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CFPB sues credit repair telemarketers
On May 2, the CFPB announced that it had filed a lawsuit against Utah-based credit repair telemarketers and their affiliates (collectively, "defendants") for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). According to the complaint filed in the U.S. District Court for the District of Utah, the CFPB alleges the defendants charged consumers a fee for telemarketed credit repair services when they signed up for the services, and then monthly thereafter, without (i) waiting for the timeframe in which they represented their services would be provided to expire; and (ii) demonstrating that the promised results have been achieved, in the form of a consumer report issued more than six months after those results were achieved, as required by the TSR. Additionally, the CFPB alleges that certain defendants made false and misleading claims constituting deceptive acts under the CFPA. Specifically, the CFPB alleges those defendants marketed that guaranteed, or high-likelihood, loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when in actuality, the products were not available. The CFPB is seeking restitution, civil money penalties, and injunctive relief against the defendants.
District Court partially grants summary judgment in favor of CFPB in debt collection action
On March 21, the U.S. District Court for the Northern District of Georgia partially granted the CFPB’s motion for summary judgment against a New York-based company and three individuals for allegedly violating the CFPA and the FDCPA in a debt collection operation, but denied the motion for the remaining defendants—a Georgia-based company and one individual—determining there was a genuine issue of material fact. As previously covered by InfoBytes, in March 2015, the CFPB filed a lawsuit against participants in the debt collection operation, alleging that the participants attempted to collect debt that consumers did not owe or that they were not authorized to collect. Further, the CFPB alleged that the participants used harassing and deceptive techniques, including placing robocalls through a telephone broadcast service provider to millions of consumers, stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. As a result, according to the CFPB’s allegations, the participants received millions of dollars in profits from the targeted consumers. The CFPB moved for summary judgment on all claims.
The court granted the motion on all claims against the New York-based company and three individuals, concluding that they committed multiple violations of the CFPA and the FDCPA through, among other things, the robocalls, false legal threats, and the processing of consumer payments. With respect to the CFPA claims against certain individuals, the court found that they provided “substantial assistance” to the other participants in the operation as they committed actions in violation of the CFPA, and therefore were liable themselves. With respect to the Georgia-based company and one individual, the court concluded that there was a genuine issue of material fact as to whether either qualified as a “debt collector” under the FDCPA and, therefore denied the CFPB’s motion as to those claims. Because there are remaining issues as to some of the participants’ liability, the court concluded that a ruling on damages would be premature.
CFPB and NYAG defend Bureau’s constitutionality in 2nd Circuit
On March 15, the CFPB and the New York Attorney General (NYAG) filed opening briefs in the U.S. Court of Appeals for the 2nd Circuit in their appeal of the Southern District of New York’s (i) June 2018 ruling that the CFPB’s organizational structure, as defined by Title X of the Dodd-Frank Act, is unconstitutional; and (ii) the September 2018 order dismissing the NYAG’s claims under the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the Bureau and the NYAG filed a lawsuit in February 2017, alleging that a New Jersey-based finance company and its affiliates (defendants) engaged in deceptive and abusive acts by misleading first responders to the World Trade Center attack and NFL retirees with high-cost loans by mischaracterizing loans as assignments of future payment rights, thereby causing the consumers to repay far more than they received. After the defendants moved to dismiss the actions, the district court allowed the NYAG’s claims to proceed under the CFPA, even though it had dismissed the Bureau’s claims, but then reversed course. Specifically, in September 2018, the court concluded that the remedy for Title X’s constitutional defect (referring to the Bureau’s single-director structure, with a for-cause removal provision) is to invalidate Title X in its entirety, which therefore invalidates the NYAG’s statutory basis for bringing claims under the CFPA. (Covered by InfoBytes here.)
In its opening brief to the 2nd Circuit, the Bureau argues that the district court erred when it held that the for-cause removal provision of the single-director structure is unconstitutional. According to the Bureau, the single director “does not undermine the President’s oversight. If anything, the Bureau’s single-director structure enhances the President’s ‘ability to execute the laws…’” because the President can still remove the director for cause, which allows the director to be held responsible for her conduct. In the alternative, the CFPB argued that should the court find the for-cause removal provision unconstitutional, the proper remedy is to sever the provision from Title X in accordance with the statute’s severability clause and not hold the entire CFPA invalid.
In a separate brief, the NYAG makes similar constitutional and severability arguments as the Bureau, but also argues that even if the entirety of Title X were to be held invalid, the state law claims should survive under the federal Anti-Assignment Act.
Court rejects dismissal bid in veteran pension case
On March 5, the U.S. District Court for the District of South Carolina affirmed the recommendation of a Magistrate Judge and denied the motion of a law firm, one of its partners, and others’ (collectively, “defendants”) to dismiss an action alleging that the defendants violated the Federal Anti-Assignment Act (FAAA) and the Racketeer Influenced and Corrupt Organization Act (RICO). These alleged violations were based on the advance purchase of future military pension and disability benefits in exchange for current lump sum payments. According to the report of the Magistrate Judge, five military veterans (collectively, “plaintiffs”) alleged that the defendants operated a coordinated scheme to generate leads from veterans seeking money, and connected veterans to brokers and purchasers in order for the veteran to sell future pension and disability payments for a lump sum wire transfer. The plaintiffs also alleged the operators required the veterans to execute an insurance policy or structured asset agreement to ensure the loan is fully repaid upon the veteran’s death. The Magistrate Judge recommended the motions be denied, concluding that the plaintiffs sufficiently pled the details of the alleged scheme and that the defendants violated the FAAA by inducing veterans to enter into contracts to sell their retirement or disability benefits in advance of the date they are due and payable. Moreover, the Magistrate Judge found that the plaintiffs sufficiently alleged the individual plaintiffs violated RICO by engaging in a criminal enterprise that “coordinated various corporations and websites to buy the plaintiffs’ and other veterans’ benefits and funnel the proceeds through [a defendant]’s account.” Upon review of the report, the district court found “no clear error” by the Magistrate Judge, agreed with the recommendations, and denied the motions to dismiss.
As previously covered by InfoBytes, one of the individual defendants was recently fined $1 in civil money penalties by the CFPB for allegedly violating the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments.
CFPB petitions court to force law firm to comply with CID
On February 25, the CFPB petitioned the U.S. District Court for the Southern District of New York for an order requiring a debt collection law office to comply with a civil investigative demand (CID) issued by the Bureau in June 2017. The CID requested information from the debt collection firm as part of a Bureau investigation into whether debt collectors, furnishers, or other persons associated with the collection of debt and furnishing of information have engaged or are engaging in unfair, deceptive, or abusive acts or practices in violation of the CFPA, FDCPA, and FCRA. According to the petition, the firm partially responded but withheld several responses asserting that doing so would require the firm's principal to violate professional responsibility rules in the states of New York and New Jersey. Withheld information, the Bureau claims, includes telephone calls and written correspondence with indebted consumers, disputes with consumers over the firm's credit reporting activities to third party agencies, and service contracts with creditors on whose behalf the firm collects debt. The Bureau argued that the court should direct the law firm to comply with the CID because, aside from following all applicable procedural requirements for the issuance of a CID contained within the CFPA, it “has shown that the investigation is being conducted for a legitimate purpose, that the inquiries may be relevant to that purpose, that the information sought is not already within the Bureau's possession, and that the administrative steps required by the [CFPA] and its implementing regulations have been followed. . . .” The Bureau further requested an order that the firm show cause and explain why it should not be compelled to comply with the CID.
FTC and CFPB reauthorize cooperation MOU
On February 26, the FTC announced its coordination with the CFPB to reauthorize their memorandum of understanding (MOU), which outlines the two agencies’ cooperation under the Consumer Financial Protection Act to prevent duplication of efforts and ensure consistency. The interagency agreement outlines processes for, among other things, coordinated law enforcement activities; consultation on rulemaking activities, including rulemaking regarding prohibitions on unfair, deceptive, and abusive acts or practices; and coordinated sharing of supervisory and examination information, strategic and operational planning, consumer complaint information, and consumer education efforts. The MOU also addresses provisions related to information sharing and claims of confidentiality.
CFPB announces settlement with payday lending operation
On February 6, the CFPB announced a settlement with an Indiana-based payday retail lender and affiliates (companies) in seven states to resolve alleged violations of the Consumer Financial Protection Act (CFPA), Truth in Lending Act (TILA), and Gramm-Leach-Bliley Act (GLBA) privacy protections. The CFPB alleges that the companies engaged in unfair acts or practices, failed to properly disclose annual percentage rates, and failed to provide consumers with required initial privacy notices.
Specifically, the Bureau alleges that the companies violated CFPA’s UDAAP provisions by, among other things, (i) failing to implement processes to prevent unauthorized charges, including those resulting from unauthorized draws on borrowers’ bank accounts; (ii) requiring loan applicants to provide contact information for their employers, supervisors, and four personal references, and then repeatedly calling employers to seek payments when borrowers became delinquent; (iii) disclosing the borrower’s financial information during those calls and, in certain instances, asking the third party to make payments on the loan; (iv) misusing personal references for marketing purposes; and (v) advertising check-cashing and telephone reconnection services they were no longer providing.
The Bureau also asserts that the companies violated the GLBA by only providing initial privacy notices when consumers opened their first loan. GLBA requires financial services firms to provide borrowers a privacy policy each time a new customer relationship is established, which in this instance the CFPB claims, occurred each time a borrower paid off an outstanding loan and subsequently took out a new loan. Finally, the Bureau alleges that because the payday loans extended by the companies constitute as closed-end credit under TILA and Regulation Z, the companies were required to disclose a payday loan database fee charged to Kentucky customers in the APR but failed to do so. This resulted in, among other things, inaccurate APR disclosures in advertisements.
While the companies have not admitted to the allegations, they have agreed to pay a $100,000 civil money penalty and are prohibited from continuing the illegal behavior.
CFPB files proposed consent order banning certain Canadian and Maltese payday lenders from U.S. consumer lending
On February 1, the CFPB and a group of payday lenders, including individuals and corporate officials based in Canada and Malta (collectively, “defendants”), filed a proposed consent order with the U.S. District Court for the Southern District of New York that would resolve allegations that the defendants violated the Consumer Financial Protection Act. According to the Bureau’s press release, the defendants allegedly (i) misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws; (ii) misrepresented that loan agreements were not subject to federal or state laws; (iii) misrepresented that non-payment would result in lawsuits, arrests, imprisonment, or wage garnishment; and (iv) conditioned loan agreements upon irrevocable wage assignment clauses. Under the terms of the proposed order, the defendants would be, among other things, (i) permanently banned from consumer lending in the U.S.; (ii) permanently restrained from the collection or sale of existing U.S. consumer debts; and (iii) subject to certain reporting and recordkeeping requirements. The proposed order does not impose a fine on the defendants.
CFPB settles with loan broker over veteran pension loans
On January 23, the CFPB announced a settlement with an online loan broker resolving allegations that the broker violated the Consumer Financial Protection Act by operating a website that connected veterans with companies offering high-interest loans in exchange for the assignment of some or all of their military pension payments. Specifically, the CFPB alleges the broker (i) misrepresented the contracts he facilitated as valid, when, in fact, under federal law veterans’ pension payments are unassignable; (ii) misrepresented to consumers that the offer was a “sale” of a product not a high-interest credit offer; (iii) misrepresented to consumers when they would receive their loan funds; and (v) failed to disclose the applicable interest rate on the loans. Under the program, veterans were also required to obtain life insurance policies in order to ensure the outstanding amount would be repaid even if the veteran died. Under the terms of the consent order, the broker is prohibited from engaging in the specified conduct in the future and is required to assist the Bureau in identifying and locating the veterans who were harmed. The Bureau required the broker to pay $1 in civil money penalties, based on his financial statements.
CFPB imposes $200,000 fine on small dollar lender for deceptive debt collection practices
On October 24, the CFPB announced a settlement with a Tennessee-based small dollar lender, resolving allegations that the lender violated the Consumer Financial Protection Act (CFPA). Specifically, as stated in the consent order, the CFPB alleges that the lender (i) deceptively threatened to sue consumers on time-barred debts; (ii) misled consumers that the lender would report late payments to credit reporting agencies when the lender did not; and (iii) abusively set-off previous loans by telling its employees not to tell check-cashing consumers that it would deduct previous amounts owed from the check proceeds. Consequently, the Bureau alleged that the lender took “unreasonable advantage of the consumers’ lack of understanding” that the lender would take a portion of the check they intended to cash and physically kept the check away from consumers until the transaction was complete, which “nullified” any written set-off disclosures when the consumer signed his or her agreement. In addition to the $200,000 civil money penalty, the consent order requires the lender to (i) pay approximately $32,000 in restitution to consumers, and (ii) establish a compliance plan with detailed steps and timelines for complying with applicable laws.