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Financial Services Law Insights and Observations

CFPB sues company for marketing of high-yield CDs

Federal Issues CFPB Enforcement CFPA UDAAP Deceptive

Federal Issues

On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers.  According to the complaint, the defendants engaged in four separate deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.

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