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FTC settles with payday lender
On February 11, the FTC announced a settlement with the owners and operators of a payday lending enterprise (collectively, “defendants”) for allegedly deceptively overcharging consumers and withdrawing money from consumers’ accounts without permission. The FTC filed a complaint against the defendants last year claiming, among other things, that the defendants violated the FTC Act, the Telemarketing Sales Rule, TILA/Regulation Z, and EFTA/Regulation E, by advertising loans with fixed payback terms and promising consumers that their loans would be repaid after a pre-determined number of payments. However, the FTC claimed that in many cases the payback terms defaulted to debiting the financial fee only, and the U.S. District Court for the District of Nevada granted a temporary restraining order against the defendants (covered by InfoBytes here). Under the terms of the stipulated final order, the FTC ordered that any consumer debt for loans issued and assigned to the defendants are “deemed paid in full to the extent that such [e]xisting [d]ebt exceeds the amount financed plus one finance charge. . . .” The defendants are also (i) permanently banned from the payday lending industry, including making loans or extending credit of any kind; (ii) prohibited from making any misrepresentations related to the collection of any debt; (iii) prohibited from making unauthorized electronic fund transfers from consumers’ bank accounts; and (iv) permanently banned from creating, or causing to be created, any remotely created payment orders. A $114 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
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 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.
CFPB reaches settlement with unlicensed debt collector
On December 8, the CFPB announced a settlement with a New Jersey-based debt collector resolving allegations that the defendant violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by obtaining judgments and demanding payments from consumers in states where it was not legally licensed to do so. According to the Bureau, the defendant purchased consumer debts from debt brokers, used law firms to obtain judgments against the consumers, and “continued to collect on those judgments . . . as well as on a handful of payment agreements it obtained from debtors.” The Bureau found that the defendant falsely implied that it had a legally enforceable right to recover payments from consumers in Connecticut, New Jersey, and Rhode Island, and demanded payments and threatened legal action even though it did not hold the debt collection licenses required under the laws of those states. The consent order requires the defendant to pay a $204,000 civil money penalty, and prohibits the defendant from collecting on the judgments against, or payment agreements entered into with, consumers in Connecticut, New Jersey, and Rhode Island when it was not legally allowed to do so. The defendant is also required to “take all necessary steps to vacate all judgments not discharged in bankruptcy or [that were] previously satisfied,” and must suspend collection of those judgments and provide notice to consumers with payment agreements that have been satisfied.
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.
CFPB settles with auto loan company over deceptive sales practices
On November 20, the CFPB announced a settlement with a Florida-based nonbank and the nonbank’s founder (collectively, “defendants”), resolving allegations that the defendants violated the Consumer Financial Protection Act by making misleading statements in disclosures and advertisements for their auto loan payment accelerator program. According to the Bureau, the defendants’ program automatically deducts partial payments on a bi-weekly basis from consumers’ bank accounts and then forwards those payments every month to consumers’ lenders or servicers. As a result, enrolled consumers end up making the equivalent of 13 monthly payments each year instead of 12. While the program is marketed as an opportunity for consumers to save money, the Bureau claimed that the defendants misrepresented the amount consumers would save by not disclosing a $399 enrollment fee in the savings calculations presented to consumers. Due to the enrollment fee, the program’s costs “ordinarily exceed[ed] any savings,” the Bureau alleged, noting that the defendants had no basis for claiming that thousands of consumers saved money by enrolling in the program.
The consent order requires the defendants to pay a $1 civil money penalty and $9.3 million in consumer redress, which is suspended upon payment of $900,000 based on the defendants’ demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The defendants are also prohibited from making any deceptive misrepresentations about the payment program or any other payment accelerator programs.
FTC says mobile banking app is deceptive
On November 18, the FTC filed a complaint against a mobile banking app operator alleging the defendants violated the FTC Act by deceiving users about their high-interest bank accounts and falsely promising users “24/7” access to their funds. The FTC’s complaint alleges that the defendants represented that users would receive “‘minimum base’ interest rates” of at least 0.2 percent or 1.0 percent, but that users actually received a starting interest rate of 0.04 percent and stopped earning any interest if they requested that their funds be returned. Additionally, the complaint claims that while the defendants promised users 24/7 access to their funds and represented they could make transfers out of their accounts and receive the requested funds within three to five business days, some users waited weeks or months to receive their funds despite submitting repeated complaints to the defendants. Other users claimed they never received their money. Moreover, some users claimed that the defendants blamed the failure to deliver the requested funds on “unspecified issues with unspecified ‘banking partners’ or ‘technology partners’ and promised the delays were temporary.
The FTC seeks an injunction against the defendants, along with monetary relief including “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
CFPB charges lender with misrepresenting loan risks
On November 5, the CFPB filed a complaint in the U.S. District Court for the Southern District of Florida against a Florida-based company and its CEO (collectively, “defendants”) alleging violations of the Consumer Financial Protection Act through their offering of short-term, high-interest loans funded by deposits made by other consumers. According to the complaint, the defendants allegedly misrepresented both the risks associated with the deposit product as well as the annual percentage rate (APR) for the loans offered to other consumers. The Bureau alleges that the defendants engaged in deceptive acts or practices by, among other things, (i) purportedly marketing loans, which ranged from $100 to $500 each, as having a 440 percent APR, when in reality the actual APR ranged from 975 to 978 percent; (ii) claiming that deposits received by consumers to fund its loans are guaranteed a 15 percent annual percentage yield; (iii) guaranteeing that consumers’ deposits are FDIC insured and held at “‘member financial institutions’ and ‘participating banks’”; and (iv) claiming that roughly every minute a new consumer makes a deposit. However, the Bureau contends that deposits are not held in FDIC-insured accounts, that the rate of return is not guaranteed, and that “the average rate of new customers is just a few each day.” The Bureau further alleges that because the majority of the loans violate Florida’s criminal-usury law, rendering them uncollectable, the defendants would be unable to collect delinquent loans or meet their obligations to consumers seeking to withdraw their deposited funds. Among other things, the Bureau seeks an injunction against the defendants, damages, consumer redress, disgorgement, and a civil money penalty.
CFPB settles with payment plan company over deceptive sales practices
On November 2, the CFPB announced a settlement with a Texas-based payment plan company, resolving allegations that the company’s loan payment program disclosures contained misleading statements in violation of the Consumer Financial Protection Act. According to the Bureau, the company’s loan payment program for auto loans is marketed as an opportunity for consumers to pay off loans faster and more cheaply, where automatic partial payments are deducted bi-weekly from consumers’ bank accounts and then forwarded to consumers’ lenders or servicers. However, consumers who enrolled in the bi-weekly program end up “making 13 monthly payments or one full extra payment to [the company] each year,” the Bureau alleged, in addition to paying a bi-weekly debit fee. According to the consent order, the company, among other things, allegedly provided consumers with a customized “benefits summary” that stated a specific amount of interest savings the consumer would receive by enrolling in the program. The Bureau alleged that the benefits summary, however, failed to disclose that the fees would ordinarily exceed the interest savings. The program—which was purportedly marketed as a “financial benefit to consumers”—created the misleading impression that consumers would save money using the product even though the company allegedly knew the majority of enrolled consumers ended up paying more in total on their loans.
The consent order requires the company to pay a $1 civil money penalty and $7.5 million in consumer redress, which is suspended upon payment of $1.5 million based on the company’s demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The company is also prohibited from making any misrepresentations about its payment program or any other payment accelerator programs.