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Financial Services Law Insights and Observations

CFPB enters $34.1 million in judgments against debt-relief companies

Federal Issues Courts CFPB Consumer Finance CFPA Telemarketing Sales Rule FCRA Enforcement

Federal Issues

On May 7, the U.S. District Court for the Central District of California entered two default judgments totaling more than $34.1 million in an action by the CFPB against a mortgage 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). Settlements have already been reached with the chief operating officer/part-owner of one of the defendant companies, as well as certain other defendants (covered by InfoBytes here, here, and here).

As previously covered by InfoBytes, the Bureau filed a complaint in 2020 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 claimed 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. 

The May 7 default judgment entered against the student loan debt-relief companies requires the collective payment of more than $19.6 million in consumer redress and more than $11.3 million in civil money penalties to the Bureau. The companies are also permanently enjoined from offering or providing debt-relief services or from using or obtaining consumer reports for any purpose. Moreover, the companies and any associated individuals may not disclose, use, or benefit from consumer information contained in or derived from prescreened consumer reports for use in marketing debt-relief services.

A second default judgment was entered the same day against one of the individual defendants. The judgment requires the individual defendant to pay a more than $3.2 million civil money penalty and permanently enjoins him from providing debt relief services or from using or obtaining prescreened consumer reports for any purpose.

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