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The Federal Trade Commission today announced settlements with Fairbanks Capital Holding Corp., its wholly-owned subsidiary Fairbanks Capital Corp., and their founder and former CEO, Thomas D. Basmajian (collectively, Fairbanks). In separate settlements, the corporate defendants will pay $40 million in redress to consumers, and defendant Basmajian will pay $400,000 in redress. In a complaint filed in federal district court, the FTC charges Fairbanks with engaging in a variety of unfair, deceptive, and illegal practices in the servicing of subprime mortgage loans. According to the FTC, the defendants, among other things, failed to post consumers’ mortgage payments in a timely manner and charged consumers illegal late fees and other unauthorized fees. The settlements are contingent on approval by a federal district court in Massachusetts, and the settlement with the corporate defendants will be coordinated with a related settlement in a class action lawsuit. The case was jointly filed with the U. S. Department of Housing and Urban Development (HUD).

“Consumers should be treated fairly and honestly in the servicing of their loans,” said Timothy J. Muris, Chairman of the FTC. “It is particularly important that the Commission stop unfair or deceptive practices in this industry, because consumers have no choice about who services their home loans – and it can be extremely difficult for subprime borrowers to avoid an abusive servicer by refinancing or paying off their loans.”

HUD Secretary Mel Martinez said, “Today’s settlement makes clear that HUD and FTC are serious about protecting consumers from those who would try to steal their American Dream.

The message we are sending is clear – those who seek to take advantage of unsuspecting homeowners will be tracked down and held accountable.”

Subprime lending refers to the extension of credit to persons who are considered to be higher risk borrowers. Fairbanks is a financial services company specializing in the servicing and resolution of subprime mortgage loans. Fairbanks does not originate loans, but collects and processes loan payments from borrowers on behalf of the owner of the mortgage notes. Headquartered in Salt Lake City, Utah, Fairbanks is one of the country’s largest servicers of subprime mortgage loans. The FTC alleges that Fairbanks engaged in a myriad of unfair, deceptive, and illegal practices in collecting and processing consumers’ loan payments.


The complaint charges Fairbanks with violating several federal laws, including the FTC Act, the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Real Estate Settlement Procedures Act (RESPA) enforced by HUD.

FTC Act Violations

The FTC alleges that, in servicing loans, Fairbanks frequently:

  • failed to post consumers’ mortgage payments in a timely and proper manner, and then charged consumers late fees or additional interest for failing to make their payments “on time”;

  • charged consumers for placing casualty insurance on their loans when insurance was already in place;

  • assessed and collected improper or unwarranted fees, such as late fees, delinquency fees, attorneys’ fees, and other fees; and

  • misrepresented the amounts consumers owed.

Fair Debt Collection Practices Act

The complaint also alleges that Fairbanks violated several provisions of the FDCPA, in connection with collecting loans that were in default when Fairbanks obtained them. Specifically, the FTC alleges that the defendants falsely represented the character, amount, or legal status of consumers’ debts; communicated or threatened to communicate credit information which was known or which should have been known to be false, including the failure to communicate that a debt was disputed; used false representations or deceptive means to collect or attempt to collect a debt, or to obtain information concerning a consumer; collected amounts not authorized by the agreement or permitted by law; and failed to validate debts.

Fair Credit Reporting Act

The FTC alleges that the defendants furnished information about consumers’ payment status to consumer reporting agencies when they knew or consciously avoided knowing that the information was inaccurate. Also, when consumers informed the defendants that they disputed the reported information, the defendants did not report the dispute to the consumer reporting agencies.

Real Estate Settlement Procedures Act

RESPA is a federal statute that requires loan servicers to respond to borrowers’ written requests about their loans and to make timely insurance and property tax payments on behalf of borrowers and otherwise properly administer their escrow accounts. In the complaint, HUD alleges that the defendants failed to timely and adequately acknowledge, investigate, and respond to borrowers’ written requests for information about the servicing of their loans and escrow accounts. HUD also alleges that the defendants failed to make timely payments of escrow funds for insurance premiums and property taxes.


The settlements announced today resolve the Commission’s and HUD’s allegations. If approved, the settlements will require the Fairbanks corporations to pay $40 million, and Basmajian to pay $400,000, to the FTC to be used to compensate consumers who suffered harm from: (1) unauthorized late fees, (2) other fees Fairbanks imposed on consumers it deemed in default, (3) unauthorized prepayment penalties, or (4) other improper practices by Fairbanks related to consumer defaults.

The settlements also enjoin the defendants from future law violations and impose new restrictions on their business practices. The settlements:

  • require the defendants to accept partial payments from most consumers and to apply most consumers’ mortgage payments first to interest and principal;

  • prohibit the defendants from force placing insurance when they know the consumer has insurance or fail to take reasonable actions to determine whether the consumer has insurance;

  • enjoin the defendants from charging unauthorized fees, and place limits on specific fees

  • require the defendants to acknowledge, investigate, and resolve consumer disputes in a timely manner;

  • require the defendants to provide timely billing information, including an itemization of fees charged;

  • prohibit the defendants from taking any action toward foreclosure unless they have reviewed the consumer’s loan records to verify that the consumer failed to make three full monthly payments, confirmed that the consumer has not been the subject of any illegal practices, and investigated and resolved any consumer disputes;

  • prohibit the defendants from piling on late fees in certain situations;

  • prohibit the defendants from enforcing certain waiver provisions in forbearance agreements that consumers had to sign to prevent foreclosure; and

  • prohibit the defendants from violating the FDCPA, the FCRA, and the RESPA.

To provide further remedial relief to consumers harmed by its practices, Fairbanks will correct certain open accounts that may have been classified wrongly as delinquent, re-classify these accounts as current, and report to any consumer reporting agency previously provided with information about the consumer’s account that the account is current and that the prior record of delinquency should be removed from the consumer’s report.

Today, the Commission filed the two settlements in U.S. District Court for the District of Massachusetts in Boston for approval. The settlement with the corporate defendants will not become final until the related class action settlement is approved in final form by the Boston court. This process may take several months.

If the court approves it, affected consumers should receive a notice of the settlement in the mail that will explain how they can participate in the redress program. The Commission’s toll-free consumer hotline regarding the settlement is 1-800-377-1287. Consumers who have changed their address recently may provide updated contact information by calling the hotline. Consumers also can find information about the settlement on the FTC’s Web site at At this time, it is not necessary for consumers to take any action other than watching their mail for notice of the settlement.


Today, the Commission also has issued a consumer brochure, “Mortgage Servicing: Making Sure Your Payments Count,” to help consumers understand their rights. The brochure explains mortgage servicers’ responsibilities, in particular under the RESPA enforced by HUD. The brochure urges consumers to keep records of their payments, insurance coverage, and other information, and explains how consumers can file disputes with their loan servicer. The brochure also includes sample letters that consumers may use when filing a dispute with their lender/servicer or with a credit bureau. The brochure can be found at:

The Commission vote authorizing the staff to file the complaint and two separate consent orders as to the corporate defendants and Thomas Basmajian was 5-0. They were filed in the U.S. District Court for the District of Massachusetts on November 12, 2003. The settlements require the court’s approval.

NOTE: These consent orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Stipulated final judgments have the force of law when signed by the judge.

Copies of the complaint and the Consent Orders are available from the FTC’s Web site at and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.


Media Contact:

Brenda Mack
Office of Public Affairs

Staff Contact:

Joel Winston or Lucy Morris
Bureau of Consumer Protection

HUD Staff Contact:

Brian Sullivan
HUD Office of Public Affairs

(FTC File No. 032 3014)
(Civil Action No. not available at press time (Defendants Fairbanks Capital))
(Civil Action No. not available at press time (Defendant Basmajian))