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Financial Services Law Insights and Observations

District Court grants summary judgment against student loan debt-relief defendant

Courts CFPB Enforcement Student Lending Debt Relief Consumer Finance CFPA Telemarketing Sales Rule FCRA

Courts

On August 10, the U.S. District Court for the Central District of California granted summary judgment against an individual defendant 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 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. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including 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, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here and here).

Responding to the Bureau’s motion for summary judgment against the individual defendant, the court, among other things, held that undisputed evidence showed that the individual defendant “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. The court also found that the individual defendant violated the TSR by mispresenting material aspects of the debt relief services and violated the CFPA by making false statements to induce consumers to pay advance fees for these services. Furthermore, the court rejected the individual defendant’s arguments involving boilerplate evidentiary objections and Fifth Amendment and statute of limitation claims. Because the individual defendant “was heavily involved in and controlled much of the [student loan debt relief businesses’] activities,” the court found that he acted recklessly and granted the Bureau’s motion for summary judgment, finding that injunctive relief, restitution, and a civil money penalty are appropriate remedies.

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