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Financial Services Law Insights and Observations

District Court orders student loan debt-relief defendant to pay $20 million

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

Courts

On September 23, the U.S. District Court for the Central District of California entered a judgment in favor of the CFPB against an individual defendant in an action taken by the Bureau 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).

In August the court granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “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. (Covered by InfoBytes here.) At the time, the court found that injunctive relief, restitution, and a civil money penalty were appropriate remedies. While the individual defendant objected to the proposed judgment, the court ultimately ordered that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here). Additionally, the court determined that the individual defendant “recklessly” violated the CFPA, TSR, and FCRA, warranting a $20 million civil money penalty. The individual defendant is also permanently banned from participating in telemarketing activities or from using or obtaining prescreened consumer reports.

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