A Texas firm that describes itself as one of the nation’s largest medical bill collectors was racking up consumer complaints last year.
“I get calls almost every other day,” according to another in April. “I consider this harassment.”
“I am reporting a potentially fraudulent credit collection and reporting issue,” said a third.
The firm, Capio Asset Servicing, came under investigation last year as part of Operation Corrupt Collector, an enforcement sweep of the debt-collection industry by federal and state officials. In a September lawsuit, New Mexico Attorney General Hector Balderas (D) alleged that the company was seeking to collect debts that were not owed and “causing emotional and physical stress when they threaten and intimidate consumers.”
Yet the federal government’s Paycheck Protection Program last year also gave the company a helping hand: It provided $2.4 million in forgivable loans to Capio and an affiliated firm, the Law Office of Mitchell D. Bluhm and Associates, which works with Capio, investigators said.
Those were just two of more than 1,800 loans that went to debt collectors and high-interest lenders through the Paycheck Protection Program, according to an analysis by The Washington Post. In all, the aid to these businesses amounted to more than $580 million.
More than 170 of those recipients have been the subject of a multitude of complaints — each racking up at least 100 with the CFPB, according to The Post’s analysis. Twenty-five have been subject to legal enforcement or consumer alerts, many by the CFPB and the Federal Trade Commission.
“Giving these companies government money was a terrible idea,” said Don Yarbrough, a lawyer in Fort Lauderdale, Fla., who represents debtors in collection cases. The government loans to debt collectors essentially finance “debt collection against people who already are dealing with a global pandemic.”
Yarbrough recently sued Capio on behalf of a Florida woman with a brain injury from whom Capio was allegedly seeking to collect a six-year-old medical debt. Capio did not respond to requests for comment about the case, which was settled.
A Capio representative said the companies met the requirements for the government loan and supplied all necessary information. The companies reported that the loans would support 245 jobs. Balderas, the attorney general, has voluntarily withdrawn the lawsuit as the parties conduct settlement discussions.
“Like millions of businesses in America, Capio and Bluhm enrolled in the Paycheck Protection Program,” a Capio representative said in a statement. “Capio and Bluhm are working closely with the New Mexico Attorney General and the Consumer Protection Division to address any of their questions.”
A spokesman for the U.S. Small Business Administration, which administers the pandemic loan program, declined to comment for this article.
Companies fined by regulators received loans
From the beginning of the $670 billion Paycheck Protection Program, disputes have arisen about which businesses should be eligible for the money.
Intended to support small businesses during the coronavirus pandemic, the program offered loans up to $10 million — and critically, the loans could be forgiven if companies used most of the money to cover payroll. The idea was to encourage companies to keep people employed. In December, Congress finalized another coronavirus relief measure that provided an additional $284 billion for the program.
For this article, The Post tallied the number of consumer finance firms receiving PPP loans that have faced scrutiny from regulators or drawn more than 100 consumer complaints with the CFPB.
While the CFPB does not verify all of the complaint narratives, The Post may be undercounting the number of such companies because some may have received loans under business names that differ from those reported in enforcement and complaint records. In addition, The Post found dozens of cases in which companies did not list themselves as debt-collection agencies despite having public websites advertising such services.
Consider, for example, National Credit Adjusters, a Kansas firm that provides debt-collection services. It received $1.5 million from the federal loan program.
In July 2018, the company agreed to pay a $500,000 civil penalty to the CFPB after the federal agency found it had used a network of companies that “engaged in frequent unlawful debt collection acts.” The companies told consumers they owed more than they were legally required to pay and threatened them and their families with lawsuits and arrests, according to the CFPB.
Over the past three years, National Credit Adjusters has provoked more than 1,000 consumer complaints, according to CFPB data.
“A man … called my office phone. He then stated that I would be served at my job and arrested!” according to an August complaint from Texas. “I asked him to not call my work and he called 4 times back to back to back harassing me and my co-workers.”
“I checked my credit report today and noticed a collection from National Credit Adjusters claiming that I owe ($480.00) to some company,” according to one November complaint from Tennessee. “I have never done business with [them] nor have I ever heard of them. This ridiculous collection has caused my credit score to drop.”
“A few months ago this random company showed up on my credit report saying I owed money. I have no loans and have never heard of them,” according to another last year from Wisconsin. “I attempted to reach out numerous times for verification and they just send more requests for money.”
The company declined to comment.
In several other cases, PPP loans have gone to companies facing recent financial penalties for regulatory infractions, and the loans could have helped the companies pay the government fines.
For example, seven mortgage firms agreed last year to pay civil penalties for problems the CFPB uncovered. The agency found that the mortgage companies were sending misleading advertising to veterans and service members about loans backed by the Department of Veterans Affairs. Their combined penalties totaled $3.6 million — less than half of the $9.8 million they collectively received in forgivable loans from the Paycheck Protection Program.
“These are not the kind of companies you would hope to be at the front of the line for government help,” said Derek Martin of Accountable.us, a nonprofit government accountability organization. “Especially if their history of harming the consumer is there in official records.”
Debt collectors prosper in pandemic
Another question that has arisen regarding such loans to consumer finance companies is whether they needed the money.
Although the Paycheck Protection Program was intended to help ailing small businesses, it did not require evidence of losses. Its rules required companies only to attest that “current economic uncertainty makes this loan request necessary.”
More than 1,700 debt-collection agencies and related businesses borrowed from the program, totaling more than $520 million in loans.
Yet many of these firms are prospering during the pandemic. Although debt collectors often lose in recessions, this pandemic recession may be different, industry analysts said, and some are reaping more money than ever.
Many debtors — the primary source of revenue for debt-collection agencies — have at least temporarily been in a better position to pay their debts. Many received government stimulus checks in the spring; others have been granted permission to delay paying their mortgages.
Two of the largest debt collectors, Encore Capital Group and Portfolio Recovery Associates, have been seeing significant increases in collections, according to their quarterly financial statements. Although neither of those companies received money from the federal loan program, the renewed ability of their debtors to repay is probably helping other debt-collection companies, analysts said.
“We have continued to generate unprecedented cash collections,” Portfolio Recovery Associates said in a recent financial statement. “We have assumed that these collections are accelerated due to current circumstances providing consumers with additional discretionary funds and a willingness to voluntarily repay their debts.”
As a result, critics say, many debt collectors are prospering and should not have benefited from the Paycheck Protection Program.
“Some of these companies are recording record profits,” Yarbrough said. “They don’t need government assistance.”
A trade group representing debt collectors, however, defended the government loans provided to the companies.
"Our members employ 124,000 people, many of whom have been negatively impacted by the pandemic, and the PPP has helped preserve those jobs,” Mark Neeb, chief executive of the trade group, ACA International, said in a statement. “Consumers and creditors depend on our members’ services to help resolve disputes and unpaid debts and in order to help keep the credit system running smoothly.”
Payday lenders, strip clubs vie for PPP loans
Similar questions have arisen about whether lenders, particularly payday loan companies that charge high interest rates, ought to be eligible for the program.
At the outset, the Small Business Administration imposed a rule excluding all lenders from the Paycheck Protection Program.
But the decision to exclude them — along with lobbying firms and businesses that offer “prurient” entertainment — has been repeatedly challenged in court: The SBA and Treasury Secretary Steven Mnuchin were sued last year by a strip club in Flint, Mich., a group of strip clubs in Wisconsin, a lobbying group and a payday lender.
Those who represent payday lenders argue that the point of the Cares Act was to keep employees on the job regardless of the industry in which they work.
“Employees of legal, licensed, and regulated lending companies are just as deserving of payroll protections and support as those of any other legitimate industry in the country,” said Mary Jackson, chief executive of the Online Lenders Alliance, which advocates on behalf of payday lenders as well as others.
Jackson said in an email that many “small-dollar lenders” actually have struggled during the economic crisis and are doing everything they can to make payroll. She added that such loans can be essential for people with a higher credit risk.
There are “approximately 100 million Americans who need these options,” Jackson said. "They are providing longer term installment loans that allow consumers the opportunity to build or repair their credit.”
At least some judges agreed with the excluded businesses. In two cases, federal judges noted that in approving the Paycheck Protection Program, Congress specified that the loans be available to “any business” and that the administration erred in ruling out some industries.
There was a political push, too: In the House, 24 Republicans and four Democrats signed a letter in April pushing for the program to include lenders such as payday-loan companies.
“As you may know, in many parts of our districts (especially in our rural communities), our constituents’ sole access to financial services is from small-size nonbanks — installment lenders, finance companies,” the letter said. A spokesperson for Rep. Blaine Luetkemeyer (R-Mo.), one of the signees, later clarified that payday lenders were intended to be included in the request.
A senior administration official involved in the government’s PPP implementation declined to comment on payday lenders specifically, but said lending organizations generally would not be eligible for PPP loans in the next $284 billion phase of the program.
“Generally businesses whose stock and trade is financing or lending are generally, and I need to qualify this, may not be eligible,” said the senior administration official, who spoke on the condition of anonymity to discuss the federal government’s plans.
“I can’t comment on specifically payday lenders, but we are aware of those, and this is part of our data verification and identity management controls that we are seeking to have with our new round,” the official said.
In a departure from the first rounds of funding, the SBA says it plans to conduct automated eligibility checks before disbursing funds. The agency said this week it plans to allow community financial institutions — those with assets under $1 billion — to start making loans beginning Friday, with larger banks allowed to begin making loans Tuesday.
The Paycheck Protection Program data does not clearly indicate which companies are consumer lenders that charge high rates, but The Post was able to identify more than 80 of them that received loans totaling more than $60 million. Those loans were approved by banks that distributed the money based on applications from the companies.
LoanMe, based in Anaheim, Calif., received a PPP loan of $4.8 million to support 85 employees. Although interest rates vary by state, the company’s disclosures say it can charge annual percentage rates as high as 99 percent in South Carolina and 510 percent in Texas. The business did not respond to requests for comment. The interest rate for the government loans that aren’t forgiven is far less — about 1 percent.
Similarly, a group of 17 companies with the same Alabama address and affiliated with Title Cash, a title and payday lender, received loans totaling more than $3.6 million from the program.
The Title Cash chain has hundreds of locations across nine states and provides short-term loans with very high interest rates, according to its website. A 14-day loan in Alabama is advertised at 456 percent interest on a yearly basis, for example, and a 30-day loan in Mississippi has a maximum annual percentage rate of 267 percent.
The company did not respond to a request for comment.
At the very least, Martin said, “these companies should pay back the U.S. government at the same rate they’re lending to consumers.”
The coronavirus stimulus package: What you need to read
The latest: White House proposes $1.8 trillion American Families Plan
American Families Plan: Read the White House fact sheet | What’s in Biden’s $1.8 trillion American Families Plan?
Calculators: Third round of stimulus checks | Child tax credit
Stimulus FAQs: What you need to do to get the third stimulus payment | The Post answers your stimulus questions
What’s in the stimulus: Checks, unemployment insurance and more | PDF: Read the bill
Child Tax Credit FAQ: The Democratic plan to give most parents $250 a month
Tell the Post: Are you waiting on a stimulus check, loan or unemployment assistance from the latest economic relief plan?