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CFPB sues student loan debt-relief operation
On March 16, the CFPB sued a California-based student loan debt relief company, its owner, and manager (collectively, “defendants”) for allegedly charging borrowers more than $3.5 million in unlawful advance fees. The complaint alleged that between 2015 and 2019, the defendants violated the Telemarketing Sales Rule (TSR) and the CFPA by unlawfully marketing and enrolling borrowers in the company’s purported debt relief services. Defendants allegedly charged and collected advance fees from borrowers with federal student loans to file paperwork on their behalf in order to access free Department of Education debt-relief programs. According to the Bureau, the defendants violated the TSR by requesting and receiving payment of fees before renegotiating, settling, reducing, or altering the terms of at least one debt pursuant to an agreement, and before the consumer made at least one payment pursuant to that agreement. The Bureau also alleged that the owner defendant formed a California limited liability company (relief defendant) and unlawfully transferred a portion of the funds received from the advance fees into the relief defendant’s bank account. The complaint seeks injunctive relief, as well as restitution and civil money penalties. The complaint also seeks to have the relief defendant disgorge or compensate consumers for the funds it received.
DFPI issues first enforcement action against student debt-relief company
On February 3, the California Department of Financial Protection and Innovation (DFPI) announced the first-ever enforcement action under its new structure against a student loan debt-relief company and an investigation into others. According to the order, DFPI alleges, among other things, that an Irvine-based debt-relief company violated the Telemarketing Sales Rule (TSR) and the California Consumer Financial Protection Law (CCFPL) by charging consumers fees ranging from $2,100 to $26,510 to “‘wipe away’ their student loans by getting them ‘dismissed’ or ‘discharged,’” which the company could not achieve. Moreover, consumers often financed the payment of the company’s fees, resulting in more debt and the company refused to issue refunds when requested by some consumers. DFPI alleges the company’s actions constitute unlawful and deceptive practices under the CCFPL and violated the TSR’s prohibition of charging fees before performing services. Lastly, DFPI alleges the company was required to obtain a license under the state’s Student Loan Servicing Act (SLSA) because its actions constitute “servicing” student loans under the statute. The order requires the company to refund the fees collected from 18 consumers by March 15 and to pay a civil penalty of $45,000.
DFPI also announced it issued subpoenas to four other student loan debt-relief companies to determine whether the companies engage in or have engaged in any unlawful, unfair, deceptive, or abusive acts or practices and whether their activities require a license. Responses to the subpoenas are due in March.
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.
Court enters judgments against multiple defendants in CFPB debt-relief action
On December 15, the U.S. District Court for the Central District of California entered final judgment against two defendants (defendants) and a default judgment against another defendant (defaulting defendant) in an action brought by the CFPB alleging the defendants (and others not subject to these judgments) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defendants, one other company, its two owners, and four attorneys, alleging 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 businesses allegedly charged the fees before the customer 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. In August, the court approved stipulated final judgments with one of the owners of the other company and three of the attorneys. In December, the court entered a default judgment against the other company and another owner (previous InfoBytes coverage available here).
The final judgment permanently bans the defendants from engaging in any debt-relief service or telemarketing of any consumer financial product or service. Additionally, the court entered a suspended judgment of over $11 million in redress, which will be satisfied by a payment of $5,000 (due to an inability to pay) and each defendant is required to pay a civil money penalty of $1 to the Bureau. Liability for nearly $5 million was entered by default judgment against the defaulting defendant and a civil monetary penalty in the amount of $5 million.
Court enters $41 million default judgment against student debt-relief operators
On December 3, the U.S. District Court of the Central District of California entered a default judgment against a student debt-relief company and one of its owners (collectively, “defaulting defendants”) in an action brought by the CFPB alleging the defaulting defendants (and others not subject to the judgment) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defaulting defendants, one other company, its owner, and four attorneys, alleging 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 businesses allegedly charged the fees before the customer 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. In August, the court approved stipulated final judgments with the other company owner (available here) and three of the attorneys (available here, here, and here).
The court entered into a default judgment against the defendants after they failed to file an answer or otherwise respond to the Bureau’s complaint. The judgment requires the defaulting defendants to pay over $11 million in consumer redress with separate $15 million civil money penalties entered against the company and the owner. Additionally, the defaulting defendants are permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service.
CFPB charges debt-relief company and owners
On November 20, the CFPB announced it filed a complaint in the U.S. District Court for the Northern District of Illinois against a debt-relief company and its two owners (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. According to the complaint, between 2011 and April 2019, the defendants allegedly misrepresented material aspects of their student loan debt-relief services, by, among other things, falsely representing that the services would reduce or eliminate payments, stop wage garnishment, lift tax liens, and improve credit scores. Additionally, the Bureau alleges the defendants violated the TSR by requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement. Moreover, the defendants’ fees were allegedly not proportional to or a percentage of the amount saved as a result of their services. The complaint seeks injunctions against the defendants as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
FTC reaches $62 million settlement with student loan debt relief operation
On November 19, the FTC entered into a settlement with defendants accused of engaging in deceptive practices when marketing and selling student loan debt relief services. As part of its enforcement initiative, Operation Game of Loans (covered by InfoBytes here), the FTC alleged that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) by, among other things, charging illegal up-front fees to enroll consumers in debt relief programs, accepting monthly payments that were not applied towards student loans, and collecting monthly fees that consumers believed were being applied to their loans but instead were going towards unrelated “financial education” programs (see previous InfoBytes coverage here). Under the terms of the order, the defendants are permanently banned from providing secured and unsecured debt relief products and services, and are prohibited from (i) engaging in unlawful telemarketing practices and violating the TSR; (ii) misrepresenting financial products and services; (iii) making unsubstantiated claims; and (iii) collecting, or assigning any right to collect, payments from consumers for products sold by the defendants. The defendants are also ordered to pay $62 million in monetary relief.
Maryland AG obtains $2.6 million in student debt relief
On November 16, the Maryland attorney general announced that it obtained over $2.6 million in debt relief from a third-party debt buyer for approximately 1,200 former students of a defunct Maryland-based for-profit college. In its press release, the AG alleged that the for-profit college offered “low-quality programs at a price significantly higher than comparable programs at Maryland’s public institutions.” According to the AG, due to the college’s high tuition, students had little choice but to take out loans issued by the college itself. After the college permanently closed, a court-appointed receiver sold the rights to collect the loans to a third-party debt buyer. The AG took the position that, because the college abruptly closed and failed to provide its students with the services promised, the loans should have been canceled rather than sold. To resolve the dispute, the AG and the third-party debt buyer entered into a settlement. Under the terms of the settlement, the third-party debt buyer agreed to cease collection on any of the outstanding loans and to refund approximately 75 percent of the payments collected from the students after it bought the loan portfolio. Furthermore, the debt buyer agreed to remove trade lines relating to the loans from the student’s credit reports.
CFPB takes action against debt-relief and debt-settlement companies
On November 5, the CFPB announced an action filed in the U.S. District Court for the Central District of California against a student loan debt-relief company, a debt-settlement company, and the owner of both companies (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging illegal advance fees and using deceptive tactics to induce consumers to sign up for services. According to the complaint, from 2015 to the present, the defendants allegedly charged consumers upfront fees between $1,000 and $1,450 for the debt-relief company to file paperwork with the U.S. Department of Education to obtain loan consolidation, loan forgiveness, or income-driven repayment plans. According to the complaint, some consumers paid the upfront fee using a third-party financing company and paid an APR between 17 and 22 percent. Additionally, the CFPB alleges that the defendants required some consumers to pay the fee in installments into a trust plan, which carried a $6 monthly banking fee paid to the administrator of the trust accounts. The Bureau alleges that the defendants failed to provide the proper disclosures under the TSR. Moreover, the complaint asserts that from 2019 to the present, the defendants violated the CFPA by representing to consumers that they were turned down for a loan in order to pitch the company’s settlement services.
The complaint seeks consumer redress, injunctive relief, and civil money penalties.
Court approves additional settlements in CFPB student debt relief action
On September 8, the U.S. District Court for the Central District of California entered a stipulated final judgment against two additional defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging 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. Four defendants settled in August, with a total suspended judgment of over $95 million due to the defendants’ inability to pay and total payments of $90,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties.
The new final judgment holds the two relief defendants liable for nearly $7 million in redress; however, the judgment is suspended based on an inability to pay. The defendants are not subject to any civil money penalties, but are required to relinquish certain assets and submit to certain reporting requirements.