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Aqua Finance provided financing for water treatment equipment sold door-to-door by dealers. But according to the FTC, the company filtered out the truth and left a sediment of deceptive and unfair financing practices that put many consumers in unexpected debt and made it more difficult for some of them to sell their homes. The result: a proposed $43.6 million settlement with tough injunctive provisions that will change how the company does business going forward. Even if financing isn’t part of your business, read on for details about how the FTC says Aqua Finance also violated the Fair Credit Reporting Act, including a first-of-its-kind complaint allegation. 

Wisconsin-based Aqua Finance extended credit to consumers that bought water treatment products from Aqua Finance-approved dealers. To say that sales were more than a drop in the bucket is an understatement. According to the complaint, since at least January 2018, Aqua Finance has funded, serviced, and collected on more than 297,000 credit agreements – totaling more than $1 billion in systems sold.

The FTC says that to get consumers to sign on the dotted line, many of the dealers misrepresented the terms of the transaction to make it look less expensive than it really was. The complaint alleges that dealers frequently deceived buyers – many of whom were older consumers or Latino consumers – to think that lower introductory rates and payments were permanent. What’s more, dealers allegedly failed to clearly inform people that even when payments were deferred, interest was still piling up on their loans. As a result, the FTC says Aqua Finance’s practices put many consumers in deep financial water.

You’ll want to read the complaint for details about the financing practices alleged to be unfair and deceptive under the FTC Act. The FTC says Aqua Finance also violated the Truth in Lending Act and Reg Z by failing to clearly disclose in writing information the law requires companies to give consumers so they can make informed credit decisions.

Another allegation merits particular attention. The FTC says that in numerous instances, Aqua Finance failed to disclose that its credit documents included a clause that allowed the company to record a “fixture filing” under the Uniform Commercial Code. Property is usually divided between “chattel” (for example, a large appliance) and a “fixture” (an item that, in effect, becomes part of the house). It may sound like an arcane legal distinction, but that clause had serious ramifications for homeowners. By recording a “fixture filing” for the water treatment systems, Aqua Finance created a security interest that, in effect, acted as a lien that made it difficult or even impossible for many consumers to sell their homes. The complaint alleges that Aqua Finance’s failure to adequately disclose that material information was a deceptive practice, in violation of the FTC Act.

The lawsuit also alleges multiple violations of the consumer protections built into the Fair Credit Reporting Act. For example, according to the FTC, Aqua Finance failed to implement reasonable written policies and procedures about the accuracy and integrity of the information it furnished to consumer reporting agencies (CRAs). When consumers disputed information in their credit reports, Aqua Finance allegedly failed to investigate, failed to report the results of its investigations to consumers, and failed to notify the CRAs of the disputed information.

In a first for an FTC Fair Credit Reporting Act case, the complaint alleges that Aqua Finance mishandled identity theft reports received from consumers. Under Section 623(a)(6)(B) of the FCRA, if consumers notify companies that an account is the result of identity theft by submitting an identity theft report, the company can’t report that negative information to a CRA. The FTC says even when consumers sent police reports or other official documentation of identity theft to Aqua Finance, the company continued to furnish information about those suspect accounts to CRAs.

The $43.6 million financial remedy in the proposed settlement includes $20 million in consumer refunds and an additional $23.6 million in debt forgiveness for people harmed by dealers’ allegedly illegal sales tactics. In addition, Aqua Finance must put an effective program in place to monitor its dealers, track complaints, and cut loose any dealer who repeatedly misleads consumers. The company also must make clear disclosures about credit costs and terms and any liens against consumers’ property and must stop misrepresenting finance terms.

What can other companies take from the FTC’s action against Aqua Finance?

Respond quickly when there’s smoke on the water. According to the complaint, Aqua Finance ignored warnings about dealers’ unfair or deceptive tactics and continued to make money from their illegal conduct. For example, the FTC says the company’s internal database included hundreds of complaints about just one dealer and yet it was business as usual when it came time to reap the financial rewards. Aqua Finance also ignored dozens of complaints racked up against another dealer who had been previously convicted of fraud and ordered to pay over $100,000 in restitution. Aqua Finance continued to do business with that dealer – and continued to make money from those sales – until it got wind of an ongoing state AG investigation. The message for other businesses: Respond quickly to reports about questionable conduct and don’t continue to pocket cash from sales you have reason to believe may be illegal.

Filter out deception and unfairness in credit transactions. Congress passed the Truth in Lending Act to “assure a meaningful disclosure of credit terms” and “to protect the consumer against inaccurate and unfair credit billing . . . practices.” Under TILA, Reg Z, and the FTC Act, companies owe it to their customers to be crystal-clear about financing terms. Confusing “teaser” rates, complicated conditions, and unclear costs undermine those bedrock principles.

Water you doing to ensure FCRA compliance? When it comes to the Fair Credit Reporting Act, having written procedures in place that you implement and monitor isn’t just sound business advice. It’s the law. What’s more, exercise particular care in how you handle reports of fraud or identity theft from consumers. Fighting back against identity theft can be like swimming against a swift current. That’s why the law includes special protections for victimized consumers. Don’t injure them all over again by ignoring the clear requirements of the FCRA. Is it time for a compliance check at your company?