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On February 6, the U.S. District Court for the Northern District of Texas vacated a jury award of $2.5 million in favor of two nationwide debt collection agencies (plaintiffs), in an action alleging fraud by a law firm and vendor (defendants) in their provision of credit repair services. According to the opinion, the plaintiffs claimed that the defendants ran “a fraudulent credit repair scheme” in which the defendants “prey[ed] on financially troubled consumers by drafting, signing, and mailing frivolous dispute correspondences—all using [the defendant’s] patented software that generates context-based unique letters—in the name of consumers, without the consumer’s specific knowledge or consent, and without identifying that the letters are from a law firm, rather than a consumer,” in violation of the FDCPA and the FCRA. The defendant law firm responded that all of its credit repair clients provided consent for the law firm to send the letters on their behalf in an effort to improve their credit. After a six day trial, the defendants filed an amended motion for judgment as a matter of law, claiming the plaintiffs had not met their burden of proof on several elements of their fraud claims. The court “reserved ruling on the motion and stated that it would consider the arguments raised in the motion post-verdict, as necessary.” After the jury found in favor of the plaintiffs and awarded them $2.5 million in damages, the defendants filed a renewed motion for judgment as a matter of law, arguing that the plaintiffs had not shown any “material misrepresentation” or “material false statement” by the defendants, and further, that the plaintiffs did not show a “reasonable reliance” on such statements, or that the defendants had any duty to disclose facts to the plaintiffs.
According to the opinion, the defendants’ motion for judgment as a matter of law called into question the “legal sufficiency” of the plaintiffs’ evidence in support of the jury’s verdict. In granting the motion and vacating the jury award in favor of the plaintiffs, the court held that the plaintiffs failed to show a material false statement by the defendants, and therefore the evidence could not support the jury’s fraud verdict.
On January 27, the Michigan governor signed HB 4411, which establishes provisions for credit service organizations. Among other things, HB 4411 prohibits persons engaged in credit service activities from (i) charging or receiving money from a buyer seeking a loan, extension of credit, or other valuable consideration before closing; (ii) charging a buyer or receiving from a buyer money or other valuable consideration before completing all agreed upon services, or “for referral to a retail seller that will or may extend credit to the buyer if the credit that is or may be extended to the buyer is substantially the same as that available to the general public”; (iii) making or using false or misleading representations, or engaging in a fraudulent or deceptive act or practice connected with the offer or sale of a credit services organization, stating that the organization has the ability to delete adverse credit history, or guaranteeing that the organization can obtain an extension of credit regardless of the buyer’s credit history; (iv) failing to perform the agreed upon services within 90 days after the contract is signed by the buyer; (v) advising a buyer to make untrue or misleading statements to certain entities, including a consumer credit reporting agency; (vi) assisting in the removal of adverse credit information that is accurate and not obsolete, or assisting a buyer in creating a new credit record using alternative personal information; and (vii) submitting buyer disputes to consumer credit reporting agencies without a buyer’s knowledge. The act is effective immediately.
On January 13, the Illinois attorney general announced that he filed two separate suits in the Circuit Court of Cook County against two credit repair companies and three individuals who allegedly engaged in deceptive and fraudulent practices when promoting credit repair services to consumers and collecting debts in violation of the Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organization Act, and the Collection Agency Act.
In the first complaint, the AG alleges a credit repair agency is not registered in Illinois as a credit services organization, and that it, along with its owner, a co-defendant, has not filed the statutorily required $100,000 surety bond with the Secretary of State’s office. The AG’s complaint alleges that the company charges unlawful upfront fees while making false promises that it will increase consumers’ credit scores. When the defendants fail to live up to these promises, they subsequently refuse to refund the money that consumers paid for the credit repair services they did not receive.
In the second complaint, the AG makes the same allegations against a different credit repair company, its owner, and a former employee. In addition, the second complaint also alleges that the company operates as a debt collection agency, but does not possess the requisite state license as a collection agency. Further, the complaint claims that, among other things, the defendants extract payments for “completely fabricated” payday loan debt from consumers who do not actually owe on the loans by using threats and other abusive and harassing collection tactics.
The AG seeks a number of remedies including injunctive relief prohibiting all defendants from engaging in any credit repair business, and prohibiting the second company and its owner and employee from engaging in any debt collection business; rescission of consumer contracts; and restitution to all affected consumers.
On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.
On June 21, the FTC announced that the U.S. District Court for the District of Connecticut temporarily halted the operation of an alleged credit repair scheme based on allegations the company charged illegal upfront fees and falsely claimed to substantially improve consumers’ credit scores in violation of the FTC Act, the Credit Repair Organizations Act, the Telemarketing Sales Rule (TSR), the Consumer Review Fairness Act, TILA, and the EFTA. According to the complaint, since 2014, the company, among other things, (i) claims they can improve consumers’ credit scores by removing negative items and hard inquiries from credit reports; (ii) charges advance fees for their services; (iii) does not provide the required disclosures for its services, including credit transaction disclosures related to the financing of the service fees; (iv) engages in electronic funds transfers from consumers’ bank accounts without proper authorization; and (v) threatens consumers with legal action after consumers complain about the lack of results. The court order requires the company to temporarily cease its operations and ensures the company’s assets are frozen.
On May 2, the CFPB announced that it had filed a lawsuit against Utah-based credit repair telemarketers and their affiliates (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.
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Tim Lange to discuss "State legislative update - MSBs and consumer finance" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the Puerto Rican Symposium of Anti Money Laundering
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the Mortgage Bankers Association Servicing Solutions Conference & Expo
- Jonice Gray Tucker and H Joshua Kotin to discuss regulatory compliance issues in the fintech industry at Protiviti's Risk & Compliance Innovation Roundtable
- APPROVED Checkpoint Webcast: CFL overview
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems