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District court shuts down operation claiming debt relief for students
On July 20, the FTC announced that the U.S. District Court for the Central District of California issued a final judgment permanently banning defendants in a student loan debt relief operation from telemarketing or providing debt relief services. As previously covered by InfoBytes, in 2019 the FTC charged the defendants with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly, among other things, (i) charging borrowers illegal advance fees; (ii) falsely claiming they would service and pay down borrowers’ student loans; and (iii) obtaining borrowers’ credentials in order to change consumers’ contact information and prevent communications from loan servicers.
The court’s order granted the FTC’s motion for summary judgment, finding that the defendants received revenues of at least $31.1 million derived unlawfully from payments received from borrowers due to the defendants’ violations of the FTC Act and TSR. Of these revenues, only about $3.1 million had been paid by the defendants to borrowers’ federal student loan servicers, the order stated, although the court noted that the defendants allegedly refunded about $408,089 to consumers. The court imposed a roughly $27.6 million judgment against the defendants as equitable monetary relief, and permanently banned the defendants from offering similar services in the future, including misrepresenting, or assisting others in misrepresenting, any facts materials to a consumer’s decision to purchase financial products or services.
OCC releases recent enforcement actions
On July 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is a June 23 consent order, which resolves OCC claims that a California-based bank violated a 2016 consent order concerning Bank Secrecy Act/anti-money laundering compliance program deficiencies. According to the OCC, the bank failed to timely comply with the 2016 consent order and is required to pay a $100,000 civil money penalty. The list also includes a July 25 civil money penalty order against a New York-based bank, which requires the payment of $43,000 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations.
Additionally, an Iowa-based bank and the OCC reached a formal agreement on June 16 for alleged unsafe or unsound practices related to, among other things, credit underwriting, credit administration, problem loan management, and real estate valuation practices. Among other conditions, the agreement requires the bank to (i) appoint a compliance committee to ensure adherence to the agreement’s provisions; (ii) establish a three-year strategic plan outlining goals and objectives related to the bank’s risk profile and liability structure; (iii) submit a commercial and retail credit underwriting and administration program to ensure the bank “analyzes credit and collateral information sufficient to identify, monitor, and report the [b]ank’s credit risk, properly account for loans, and assign accurate risk ratings in a timely manner”; (iv) implement programs providing for an annual review of loans, loan level stress testing, and problem loan management; (v) implement an exception tracking and reporting system; and (vi) establish an appraisal and evaluation program.
Special Alert: CFPB takes first-ever agency redlining action against nonbank lender
On July 15, the Consumer Financial Protection Bureau filed a complaint against a Chicago-based nonbank mortgage company alleging fair lending violations predicated, in part, on statements made by the company’s owner and other employees during radio shows and podcasts from 2014 through 2017. The complaint, filed in federal court in Illinois, marks the first instance in which a federal regulator has taken a public enforcement action against a nondepository institution based on allegations of redlining.
According to the CFPB, the mortgage company violated the Equal Credit Opportunity Act and the Consumer Financial Protection Act by engaging in discriminatory marketing and applicant outreach practices that allegedly:
SEC issues $3.8 million whistleblower award
On July 14, the SEC announced a $3.8 million award to a whistleblower in an enforcement action. According to the SEC’s press release, the whistleblower “provided significant information that helped the SEC disrupt an ongoing fraudulent scheme,” which resulted in “millions of dollars” being returned to harmed investors. The formal order also states that the information the whistleblower provided was “discrete and narrow in scope.”
As of June 14, the SEC has awarded 87 individuals a total of approximately $505 million in whistleblower awards since its first award in 2012.
FTC launches military consumer data tool
On July 13, the FTC released an interactive military dashboard (updated quarterly) that explores data received from active duty servicemembers, veterans, and all military (including military families and reservists) on issues they may experience in the marketplace. Government imposter was the top reported scam type for active duty military personnel, followed by unwanted telemarketing calls, business imposters, online shopping and counterfeit check scams. Other top report categories included identity theft, credit bureaus, third party debt collection, credit cards, mortgage lending, and creditor debt collection. Additionally, reports from the Consumer Sentinel Network showed that from 2015 through the first two quarters of 2020, the median fraud loss for veterans and retirees was $750. The FTC noted that it uses these reports as part of its law enforcement investigations and shares the reports with law enforcement users around the country.
CFPB takes action against student debt-relief operation
On July 13, the CFPB filed a complaint in federal district court against a nationwide student loan debt-relief business—consisting of two companies, their owners, and four attorneys—for allegedly charging thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). According to the complaint, filed in the U.S. District Court for the Central District of California, the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The attorney agreement typically provided for “a fee, typically 40 [percent] of the outstanding debt, to be paid by monthly installments, along with a processing fee that costs an additional $10 per month.” The business allegedly charged the fees before the consumer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees.
On August 17, the court approved stipulated final judgments with four of the defendants (one company owner and three of the attorneys, here, here, and here). The company owner is permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service, and is required to pay $25,000 in partial satisfaction of a suspended $11.8 million in redress. Similarly, the three attorneys are each banned from providing debt-relief services and required to pay $5,000, $21,567, and $30,000 each in partial satisfaction of various redress amounts. Additionally, the judgments impose a civil money penalty of $1 against each defendant.
CFPB proposes settlement with student debt-relief operation
On July 8, the CFPB announced a proposed settlement with a Florida-based student debt-relief company and three of its owners and officers (collectively, “defendants”), which would resolve allegations that the defendants violated the Telemarketing Sales Rule (TSR) by charging advance fees for services to renegotiate, settle, reduce, or alter the terms of federal student loans. According to the complaint, filed with the U.S. District Court for the Southern District of Florida on the same day as the proposed order, the Bureau alleges that from 2016 through October 2019, the defendants used telemarketing campaigns to solicit over 7,300 consumers to pay up to $699 in fees to have their federal student loan monthly payments reduced or eliminated through government-offered programs. The Bureau alleges that—not only are government programs (such as loan consolidation, income-based repayment, or certain loan-forgiveness options) available without charge—the defendants violated the TSR by charging and receiving upfront fees from consumers for their services before the terms of the student debt had been altered or settled.
On August 12, the court entered a stipulated final judgment and order, which permanently bans the defendants from providing debt-relief services and imposes a suspended $3.8 million in consumer redress, upon the owners and officers each paying between $5,000 and $10,000 individually. Additionally, each defendant is required to pay $1 in civil money penalties.
CFPB sues company for marketing of high-yield CDs
On July 6, the CFPB filed a complaint in the U.S. District Court for the Southern District of New York against a Delaware financial-services company operating in Florida and New York along with its owner (collectively, “defendants”) for allegedly violating the Consumer Financial Protection Act’s prohibition against deceptive acts or practices by making misleading marketing representations when advertising its high yield CD accounts. The Bureau's complaint alleges that since August 2019, the company took more than $15 million from at least 400 consumers. According to the complaint, the defendants engaged in four separate deceptive acts or practices by: (i) falsely representing that consumers’ deposits into the high yield CD accounts would be used to originate loans for healthcare professionals, when in fact, the company never used the deposits to originate loans for healthcare professionals, never sold a loan to a bank or secondary-market investor, and never entered into a contract with a buyer or investor to purchase a loan; (ii) concealing the company’s true business model by falsely representing that the consumers’ deposits, when not being used to originate healthcare loans, would be held in an FDIC- or Lloyd’s of London-insured account or a “cash alternative” or “cash equivalent” account, when in reality, consumers’ deposits were, among other things, invested in securities; (iii) falsely describing the company as a commercial bank and claiming their high yield CD accounts were comparable to a traditional savings accounts with a guaranteed return, when in fact, the company was not a commercial bank, and consumers’ deposits were actively traded in the stock market or used in securities-backed investments; and (iv) falsely representing that past high yield CD accounts allegedly paid interest at rates between 5 percent and 6.25 percent prior to 2019; however, the company did not offer CDs until August 2019, and “consumers’ principals was neither guaranteed nor insured.” Among other things, the Bureau seeks monetary relief, consumer redress, injunctive relief, and a civil money penalty.
Fed enforcement action targets flood insurance
On July 2, the Federal Reserve Board announced an enforcement action against a West Virginia-based bank for alleged violations of the National Flood Insurance Act (NFIA) and Regulation H, which implements the NFIA. The consent order assesses a $24,500 penalty against the bank for an alleged pattern or practice of violations of Regulation H, but does not specify the number or the precise nature of the alleged violations. The maximum civil money penalty under the NFIA for a pattern or practice of violations is $2,000 per violation.
CFPB announces Consumer Financial Protection Week
On July 6, the CFPB announced the launch of Consumer Financial Protection Week from July 14 through July 17. Over the course of four days, the Bureau is hosting or participating in multiple virtual events, including (i) a tutorial and overview of the HMDA data browser; (ii) a discussion on the Bureau’s supervisory and enforcement prioritized assessment approach; and (iii) a discussion on the Bureau’s Taskforce on Federal Consumer Financial Law.