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District Court allows CFPB to pursue 2016 structured settlement claims
On July 12, the U.S. District Court for the District of Maryland issued an opinion denying several motions filed by parties in litigation stemming from a 2016 complaint filed by the CFPB, which alleged the defendants employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” After the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claims against the structured settlement buyer and its officers to proceed, the CFPB filed an amended complaint in 2017 alleging unfair, deceptive, and abusive acts and practices and seeking a permanent injunction, damages, disgorgement, redress, civil penalties and costs.
In the newest memorandum opinion, the court considered a motion to dismiss the amended complaint and a motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired. The court reviewed, among other things, whether the doctrine of equitable tolling saved the case from dismissal and cited a separate action issued by the Middle District of Pennsylvania which concluded that an “action was timely filed under existing law, at a time where there was no finding that a provision of the Dodd-Frank Act was unconstitutional.” While noting that the ruling was not binding, the court found the facts in that case to be similar to the action at issue and the analysis to be persuasive. As such, the court denied the motion to dismiss and the motion for judgment on the pleadings, and determined that the Bureau may pursue the enforcement action originally filed in 2016.
FTC settles with payment processors in student loan debt relief scam
On July 12, the FTC announced a settlement with two Florida-based payment processing companies and their CEO (collectively, “defendants”) accused of participating in a student loan debt relief scam. As previously covered by InfoBytes, in 2018, the FTC alleged the student loan debt relief operation violated the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, falsely claiming borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments or result in total loan forgiveness and accepting monthly payments that were not applied towards student loans. A settlement was reached last December (covered by InfoBytes here). According to the FTC’s most recent complaint, the defendants allegedly “applied for and obtained merchant accounts for the [scam] by knowingly and repeatedly providing false information to payment processors about the [operation’s] three companies.” The defendants’ payment processing applications, the FTC contended, concealed the fraudulent activity, denied that the operation was offering consumers prohibited debt relief services, and repeatedly ignored warnings and direct evidence that the operation was defrauding consumers.
Under the terms of the settlement order, the defendants are permanently banned from payment processing or acting as an independent sales organization or sales agency. The defendants are also prohibited from assisting and facilitating any unfair and deceptive trade practice, including to obtain payment processing services. In addition, the order imposes a $28.6 million judgment against the defendants, which is partially suspended following the payment of $20,493, due to the defendants’ inability to pay the full amount.
CFPB settles with fintech over loan scheme operation
On July 12, the CFPB announced a consent order against a Georgia-based fintech company for allegedly enabling contractors and other merchants to take out loans on behalf of thousands of consumers who did not authorize them. According to the CFPB, the respondent allegedly violated the CFPA’s prohibition against unfair acts or practices by (i) servicing and facilitating the origination of unauthorized loans to consumers and (ii) enabling unauthorized loans by, among other things, failing to implement appropriate and effective controls during the loan application, approval, and funding processes. The CFPB noted that over 6,000 complaints were filed between 2014 and 2019 about the respondent, with some consumers claiming to have no prior involvement or knowledge of the respondent before receiving billing statements and collection letters. Under the terms of the consent order, the respondent must verify consumers’ identities and confirm their authorizations before activating loans or disbursing loan proceeds and implement an effective consumer complaint management program, exercising oversight of third-party merchant partners, and implementing uniform standards regarding the write-off of illegal loans. The respondent is also ordered to pay up to approximately $9 million in redress to its victims and a $2.5 million civil money penalty.
FTC settles with program operators
On July 2, the FTC announced a settlement with operators of a Florida-based recruitment program (defendants) for allegedly promising that participants could receive large amounts of money from selling memberships to other participants. The FTC filed a complaint in 2020 as part of an initiative called “Operation Income Illusion,” which encompasses more than 50 enforcement actions against alleged scams targeting consumers with false promises of income and financial independence (covered by InfoBytes here). According to the complaint, the defendants allegedly violated the FTC Act, among other things, by selling expensive memberships to programs by promoting earnings between $500 and $12,500 per sale. Under the terms of the stipulated final order, the defendants are prohibited from: (i) “creating, advertising, marketing, promoting, offering for sale, or selling” any business or investment opportunity or misrepresenting the amount of money someone can earn from any type of business; (ii) assisting others in such activity; and (iii) owning any financial interest in a business entity that engages in such activity. A $3.6 million monetary judgment is ordered against the company and its owners, in addition to a $217,426 monetary judgment against the company’s promoter. Due to the defendants’ inability to pay the full amount, the judgments will be partially suspended once all four defendants’ turn over various assets. A default judgment was entered in March against two additional defendants who promoted the scheme that included similar requirements, in addition to a $600,000 and $171,500 monetary judgment.
District Court’s order targets debt settlement firm’s abusive acts
On July 2, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an online debt-settlement company to resolve CFPB allegations concerning violations of the TSR and the CFPA’s prohibition on abusive acts or practices. As previously covered by InfoBytes, the Bureau filed a complaint against the company in April claiming it took “unreasonable advantage of consumers’ reasonable reliance that [the company] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The Bureau also alleged that the company regularly prioritized creditors with which it had undisclosed relationships when settling consumers’ debts. Under the terms of the order, the company—who neither admits nor denies the allegations except as specified—is required to pay approximately $646,769 in redress and a $750,000 civil money penalty. The company is also (i) prohibited from settling consumers’ debts owed to any affiliated company with which it shares direct or indirect ownership; (ii) required to disclose to consumers any affiliation with any provider of the specific loans; and (iii) required to notify consumers with currently enrolled debts that it will no longer seek to settle those debts. Additionally, the company is required to comply with the TSR when marketing or selling any debt relief products or services, including by providing accurate disbursement amounts, not charging settlement-performance fees, clearly disclosing estimated costs, and not misrepresenting any material facts.
District Court grants CFPB’s motion to strike affirmative defenses in FCRA, FDCPA action
On June 30, the U.S. District Court for the District of Maryland issued a memorandum opinion granting the CFPB’s motion to strike four out of five affirmative defenses presented by defendants in an action alleging FCRA and FDCPA violations. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants (a debt collection entity, its subsidiaries, and their owner) for allegedly violating the FCRA, FDCPA, and the CFPA. The alleged violations include, among other things, the defendants’ failure to ensure accurate reporting to consumer-reporting agencies, failure to conduct reasonable investigations and review relevant information when handling indirect disputes, and failure to conduct investigations into the accuracy of information after receiving identity theft reports before furnishing such information to consumer-reporting agencies. The Bureau separately alleged that the FCRA violations constitute violations of the CFPA, and that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts.
After the court denied the defendants’ motion to dismiss on the basis that the CFPB was unconstitutional and therefore lacked standing, the defendants filed an amended affirmative defense asserting the following: (i) the alleged FDCPA violation was a bona fide error; (ii) the Bureau was “barred from seeking equitable relief by the doctrine of unclean hands”; (iii) the Bureau’s leadership structure was unconstitutional under Article II at the time the complaint was filed, thus the actions taken at the time were invalid; (iv) the Bureau structure is unconstitutional under Article I and therefore the Bureau lacked standing because “it is not accountable to Congress through the appropriations process”; and (v) the statute of limitations on the alleged violations had expired. The Bureau asked the court to strike all but the statute of limitations defense. Concerning the bona fide error defense, the defendants contended the alleged violations were not intentional and resulted from a bona fide error notwithstanding the maintenance of “detail[ed] policies and procedures for furnishing accurate information to the consumer reporting agencies,” but the court ruled this defense insufficient because the defendants failed to identify “specific errors [and] specific policies that were maintained to avoid such errors” and failed to explain their procedures. With respect to the unclean hands defense, the court ruled to strike the defense because it found that the defendants had not “alleged ‘egregious’ conduct or shown how the prejudice from that conduct ‘rose to a constitutional level’” when claiming the Bureau engaged in “duplicitous conduct” by allegedly disregarding its own NORA process or by serving multiple civil investigative demands. Finally, the court further decided to strike the two constitutional defenses because it found that allowing those defenses to proceed “could ‘unnecessarily consume the Court’s resources.’” The court granted the defendants 14 days to file an amended affirmative defense curing the identified defects.
District Court approves $6.02 million settlement in student debt-relief action
On July 1, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against two defendants in a 2019 action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, which alleged a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserted the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments.
The finalized settlement issued against the two relief defendants, who neither admit nor deny the allegations except as specifically stated, requires the payment of $3.98 million by one defendant and $2.04 million by the other. However, based on the defendant’s inability to pay, full payment of the $2.04 million will be suspended. The finalized settlement also ordered the paying relief defendant to disgorge any funds held in accounts in excess of the $3.98 million, “including any income such as interest, dividends, and capital gains, as of the date the funds are transferred.” Moreover, both relief defendants are required to grant all rights and claims of identified assets to the Bureau, as well as any assets “currently in the possession, custody, or control of the Receiver.”
The court previously entered final judgments against several of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes here, here, and here). Orders have yet to be entered against the remaining defendants.
FTC settles with app for violating COPPA
On July 1, the FTC announced a settlement with the operators of a coloring book app (collectively, “defendants”) for allegedly engaging in unfair or deceptive acts or practices and violating the Children’s Online Privacy Protection Act Rule (COPPA). The DOJ, on behalf of the FTC, filed a complaint claiming that the defendants, among other things, violated COPPA by collecting and disclosing personal information about children who utilized the app without notifying their parents and obtaining their consent. The FTC claimed that some children, including those under 13, were able to register for accounts and use the app’s social media features. The defendants allegedly received numerous complaints that children were using the app’s social media features, such as posting “selfies” on the app’s “gallery” for public viewing and interacting with other users, including adults. Under the terms of the proposed stipulated final order, the defendants must complete several steps to remedy the alleged violations, including deleting all personal information collected from children under the age of 13 within 60 days, unless parental consent is obtained. The defendants must also offer current paid subscribers a refund if they were under the age of 18 when they registered for the app. In addition, the defendants agreed to notify users about the alleged COPPA violations and the steps that users can take in response to the settlement. The proposed order provides for a $3 million civil money penalty that is suspended upon payment of $100,000 due to the defendants’ inability to pay the full amount. If the defendants sell the app within a year following the order, they are required to remit the net proceeds from the sale to the FTC after debts and other related expenses are paid.
Fed announces flood insurance violations
On July 1, the Federal Reserve Board announced an enforcement action against a Tennessee-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H. The consent order does not specify the number or the precise nature of the alleged violations of the NFIA or Regulation H, and the bank was assessed a $8,000 civil money penalty for an alleged pattern or practice of violations.
District Court rules FTC cannot seek monetary relief in false advertising action under Section 19 of the FTC Act
On June 29, the U.S. District Court for the Central District of California granted in part and denied in part parties’ motions for summary judgment with respect to remedies, and in doing so, considered whether the FTC may seek monetary relief under Section 19 of the FTC Act. In 2018, the FTC alleged that the defendants violated the FTC Act, Restore Online Shoppers’ Confidence Act (ROSCA), EFTA, and the Telemarketing Sales Rule by engaging in false advertising and participating in an unauthorized billing scheme. In 2020, the court granted summary judgment in favor of the FTC on all counts, but reserved ruling on the appropriate remedies until after the Supreme Court issued decisions in the consolidated appeals in AMG Capital Management v. FTC. On April 22, the Supreme Court unanimously held that while Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement,” nothing in its opinion prohibits the FTC “from using its § 5 or § 19 authority to obtain restitution on behalf of consumers.” (Covered by InfoBytes here.) Following the AMG decision, the FTC stated it was no longer seeking monetary relief under Section 13(b) but argued that it may still seek monetary relief under Section 19 for the defendants’ violations of ROSCA. The defendants countered that remedies for the ROSCA violations were unavailable because the FTC failed to specifically invoke Section 19 remedies in its complaint or timely disclose damage calculations or new witnesses under procedural rules, among other things.
The court observed that Section 19 authorizes the FTC to “seek equitable monetary relief to redress consumer injury resulting from ROSCA violations.” However, the court concluded in this case that the “FTC may proceed to trial on damages for ROSCA violations based only on evidence and witnesses that have been properly disclosed. Because none of the FTC's prior disclosures described its computation of damages for ROSCA violations, however, it appears that the FTC has no evidence to present at trial to support its nascent theory of damages. In the absence of any other theory of monetary relief after AMG, the Court concludes that the FTC cannot recover damages for consumers in this action.” While the court granted the defendants’ motion for summary judgment to the extent that the FTC cannot obtain monetary relief, it stated that “because the FTC has authority to pursue a permanent injunction and has shown the likelihood of recurrence of violations of the FTC Act,” it was granting in part the FTC’s motion for summary judgment “to the extent it seeks a permanent injunction against future enumerated unfair and deceptive acts or practices by the [defendants].”