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CFPB declines to stay $51 million order for online payday lender
On March 9, the CFPB denied a request made by a Delaware online payday lender and its CEO (collectively, “respondents”) to stay a January 2021 final decision and order requiring the payment of approximately $51 million in restitution and civil money penalties, pending appellate review. As previously covered by InfoBytes, in 2015, the Bureau filed a notice of charges alleging the respondents (i) continued to debit borrowers’ accounts using remotely created checks after consumers revoked the lender’s authorization to do so; (ii) required consumers to repay loans via pre-authorized electronic fund transfers; and (iii) deceived consumers about the cost of short-term loans by providing them with contracts that contained disclosures based on repaying the loan in one payment, while the default terms called for multiple rollovers and additional finance charges. Former Director Kathy Kraninger issued the final decision and order in January, affirming an administrative law judge’s recommendation that the respondents’ actions violated TILA, EFTA, and the CFPA’s prohibition on unfair or deceptive acts or practices by, among other things, deceiving consumers about the costs of their online short-term loans.
The Bureau’s March 9 administrative order determined that respondents (i) failed to show they have a substantial case on the merits with respect to their argument regarding ratification as an appropriate remedy for the respondents’ alleged constitutional violation; (ii) failed to show they “suffered irreparable harm” because the Bureau’s final decision does not infringe on the respondents’ constitutional rights and merely requires them to pay money into an escrow account; and (iii) failed to demonstrate that staying the final decision would not harm other parties and the public interest because the respondents might “dissipate assets during the pendency of further proceedings,” potentially impacting future consumer redress. The administrative order, however, granted a 30-day stay to allow respondents to seek a stay from the U.S. Court of Appeals for the Tenth Circuit.
CFPB sues payment processor for fraudulent practices
On March 3, the CFPB filed a complaint against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Sales Rule. According to the complaint, the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau stated, noting that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. The Bureau noted that the defendants also responded to inquiries from police departments across the country concerning consumer complaints about being defrauded by the defendants. Further, the Bureau cited high return rates experienced by the tech-support clients, including an average unauthorized return rate of 14 percent—a “subset of the overall return rate where the reason for the return provided by the consumer is that the transaction was unauthorized.” The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
Court grants injunctive relief against pension advance company
On February 22, the U.S. District Court for the District of South Carolina granted the CFPB’s motion for default judgment and appointment of receiver in an action alleging defendants violated the CFPA and TILA by falsely representing that their lump-sum pension advances were not loans and that they carried no applicable interest rate. As previously covered by InfoBytes, the Bureau filed a complaint against the defendants in 2018 claiming that consumers were actually required to pay back advances with interest and were charged various fees for the product. The Bureau also alleged, among other things, that the defendants failed to provide customers with TILA closed-end-credit disclosures, and provided income streams from the advance payments as 60- or 120-month cash flow payments to third-party investors, promising between 6 and 12 percent interest rates.
In its decision, the court upheld a magistrate judge’s report and recommendations, which concluded that the Bureau’s complaint sufficiently stated “a deception claim” under the CFPA, as well as violations of TILA and Regulation Z by the corporate defendants. The magistrate judge recommended that the court grant the Bureau “a permanent injunction to prevent future violations of the law,” redress and a civil money penalty awarded jointly and severally against the defendants, and appointment of a receiver. The court overruled various objections raised by the individual defendant’, including for failure to timely raise the objection before the magistrate judge, and because certain claims were without merit. Ultimately, the court granted the Bureau a default judgment against the defendants and adopted the report and recommendations of the magistrate judge for injunctive relief, consumer redress, a civil money penalty, and the appointment of a receiver.
CFPB, states sue defendants for predatory immigrant-services scam
On February 22, the CFPB and state attorneys general from Massachusetts, New York, and Virginia filed a complaint against a group of defendants that provide immigration bond products or services for non-English speaking U.S. Immigration and Customs Enforcement (ICE) detainees. The Bureau alleges that the defendants engaged in deceptive and abusive acts and practices in violation of the CFPA, while the states bring related claims that the defendants violated their respective consumer-protection laws, by, among other things, (i) representing that they paid the detainees’ bonds and that monthly payments go towards repaying the defendants for doing so (the Bureau and states allege that the monthly payments are actually “rental fees for a GPS device that do not go to repaying consumers’ bonds”); (ii) making false threats that detainees will be re-arrested, detained, or deported if they do not make the monthly payments or remove the defendants’ GPS devices, many of which, the complaint claims, do not actually work; (iii) threatening to send detainees’ accounts to collection, representing that failing to make payments could harm their credit, or threatening to sue detainees or their families for non-payment; (iv) representing that collateral payments would be refunded once the detainees’ proceedings were resolved but in many cases failing to do so; (v) presenting detainees, most of whom cannot read or understand English, with a series of English-only contracts requiring the payment of large upfront fees plus $420 per month to “lease” GPS-tracking ankle monitors until their cases are resolved; (vi) creating the illusion that defendants are affiliated with ICE, even though they have no affiliation with authorities; and (vii) offering financial rewards to employees who sign up new customers and collect payments. The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
CFPB obtains $15 million judgment against student financial aid operation
On January 21, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment in a 2015 case against a now defunct California-based student financial aid operation and its owner (defendants). As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. However, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.”
In issuing the order, the court determined, among other things, that the Bureau had established the owner defendant’s liability for deceptive practices under the CFPA, rejecting the owner defendant’s argument that booklets sent to consumers did not qualify as a “consumer financial product or service” within the scope of the Bureau’s enforcement authority. The court further ruled that the owner defendant had made material representations to consumers that were “likely to mislead” them into thinking, among other things, that they would receive individually tailored products, when in reality their individual information never mattered and no specific financial aid advice was ever provided. However, the court denied the CFPB’s motion for summary judgment with respect to solicitation packets sent by the defendants in 2016, ruling that an included FAQ creates “a genuine issue of disputed fact as to whether the 2016 solicitation packets misrepresented that [the company’s] program permitted consumers to apply for financial aid or to apply through [the company].”
The order requires the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. The court will also issue an injunction to prevent the defendants “from committing any future fraud” once the Bureau submits a proposed order. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P.
CFPB files action against mortgage lender for unlawful practices
On January 15, the CFPB announced a complaint filed in the U.S. District Court for the District of Connecticut against a mortgage lender and four executives (collectively, “defendants”) alleging the defendants engaged in unlawful mortgage lending practices in violation of TILA, FCRA, ECOA, the Mortgage Acts and Practices—Advertising Rule (MAP Rule), and the CFPA. According to the complaint, from as early as 2015 until August 2019 (i) unlicensed sales people would take mortgage applications and offer and negotiate mortgage terms, in violation of TILA and Regulation Z; (ii) company policy regularly required consumers to submit documents for verification before receiving a Loan Estimate, in violation of TILA and Regulation Z; (iii) employees would deny consumers credit without issuing an adverse action notice, as required by the FCRA or ECOA; and (iv) defendants regularly made misrepresentations about, among other things, the availability and cost savings of a FHA streamlined refinance loan, in violation of the MAP Rule. The Bureau is seeking an injunction, as well as, damages, redress, disgorgement, and civil money penalties.
CFPB denies guaranty agency’s petition to set aside CID
On December 16, the CFPB denied a petition by a non-profit guaranty agency that serves as a guarantor of federal student loans to set aside a civil investigative demand (CID) issued by the Bureau last September. The CID requested information from the company to determine, among other things, whether “debt collectors, guaranty agencies, or associated persons” violated the CFPA’s UDAAP provisions by improperly causing borrowers to incur costs or fees in connection with the collection of student loans. The company petitioned the Bureau to set aside the CID. Among other things, the company argued that the Bureau lacked jurisdiction, because it does not provide a consumer financial product or service, but rather a commercial service to the Department of Education (Department). The company also argued that the Bureau lacked jurisdiction due to the company’s fiduciary relationship with the Department, citing a Memorandum of Understanding (MOU) between the Bureau and the Department related to their respective responsibilities for handling student borrower complaints. Additionally, the company claimed that any potential allegations are time-barred, and that, in the alternative, the CID should be stayed until the U.S. District Court for the District of Columbia issues a decision in a pending lawsuit challenging the validity of the Department’s Guaranty Agency Collections Fee Rule.
The Bureau rejected the company’s request to set aside or modify the CID, finding that (i) it has a “reasonable basis to investigate” whether guaranty agencies, like the company, fall within its jurisdiction; (ii) the CID is proper because it seeks information “relevant to a violation” of consumer financial protection laws, as well as information related to the company’s relationships with private collection agencies and loan servicers; (iii) the Bureau’s MOU with the Department has “no relevance” to the Bureau’s exercise of its investigative or enforcement authority; (iv) its investigation is not time-barred because the CFPA’s statute of limitations begins to run upon the Bureau’s discovery of the violation, and, moreover, the Bureau is not limited to gathering information from only within the limitations period; and (v) the company “fail[ed] to establish any basis for an indefinite stay of the CID.”
CFPB reaches $2 million settlement with installment lender for MLA, EFTA violations
On December 30, the CFPB announced a settlement with a Nevada-based consumer lender resolving allegations that the company violated the Military Lending Act (MLA), the Electronic Fund Transfer Act (EFTA), and the CFPA when making installment loans. The settlement is part of “the Bureau’s sweep of investigations of multiple lenders that may be violating the MLA.” According to the Bureau, the company allegedly made loans to active-duty servicemembers and their dependents (covered borrowers) in violation of the MLA by requiring borrowers to repay installment loans by “allotment.” Additionally, the Bureau alleges that the company violated the EFTA by requiring all of its covered borrowers to authorize the company “to initiate an electronic-fund transfer on the first business day after the due date of a payment that has been missed.” This requirement, the Bureau states, violates the EFTA’s prohibition against requiring borrowers to preauthorize electronic-fund transfers as a condition of receiving credit.
Under the terms of the consent order, the company is required to pay a $2.175 million civil money penalty, and must also, among other things, (i) provide notice of the Bureau’s consent order to all covered borrowers repaying their loans by allotment, along with notice that they may elect to change their repayment method; and (ii) provide training to employees involved in loan origination. Furthermore, the company is prohibited from accepting payment by allotment without first obtaining signed authorization from the borrower, and is banned from providing any incentives to employees or considering the number or rate of consumers who elect to repay by allotment during performance evaluations.
CFPB announces $5.5 million loss mitigation settlement
On December 18, the CFPB announced a settlement with a mortgage servicer for allegedly violating the CFPA and RESPA’s implementing regulation, Regulation X, due to widespread failures in the handling and processing of homeowners’ applications for loss mitigation options. According to the consent order, which was entered with the mortgage servicer’s successor in interest, the mortgage servicer violated Regulation X by, among other things, failing to (i) state in the acknowledgement notices the additional documents and information borrowers needed to submit to complete loss mitigation applications; (ii) provide a reasonable due date for submission of borrower documents; (iii) properly evaluate borrowers for all loss mitigation options available to them; and (iv) treat certain applications as “facially complete” in accordance with Regulation X. Additionally, the consent order states that the servicer’s alleged failure to “accurately review, process, track, and communicate to borrowers information regarding their applications for loss mitigation options” is an unfair act or practice and the alleged failure to send accurate acknowledgement notices is a deceptive act or practice. The Bureau asserts that the servicer’s failures delayed or deprived some borrowers of a reasonable opportunity to obtain the benefits of a loss mitigation option, resulting in additional harm such as negative credit reporting, additional late fees, and additional interest.
The consent order requires the successor in interest to pay nearly $5 million in total redress to over 11,000 consumers. The consent order also imposes a $500,000 civil money penalty and includes requirements for operational changes should the successor in interest resume mortgage servicing operations.
Court enters nearly $90 million default judgment against student debt-relief defendants
On December 15, the U.S. District Court for the Central District of California entered a default judgment and order against two companies (collectively, “default defendants”) for their role in a student loan debt-relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation (defendants) for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. 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 asserts that 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. In September, the court entered final judgments against four of the defendants (covered by InfoBytes here), which included a suspended monetary judgment of over $95 million due to the defendants’ inability to pay.
The new default order enters a $55 million judgment against one of the defaulting defendants and requires the defaulting defendant to pay a $30 million civil money penalty with $50,000 of that sum going directly to each of the states. Additionally, the court entered a judgment of over $165,000 to the other defaulting defendant and total civil money penalties of $2.5 million, with $10,000 going to each of the states directly and an additional $1.25 million to California. The judgment also, among other things, permanently bans the defaulting defendants from telemarketing any consumer financial product or service and from selling any debt-relief service.