, the name of a point of contact, and that person’s telephone number; email, physical, and postal address; job title or position; dates of service; and, if applicable, the reason for termination.

d. Copies of all training materials and written policies and procedures related to the subject matter of this Order, including any such materials used by a third party on behalf of Defendants.

38. Defendant must make the documents identified in paragraphs 36 and 37 available to the Bureau upon the Bureau’s request.

Vil Notices IT IS FURTHER ORDERED that:

39. Unless otherwise directed in writing by the Bureau, Defendants must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “CFPB v. Fair Collections & Outsourcing, Inc., Case No. 8:19-cv-028 17-GJH (D.

Md.),” and send them by overnight courier or first-class mail to the below

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address and contemporaneously by email to

Enforcement_Compliance @cfpb.gov:

Assistant Director for Enforcement

Consumer Financial Protection Bureau

ATTENTION: Office of Enforcement

1700 G Street, N.W.

Washington D.C. 20552

VII Cooperation with the Bureau IT IS FURTHER ORDERED that:

40. Defendants must cooperate fully with the Bureau in this matter and in any investigation related to or associated with the conduct described in the Complaint. Defendant must provide truthful and complete information, evidence, and testimony. Individual Defendant must appear and Corporate Defendants must cause each Corporate Defendant’s officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau may reasonably

request upon 10 days written notice, or other reasonable notice, at such

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places and times as the Bureau may designate, without the service of compulsory process.

IX Compliance Monitoring IT IS FURTHER ORDERED that, to monitor Defendants’ compliance with this Order:

41. Within 14 days of receipt of a written request from the Bureau, Defendants must submit additional compliance reports or other requested information, which must be sworn under penalty of perjury; provide sworn testimony; or produce documents.

42. Forpurposes of this Section, the Bureau may communicate directly with each Defendant, unless Defendant retains counsel related to these communications.

43. Defendants must permit Bureau representatives to interview any employee or other person affiliated with Defendant who has agreed to such an interview regarding: (a) this matter; (b) anything related to or associated with the conduct described the Complaint; or (c) compliance with this Order. The person interviewed may have counsel present.

44. Nothing in this Order will limit the Bureau’s lawful use of

compulsory process, under 12 C.F.R. § 1080.6.

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xX 45. Should Defendants seek to transfer or assign all or part of their operations that are subject to this Order, Defendants must, as a condition of sale, obtain the written agreement of the transferee or assignee to comply with all applicable provisions of this Order. XI Retention of Jurisdiction IT IS FURTHER ORDERED that:

46. The Court will retain jurisdiction of this matter for the purpose of enforcing this Order.

XII Outstanding Motions 47. All outstanding motions are denied as moot. XIII Service IT IS FURTHER ORDERED that:

48. This Order may be served upon Defendants by electronic mail, certified mail, or United Parcel Service, either by the United States Marshal,

the Clerk of the Court, or any representative or agent of the Bureau.

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ITIS SOORDERED.

DATED this Zé day of Ac-tabe 202 [

LE f£—

osee Hem United States District Court Judge

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APPENDIXA 12 C.F.R. 1022.3(i) “Identity Theft Report”:

(1) Identity theft report means a report:

(i) That alleges identity theft with as much specificity as the consumer can provide;

(ii) That is a copy of an official, valid report filed by the consumer with a Federal, state, or local law enforcement agency, including the United States Postal Inspection Service, the filing of which subjects the person filing the report to criminal penalties relating to the filing of false information, if, in fact, the information in the reportis false; and

(iii) That may include additional information or documentation that an information furnisher or consumer reporting agency reasonably requests for the purpose of determining the validity of the alleged identity theft, provided that the information furnisher or consumer reporting agency:

(A) Makes such request not later than fifteen days after the date of receipt of the copy of the report form identified in Paragraph

(i)(4) (ii) of this section or the request by the consumer for the

particular service, whichever shall be the later;

(B) Makes any supplemental requests for information or documentation and final determination on the acceptance of the identity theft report within another fifteen days after its initial request for information or documentation; and

(C) Shall have five days to make a final determination on the acceptance of the identity theft report, in the event that the consumer reporting agency or information furnisher receives any such additional information or documentation on the eleventh day or later within the fifteen day period set forth in Paragraph (i)(1)(iii)(B) of this section.

(2) Examples of the specificity referenced in Paragraph (i)(1)(i) of this section are provided for illustrative purposes only, as follows:

(1) Specific dates relating to the identity theft such as when the loss or theft of personal information occurred or when the fraud(s) using the personal information occurred, and howthe consumer discovered or otherwise learned of the theft.

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(ii) Identification information or any other information about the perpetrator, if known.

(iii) Name(s) of information furnisher(s), account numbers, or other relevant account information related to the identity theft.

(iv) Any other information known to the consumer about the identity theft.

(3) Examples of when it would or would not be reasonable to request additional information or documentation referenced in Paragraph (i)(1) (iii) of this section are provided for illustrative purposes only, as follows:

(i) A law enforcement report containing detailed information about the identity theft and the signature, badge number or other identification information of the individual law enforcement official taking the report should be sufficient on its face to support a victim's request. In this case, without an identifiable concern, such as an indication that the report was fraudulent, it would not be reasonable for an information furnisher or consumer reporting agency to request additional information or documentation.

(ii) A consumer might provide a law enforcement report similar to the report in Paragraph (i)(1) of this section but certain important information such as the consumer's date of birth or Social Security number may be missing because the consumer chose not to provide it. The information furnisher or consumer reporting agency could accept this report, but it would be reasonable to require that the consumer provide the missing information. The Bureau's Identity Theft Affidavit is available on the Bureau's Web site (consumerfinance.gov/learnmore). The version of this form developed by the Federal Trade Commission, available on the FTC's Web site (ftc.gov/idtheft), remains valid and sufficient for this purpose.

(iii) A consumer might provide a law enforcement report generated by an automated system with a simple allegation that an identity theft occurred to support a request for a tradeline block or cessation of information furnishing. In such a case, it would be reasonable for an information furnisher or consumer reporting agency to ask that the consumer fill out and have notarized the Bureau's Identity Theft Affidavit ora similar form and provide some form of identification documentation.

(iv) A consumer might provide a law enforcement report generated by an automated system with a simple allegation that an identity theft occurred to support a request for an extended fraud alert. In this case, it

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would not be reasonable for a consumer reporting agency to require additional documentation or information, such as a notarized affidavit.

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UNITED STATES DISTRICT COURT DISTRICT OF MARYLAND

Bureau of Consumer Financial Protection,

Plaintiff, v.

Fair Collections & Outsourcing, Inc., et al.,

Defendants.

Case No. 8:19-cv-02817-GJH

CONSENT TO ENTRY OF PROPOSED STIPULATED FINAL JUDGMENT AND ORDER

I hereby consent to the entry of the Proposed Stipulated Final Judgment

and Order that is being filed simultaneously with this document.

Dated: August 13, 2021

Michael E. Sobota, individually and as President of Fair Collections & Outsourcing, Inc., Fair Collections & Outsourcing of New England, Inc., FCO Worldwide, Inc., and FCO Holding, Inc