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CFPB reaches $18 million settlement in credit-report scheme
On May 14, the CFPB filed a proposed stipulated final judgment and order in the U.S. District Court for the Central District of California against a mortgage lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in January claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products, but instead, the defendants allegedly resold or provided the reports to companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services. The CFPB further alleged that defendants violated the TSR and CFPA when they used telemarketing sales calls and direct mail to encourage consumers to consolidate their loans, and falsely represented that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and change their servicer to the Department of Education.
If approved by the Court, the Bureau’s proposed settlement would (i) impose an $18 million redress judgment against the mortgage lender, of which all but $200,000 would be suspended due to the lender’s limited ability to pay; (ii) require one of the individuals and his company to disgorge $403,750 in profits to provide redress; (iii) impose a $406,150 judgement against a second individual and his company, which will be suspended due to the defendants’ inability to pay; (iv) impose a total $450,001 civil money penalty against the defendants; (v) permanently ban the defendants from the debt-relief industry and from using or obtaining prescreened consumer reports; and (vi) prohibit the defendants from on using or obtaining consumer reports for “any business purpose other than underwriting or otherwise evaluating mortgage loans.”
FTC settles with e-commerce telemarketers for $1.2 million
On May 13, the FTC announced a $1.2 million settlement with a group of telemarketing companies and their owners (collectively, “defendants”) for an allegedly deceptive e-commerce scheme in violation of the FTC Act, the Telemarketing Sales Rule (TSR), and the Consumer Review Fairness Act (CRFA). According to the complaint filed in the U.S. District Court for the Western District of Washington, the defendants sold products and services to consumers trying to start at-home internet-based businesses, which the defendants claimed would “substantially increase the visibility of and drive customer traffic to consumers’ ecommerce websites on the Internet.” The defendants would allegedly obtain leads by using a service that produces leads of consumers who have recently registered websites. The defendants would contact the consumers by telephone to sell services and would typically continue to call consumers to “upsell” additional products. The FTC argues that “[c]ontrary to [d]efendants’ representations, many consumers who purchase [d]efendants’ products and services do not end up with a functional website, earn little or no money, and end up heavily in debt.” The complaint alleges that the defendants violated the FTC Act, the TSR, and the CRFA by, among other things, (i) making unsubstantiated and false earnings and product claims; (ii) making false claims about business affiliations; and (iii) using contract provisions that restrict consumers’ ability to review or complain about purchased products or services.
The settlement with two of the entities and one owner includes a monetary judgment of over $16 million, which is partially suspended due to an inability to pay, and requires the defendants to surrender over $900,000. In separate settlements with the other two owners, large monetary judgments are also partially suspended due to an inability to pay, with one required to surrender over $100,000, and the other required to surrender over $200,000.
FTC and SBA warn companies about misleading PPP marketing
On May 14, the FTC and SBA sent letters to two companies for allegedly misleading small businesses seeking Paycheck Protection Program (PPP) loans. The first letter was sent to a California-based media company, which owns the web address “sba.com.” The letter claims the website suggests an “an affiliation or relationship with the SBA and approved PPP lenders” and encourages customers to apply for PPP loans through the site. The second letter, sent to a Utah-based company, asserts the company and its affiliate lead generators may be violating Section 5 of the FTC Act. Among other things, the FTC notes that one of the company’s affiliate lead generators advertises itself as an SBA loan packager for a $495 fee, even though the SBA prohibits lead generators from charging fees to PPP loan applicants. Both letters instruct the recipients to remove all deceptive claims and advertisements and remediate any harm that may have been caused. The letters require the companies to notify the FTC within 48 hours of the actions taken in response.
Credit card launderer settles FTC charges for $6.75 million
On April 22, the FTC filed a complaint against a Canadian company and its CEO (defendants) for allegedly participating in deceptive and unfair acts or practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR) by, among other things, laundering credit card payments for two tech support scams that were sued by the FTC in 2014. The FTC alleges in its complaint that the defendants entered into contracts with payment processors to obtain merchant accounts to process credit card charges. While these contracts prohibited the defendants from submitting third-party sales through its merchant accounts, the FTC claims that the defendants used the accounts to process millions of dollars of consumer credit card charges on behalf of the two tech support operators and also processed charges for lead generators that directed consumers to the tech support scam. The FTC alleges that the defendants were aware of the unlawful conduct of at least one of the two operators and attempted to hide these charges from the payment processors.
Under the proposed settlement, the defendants neither admitted nor denied the allegations, except as specifically stated within the settlement, and (i) will pay $6.75 million in equitable monetary relief; (ii) are permanently enjoined from engaging in any further payment laundering or violations of the TSR; and (iii) will screen and monitor prospective high risk clients.
Rent-to-own payment plan company settles deceptive representation allegations with FTC
On April 20, the FTC filed a complaint against a rent-to-own payment plan company for allegedly making false, misleading, and deceptive representations in violation of the FTC Act to consumers regarding the marketing, sale, and terms of their payment plans. In its complaint, the FTC alleged that while the company offered “same as cash” and “no interest” payment plans to consumers seeking to purchase items at retailers nationwide, it actually charged consumers substantially more than the item’s retail price. Accessing the actual terms of the payment plans was confusing for consumers, the FTC contended, and allegedly led to consumers frequently paying roughly twice the item’s sticker price if they made the initial and all scheduled recurring payments. According to the FTC, the company (i) received tens of thousands of consumer complaints; (ii) was aware consumers were confused by the terms of their payment plans; and (iii) had been presented with concerns from retailers regarding the company’s training materials, which, among other things, instructed sales associates to say “‘there actually isn’t an interest rate, because it’s not a loan.” Under the terms of the proposed settlement, the company is, among other things, (i) prohibited from misrepresenting the costs, nature, terms, and any other material facts related to its payment plans; (ii) required to clearly and conspicuously disclose the total cost to own a product when marketing its plans; (iii) ordered to monitor third parties, including retailers that offer the company’s payment plans to ensure compliance with the terms of the settlement; and (iv) required to receive express, informed consent from consumers prior to billing them for a plan. The company is also required to pay $175 million in equitable monetary relief.
FTC seeks injunction against company posing as SBA lender
On April 17, the FTC filed a complaint against a Rhode Island-based company and its owner (defendants) for allegedly violating the FTC Act by claiming to be an approved lender for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) even though the defendants are neither affiliated with the SBA nor are they an SBA-authorized lender. The FTC alleges in its complaint that the defendants made deceptive statements on their websites, such as “WE ARE A DIRECT LENDER FOR THE PPP PROGRAM,” and directly contacted small businesses claiming to be representing the SBA in order to solicit loan applications on behalf of the businesses’ banks. The FTC states that the defendants have received hundreds, if not thousands, of loan applications from businesses and continue to claim they can make PPP loans despite receiving a cease-and-desist letter earlier this month from the SBA. The FTC seeks injunctive relief to prevent the defendants from continuing to engage in the unlawful acts and practices, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief” that the court deems necessary to redress any consumer harm, and an award of the costs for bringing the action.
CFPB fines short-term lender $1.3 million for unfair and deceptive acts and practices
On April 1, the CFPB announced a $1.3 million settlement with a Texas-based short-term lender to resolve allegations that the lender violated the Consumer Financial Protection Act, FCRA, and TILA. The Bureau alleged that while “marketing, servicing, and collecting on high-interest payday, auto-title, and unsecured consumer-installment loans,” the lender made deceptive representations through advertisements and telemarketing calls when promoting purported loan discounts. The Bureau also alleged that the lender engaged in unfair collection call practices by allegedly calling consumers who failed to make payments numerous times—some more than 15 or 20 times a day—even after being asked to stop. In addition, the lender allegedly repeatedly called consumers’ workplaces and references as a tactic to obtain payments and disclosed, or risked disclosing, to third parties the existence of the delinquent debts. According to the Bureau, the lender also violated FCRA by failing to maintain adequate consumer reporting policies and procedures to ensure the “accuracy and integrity” of the information furnished to consumer reporting agencies, and violated TILA by failing to provide telemarketers guidance on how to lawfully disclose a loan’s annual percentage rate as required by federal law when responding to consumers’ questions about interest and other loan costs.
Under the terms of the consent order, the lender is required to pay a $1.1 million civil money penalty, $286,675 in consumer redress, and is, among other things, (i) permanently restrained from certain collection practices; (ii) required to ensure employees do not misrepresent discount offers when marketing or selling consumer financial products or services; and (iii) tasked with ensuring employees correctly disclose the APR of loan products.
FTC files “piggybacking” charges against credit repair operation
On March 9, the FTC filed a complaint against a Colorado-based credit repair company and its owner for allegedly making false representations to consumers regarding their ability to improve credit scores and increase access to mortgages, personal loans, and other credit products in violation of the Credit Repair Organizations Act, the FTC Act, and the Telemarketing Sales Rule. In its complaint, the FTC alleged that the defendants charged consumers illegal, upfront fees ranging from $325 to $4,000 per tradeline with the deceptive promise that they could “piggyback” on a stranger’s good credit, thereby artificially inflating their own credit score in the process. As the FTC explained, “piggybacking” occurs when a consumer pays to be registered as an “additional authorized user” on a credit card held by an unrelated account holder with positive payment histories. The FTC alleged that the defendants’ practices did not, in fact, significantly improve consumers’ credit scores as promised, and that while the defendants claimed on their website that their piggybacking services were legal, the FTC “has never determined that credit piggybacking is legal” and the practice does not fall within the protections of the Equal Credit Opportunity Act. Under the terms of the proposed settlement, the defendants will be banned from selling access to another consumer’s credit as an authorized user and from collecting advance fees for credit repair services. The defendants will also be required to pay a $6.6 million monetary judgment, which be partially suspended due to the defendants’ inability to pay.
FTC seeks injunction against online investment training academy for deceptive claims
On February 12, the FTC filed a complaint in the U.S. District Court for the Central District of California against a California-based investment training operation alleging use of deceptive claims to sell costly “training programs” targeting older consumers. According to the complaint, the operation allegedly violated the FTC Act and the Consumer Review Fairness Act by using false or unfounded claims to market programs that purportedly teach consumers investment strategies designed to generate substantial income from trading in the financial markets “without the need to possess or deploy significant amounts of investable capital.” The FTC also alleges that the operation’s instructors claim to be successful traders who have amassed substantial wealth using the strategies, but are actually salespeople working on commission. However, the FTC asserts, among other things, that the operation fails to track customers’ trading results and that its earnings claims are false or unsubstantiated. Moreover, the FTC alleges the operation requires that dissatisfied customers requesting refunds sign agreements barring them from posting negative comments about the operation or its personnel, and specifically prohibits customers from reporting potential violations to law enforcement agencies. Among other things, the FTC seeks injunctive relief against the operation, as well as “rescission or reformation of contracts, restitution, the refund of monies paid, disgorgement of ill-gotten monies, and other equitable relief.”
Washington AG sues timeshare exit defendants for unfair and deceptive practices
On February 4, the Washington state attorney general filed a complaint in King County Superior Court against a group of defendants who market services claiming they can release consumers from timeshare contracts. The AG alleges that since 2012, the defendants have unfairly and deceptively contracted with over 32,000 consumers seeking to release timeshare contracts, collecting millions in upfront fees. According to the complaint, the defendants, among other things, advertise their timeshare exit services as being “risk-free” with a 100 percent money-back guarantee; however, the defendants allegedly refuse to issue refunds to clients who face foreclosure, damaged credit ratings, and other negative financial consequences claiming that such outcomes are successful because the clients “technically” no longer own the timeshares. In addition, the AG alleges that the defendants charge clients upfront fees for each timeshare to be exited, and then outsource more than 95 percent of their clients’ files to third-party vendors for significantly discounted rates. These vendors are allegedly left to accomplish the timeshare exits without input or supervision from the defendants and often without a contract governing their work. The complaint alleges violations of the Consumer Protection Act, the Debt Adjusting Act, and the Credit Services Organization Act. The AG seeks numerous remedies including injunctive relief prohibiting the defendants from selling their services and $2,000 in civil penalties per violation of the Consumer Protection Act.