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On August 28, the CFPB announced a proposed settlement with Utah-based credit repair telemarketers and various 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) by collecting illegal advance fees. As previously covered by InfoBytes, in its initial lawsuit the CFPB alleged the defendants requested and received payment of “prohibited” upfront fees for telemarketed credit repair services when they signed up. In June, a district court ruling put a hold on the Bureau’s initial attempt to impose the settlement because of “outstanding issues of fact” which precluded it from entering the agency’s requested relief at that time (covered by InfoBytes here). The Bureau and defendants have now agreed to a new settlement which will, among other things, (i) impose over $2.7 billion in redress (understanding that the principal corporate defendant is in Chapter 11 bankruptcy proceedings); (ii) impose over $64 million in civil money penalties; (iii) ban defendants from telemarketing and from doing business with certain marketing affiliates for ten years; and (iv) require defendants to send a notice of the settlement to “any remaining enrolled customers who were previously signed up through telemarketing.”
The proposed settlement is subject to final approval by the court.
On July 31, the District Court for the Central District of California entered judgment in favor of the court-appointed receiver for defendants against the non-party provider of payment processing and escrow services to defendants and its managing member in the amount of $75,000, following a July 10 order requiring defendant to pay $243 million in redress and civil penalties. These judgments were entered in connection with the lawsuit filed by the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney, against a student loan debt relief operation for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees (covered by InfoBytes here).
The defendant companies and one of the controlling business partners settled in 2020, but the court ordered the remaining controlling business partner to pay $243 million in redress and civil penalties earlier in July based on his involvement in violating various laws through the operation, including the TSR and the CFPA. Of the $243 million, the CFPB is entitled to over $95 million as redress for unlawful fees paid by consumers affected by the student loan debt relief operation and nearly $148 million of civil money penalties, and Minnesota, North Carolina, and California are each entitled to $5,000 of civil money penalties. The recent judgment of $75,000 entered against the non-party payment processing service provider resulted from the settlement of a separate lawsuit alleging that the service provider facilitated the fraud perpetuated by the defendants in the student loan debt relief operation and later attempted to deceptively transfer consumer funds held by defendants to avoid their transfer to the receiver.
On July 18, the FTC, along with over 100 federal and state law enforcement partners nationwide, including the DOJ, FCC, and attorneys general from all 50 states and the District of Columbia, announced a new initiative to combat illegal telemarketing calls, including robocalls. The joint initiative, “Operation Stop Scam Calls,” targets telemarketers and the companies that hire them, lead generators that provide consumers’ telephone numbers to robocallers and others who falsely represent that consumers consented to receive the calls. The initiative also targets Voice over Internet Protocol (VoIP) service providers that facilitate illegal robocalls, many of which originate overseas.
In connection with Operation Stop Scam Calls, the FTC has initiated five new cases against companies and individuals allegedly responsible for distributing or assisting in the distribution of illegal telemarketing calls to consumers across the country. According to the announcement, the actions reiterate the FTC’s position “that third-party lead generation for robocalls is illegal under the Telemarketing Sales Rule (TSR) and that the FTC and its partners are committed to stopping illegal calls by targeting anyone in the telemarketing ecosystem that assists and facilitates these calls, including VoIP service providers.” The announcement also states that more than 180 enforcement actions and other initiatives have been taken by 48 federal and 54 state agencies as part of Operation Stop Scam Calls.
Among the new actions announced a part of Operation Stop Scam Calls is a complaint filed against a “consent farm” lead generator, which allegedly uses “dark patterns” to collect consumers’ broad agreement to provide their personal information and receive robocalls and other marketing solicitations through a single click of a button or checkbox via its websites. Under the terms of the proposed order, the defendant would be required to pay a $2.5 million civil penalty and would be banned from engaging in, assisting, or facilitating robocalls. The defendant would also be required to implement measures to limit its lead generation practices, establish systems for monitoring its own advertising and that of its affiliates, comply with comprehensive disclosure requirements concerning the collection of consumers’ consent to the sale of their information, and delete all previously collected consumer information.
Other actions were taken against a California-based telemarketing lead generator, a telemarketing company that provides soundboard calling services to clients who use robocalls to sell a range of products and services, a New Jersey-based telemarketing outfit that placed tens of millions of calls to consumers whose numbers are listed on the National Do Not Call Registry, and Florida-based defendants accused of assisting and facilitating the transmission of roughly 37.8 million illegal robocalls by providing VoIP services to over 11 foreign telemarketers.
On July 7, the U.S. District Court for the Central District of California entered a final judgment and order against an individual defendant accused of operating and controlling a deceptive student loan debt relief operation. As previously covered by InfoBytes, in 2019, 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 for allegedly deceiving thousands of student loan borrowers. The Bureau and the states alleged that since at least 2015, the debt relief operation violated the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), FDCPA, and various state laws by charging and collecting over $95 million in illegal advance fees from student loan borrowers. In addition, the Bureau and the states claimed that the debt relief operation engaged in deceptive practices by misrepresenting the purpose and application of the fees they charged and the nature and benefits of their services. Specifically, the debt relief operation allegedly failed to inform borrowers that, among other things, (i) they would request that the loans be placed in forbearance and interest would continue to accrue during the forbearance period, thereby increasing the borrowers’ overall loan balances; and (ii) it was their practice to submit false information about the borrowers to student loan servicers to try to qualify borrowers for lower monthly payments. The individual defendant was accused of owning, controlling, and managing the student loan debt relief operation, materially participating in the operation’s affairs, and providing substantial assistance or support while knowing or consciously avoiding knowledge that the operation was engaging in illegal conduct.
The individual defendant was held liable, jointly and severally, in the amount of approximately $95,057,757, for the purpose of providing redress to affected borrowers. Because the individual defendant was found to have recklessly violated the TSR and the CFPA, the court also imposed second-tier civil monetary penalties of $147,985,000 to the Bureau, of which $5,000 will be paid to each state. The final judgment also imposes various forms of injunctive relief, including permanent bans on engaging in consumer financial products or services and violating the TSR, CFPA, and similar laws in Minnesota, North Carolina, and California. The individual defendant is also prohibited from disclosing, using, or benefiting from customer information obtained in connection with the offering or providing of the debt relief services, and may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase” a debt relief service from any of the defendants.
On June 7, the U.S District Court for the District of Utah denied the CFPB’s motion for an award of monetary and injunctive relief, assessment of civil money penalties, and final judgment in an action taken against a group of Utah-based credit repair telemarketers and their affiliates (collectively, “defendants”). As previously covered by InfoBytes, the CFPB sued the defendants in 2019 for allegedly committing deceptive acts and practices in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging consumers a fee for credit repair services when they signed up for the services through telemarketing, and then monthly thereafter. Certain defendants also allegedly made false and misleading claims guaranteeing, or ensuring the high-likelihood, that loans or rent-to-own housing offers would be available through affiliates after signing up for credit repair services when the products were not available. In March, the court granted the Bureau’s motion for partial summary judgment, ruling in favor of the agency on claims that the defendants violated the TSR’s prohibitions against charging upfront fees for credit repair services.
According to the June 7 order, the Bureau asked the court to award more than $2.7 billion in monetary relief, justifying the amount as “either a ‘refund of moneys’ or, alternatively, as legal (as opposed to equitable) ‘restitution.’” The Bureau also requested civil money penalties of $35.2 million and $17.6 million against different defendants, as well as extensive injunctive relief. Defendants argued that the maximum civil money penalty should fall within the range of $1 and $17.6 million as their alleged conduct “did not merit the maximum Tier 1 penalty,” and that, in any event, “the Tier 1 daily limit in the statute should apply to the aggregate penalty amount imposed on all [d]efendants collectively.” Defendants also asked the court to deny the requested injunction or clarify its requirements.
In denying the Bureau’s motion, the court wrote that “outstanding issues of fact” preclude it from entering the agency’s requested relief at this time. “Given the existence of these factual disputes, the court finds it will be most efficient to consolidate further discussions of relief with final pretrial proceedings,” the court said, denying the agency’s request without prejudice.
In December, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling holding an individual liable for violations of the FCRA, the TSR, and the CFPA after the defendant, who allegedly “played a central role” in the scheme — and other defendants — were sued by the CFPB for allegedly obtaining individuals’ credit reports illegally and charging advance fees for debt relief services. As previously covered by InfoBytes, the CFPB filed a complaint in 2020 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. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including 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 and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here). In August 2021, the U.S. District Court for the Central District of California granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.)
In September 2021, the district court entered judgment in favor of the Bureau against the individual defendant. While the individual defendant objected to the judgment, the district court ultimately determined that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here).
On the appeal, the 9th Circuit cited “undisputed” evidence demonstrating how the individual defendant “violated” the FCRA, TSR, and CFPA. According to the appellate court, the defendant “is individually liable for corporate violations of the CFPA.” The appellate court further noted that the individual defendant “‘participated directly’ in these deceptive practices and ‘had the authority to control them,’” had a “central role” in these practices,” was “‘recklessly indifferent to the truth or falsity of the misrepresentations,’ and did not attempt to verify the truthfulness of statements” regarding the companies he controlled.
On December 13, the CFPB announced that it will distribute more than $95 million in redress to over 87,000 consumers harmed by 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 defendants for allegedly deceiving thousands of student loan borrowers and charging more than $71 million in unlawful advance fees. In the complaint filed October 21, 2019, and unsealed on October 29, 2019 in the U.S. District Court for the Central District of California, the Bureau and the states alleged that since at least 2015, the defendants have violated the CFPA, the TSR, 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. The CFPB also claimed that the defendants automatically put loans in forbearance and submitted false information to loan servicers to qualify customers for lower monthly payments.
On November 30, the FTC announced an action against three individuals and their affiliated companies (collectively, “defendants”) for allegedly participating together in a credit card debt relief scheme since 2019. The FTC alleged in its complaint that the company violated the FTC Act and the Telemarketing Sales Rule (TSR) by using telemarketers to call consumers and pitch their deceptive scheme, falsely claiming to be affiliated with a particular credit card association, bank, or credit reporting agency and promising they could improve consumers’ credit scores after 12 to 18 months. The defendants also allegedly misrepresented that the upfront fee, which in some cases was as high as $18,000, was charged to consumers’ credit cards as part of the overall debt that would be eliminated, and therefore consumers would not actually have to pay this fee. The District Court for the Middle District of Tennessee granted the Commission’s request to temporarily shut down the scheme operated by the defendants and froze their assets. The complaint requests, among other things, a permanent injunction to prevent future violations of the FTC Act and the TSR by the defendants.
On August 8, the FTC announced it has taken action against a healthcare company, two subsidiaries, and the former CEO and former vice president of sales (collectively, “defendants”) for allegedly misleading consumers about their health insurance plans and using deceptive lead generation websites. According to the complaint, the defendants, along with their third-party partners, allegedly engaged in deceptive sales practices in violation of the FTC Act, the Telemarketing Sales Rule, and the Restore Online Shoppers Confidence Act (ROSCA). These practices included allegedly (i) lying to consumers about the nature of their healthcare plans; (ii) bundling and charging junk fees for unwanted products that were typically not clearly disclosed (consumers were often charged for these additional products after they cancelled their core healthcare plans); and (iii) making it difficult for consumers to cancel their plans. The FTC further alleged that the company (which sells association memberships and other healthcare-related products to consumers, often through telemarketing companies and lead generators), as well as the former CEO and former vice president of sales, were aware of the agents’ misconduct but allegedly “took steps to disguise and further the deception” instead of stopping the deceptive practices.
The FTC stated that the company and two of its subsidiaries have agreed to a proposed court order, which requires the payment of $100 million in consumer redress. The proposed order also requires the company to contact current customers and allow them to cancel their enrollment. The company is also required to send refunds to consumers who cancel right after their order is entered. Additionally, the proposed order prohibits the company from misleading consumers about their products, requires the disclosure of total costs and limitations prior to purchase, and requires consumers to provide express informed consent before they are billed. The company must also provide a simple and easy-to-use cancellation method and closely monitor other companies that sell its products.
The FTC also filed separate proposed court orders against the individual defendants (see here and here), which impose similar prohibitions and permanently bans them from playing any role in the sale or marketing of any healthcare-related product or service. The proposed orders also prohibit the former CEO from engaging in deceptive or abusive telemarketing practices, and bans the former vice president of sales from participating in any telemarketing whatsoever in the future.
On June 10, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an individual defendant who participated in a deceptive debt-relief operation. As previously covered by InfoBytes, in 2019, the Bureau, 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 for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. In the third amended complaint, the Bureau and the states alleged that since at least 2015, the debt relief operation violated the CFPA, TSR, FDCPA, 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 Bureau and the states claimed that the debt relief operation engaged in deceptive practices by, among other things, misrepresenting: (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness for borrowers; and (iii) their ability to actually lower borrowers’ monthly payments. Moreover, the debt relief operation allegedly failed to inform borrowers that it was their practice to request that the loans be placed in forbearance and also submitted false information to student loan servicers to qualify borrowers for lower payments.
Under the terms of the final judgment, in addition to various forms of injunctive relief, the individual defendant must pay a $1 civil money penalty to the Bureau and $5,000 each to Minnesota, North Carolina, and California. The individual defendant is also “liable, jointly and severally, in the amount of $95,057,757, for the purpose of providing redress to Affected Consumers,” although his obligation to pay this amount is “suspended based on [his] inability to pay.”