Debt Settlement Agencies Get Attention from CFPB and FTC

On April 29, the CFPB filed a proposed order in federal court seeking final judgment against three California-based defendants for engaging in illegal billing practices and deceptive telemarketing. According to the complaint, the defendants, a student debt relief company and a general debt settlement company, and their owner and CEO charged illegal upfront fees and deceived customers into paying fees. debt relief services in violation of the Consumer Financial Protection Act (CFPA) and the Telemark Selling Rule (TSR). The CFPB alleges that the defendants falsely charged more than 9,000 consumers with federal student loan debt totaling approximately $10.5 million in illegal upfront charges and used deceptive sales tactics to induce consumers to register for certain debt relief services. If approved by the court, defendants would be prohibited from engaging in debt relief and settlement activities. The CEO would also be required to pay a civil penalty of $30,000.

On May 11, the CFPB a a fine a Tennessee-based debt relief payment processor over $11 million in consumer relief and civil monetary penalties to address UDAAP allegations, and barred the company from operating in the payment processing and account management. According to the CFPB, payment processors violated the TSR and CFPA by significantly assisting student loan companies and traditional debt relief companies to illegally request and accept advance fees for credit card services. debt relief, misrepresenting their consumer payment processing actions and unfairly paying unearned fees for debt relief services, even after consumers have canceled the services. The respondents agreed to reimburse consumers $8.7 million in unreimbursed costs and pay an additional $3 million in penalties. The respondents consented to an injunction involving an industry ban for one corporate respondent and the two individuals, remedial action for the other respondent.

On May 4, at the request of the FTC, a federal court in Florida granted a temporary restraining order against a credit repair transaction. In his complaint against the credit repair program and its owners, the FTC alleged that the defendants engaged in deceptive tactics in violation of the FTC Act, the Credit Repair Organizations Act, the Opportunity to repair companies, TSR and COVID-19 consumer protection law. According to the FTC, since 2019, the company has illegally charged thousands of dollars for credit repair services. Throughout its operations, the company has encouraged consumers to invest pandemic-related government benefits in the company. The company is also accused of engaging in a credit overlay program. It allowed consumers looking to boost their credit scores to be added as authorized users to a credit card account – owned by someone with higher credit – in name only. Finally, the defendants allegedly offered their consumers the ability to resell their own illegal credit repair services – consumers were told they could earn “tens of thousands” each month. The FTC asked the federal district court to halt the company’s illegal operations, appoint a receiver, and freeze the defendants’ assets. The court issued a temporary restraining order comply with these requests.

Put into practice : These enforcement actions remind businesses operating in the debt relief and payment processing industries that they must monitor their compliance with federal telemarketing and other unfair and deceptive practices laws in order to ensure full and accurate disclosure of relevant information before registering consumers for services and engaging. third-party service providers (we discussed CFPB’s recent use of CFPA and TSR in a previous blog post here). Generally, these companies should carefully review their operations, policies, and procedures relating to consumer advertising and marketing, including websites, telephone sales scripts, direct mail solicitations, email or other electronic communications, as well as screening for conflicts of interest before engaging third-party service providers.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 133

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