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Financial Services Law Insights and Observations

CFPB settles with additional debt-relief defendants

Federal Issues Courts CFPA Telemarketing Sales Rule FCRA Consumer Finance CFPB

Federal Issues

On May 4, two additional settlements were reached with defendants in an action by the CFPB against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 in the U.S. District Court for the Central District of California claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that the defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here and here).

The May 4 settlement reached with one of the defendant companies requires the payment of a $1 civil money penalty to the Bureau because of the defendant’s limited ability to pay. The defendant, who neither admits nor denies the allegations, is ordered to promptly take dissolution steps and is banned from offering or providing consumer financial products or services. The defendant is also prohibited from using or obtaining consumer reports for any purpose and must comply with reporting requirements.

A second settlement was reached the same day with one of the individual defendants. Under the terms of the settlement, the defendant also is required to pay a $1 civil money penalty, as well as $3,000 out of $7 million in consumer redress, of which full payment is suspended provided other obligations are fulfilled. The defendant, who neither admits nor denies the allegations, is permanently banned from providing debt relief services or telemarketing consumer financial products or services. The defendant is also prohibited from using or obtaining “prescreened consumer reports” for any purpose, and is further required to, among other things, comply with reporting requirements and fully cooperate with any other investigations.

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