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CFPB, Mass. AG secure $50M from credit repair co., owner
Recently, the U.S. District Court for the District of Massachusetts granted summary judgment in favor of the CFPB and the Massachusetts AG, against defendant credit repair company and its owner. As previously covered by InfoBytes, the CFPB and Massachusetts AG filed a lawsuit in 2020 against defendants for allegedly engaging in deceptive and abusive telemarketing acts or practices in violation of the Telemarketing Sales Rule (TSR), the CFPA, and Massachusetts consumer protection laws by purporting that their credit-repair services could help consumers improve their credit scores and fix “unlimited” amounts of negative items from consumers’ credit reports to increase enrollment.
The court found that the defendants violated the TSR’s advance-fee provision because it offers credit-repair services without specifying an end date for performance and it charges consumers before delivering the results promised. Because defendants violated the TSR, the court held this constituted an unfair, deceptive, or abusive act in violation of the CFPA. The court additionally found that defendants violated Massachusetts state laws, Chapter 93A and the MA-CSO, that prohibit unfair and deceptive acts or practices. As a result, defendants must pay $31.7 million in fees sand $9.6 million each in civil money penalties. The court also granted the CFPB and Massachusetts AG’s request for injunctive relief.
California’s DFPI takes action against advance fees for student loan debt relief services
On September 17, the California DFPI announced enforcement actions against three companies for allegedly making false representations regarding student loan debt relief and charging fees for providing student loan debt relief services before performing any work. According to the orders, which can be found here, here and here, the companies’ actions violated the California Consumer Financial Protection Law, the federal Telemarketing Sales Rule, GLBA and the FTC’s recent Impersonation Rule.
The announcement highlighted three enforcement actions targeting companies that are alleged to have charged consumer advance fees in connection with providing student debt relief services and were engaged in an unlawful student loan debt relief practice. The companies were ordered to cease and desist from soliciting and collecting advance fees before providing services. Additionally, the companies were directed to rescind all outstanding contracts with California consumers, issue refunds and pay penalties.
CFPB proposes $3M fine in settlement with credit repair software company and CEO
On August 8, the CFPB proposed a stipulated final judgment and order to the U.S. District Court for the Central District of California against a credit repair software company. If approved by the District Court, this order would settle the CFPB’s allegations that a software company and its CEO violated the Telemarketing Sales Rule (TSR), the CFPA and approve a fine $1 million for the company and $2 million for the CEO — as well as enjoin them from future actions. In a complaint previously covered by InfoBytes, the CFPB found the defendants provided credit repair tools and services to businesses who offered these credit repair services to consumers; the CFPB alleged the defendants provided substantial assistance to their customers and violated the TSR and charged advance fees for credit repair services. An advance fee includes any fees charged to a customer enrolled in a credit repair service, monthly fees, or fees charged following removal from a consumer’s credit report. Credit repair services remove derogatory information from a person’s credit history.
The Bureau now seeks to permanently restrain the defendants from assisting anyone knowingly using telemarketing for credit repair services and charging advance fees for those services. It also seeks to enjoin the defendants from violating the TSR related to offering credit repair services. Additionally, the CFPB asked the court for several screening updates to identify suspect companies preemptively, among other compliance duties. The Bureau and the defendants have agreed to this order, which now awaits approval by the District Court. The defendants neither admitted nor denied the allegations in the complaint.
FTC asks court to approve $43.5M settlement against for-profit school
On July 29, the FTC released its complaint and stipulated order against a for-profit educational institution located in Georgia for allegedly making false or unsubstantiated representations to convince consumers to enroll in its programs, in violation of Section 5(a) of the FTC Act, Section 521 of the GLBA, the Telemarketing Act, and the Telemarketing Sales Rule. The FTC sought relief, including a permanent injunction and monetary relief. According to the complaint, the educational institution allegedly “lured” consumers — specifically, servicemembers and their families — with false employment rates and deceptive job placement rates, misrepresented externships and the time-to-completion of its programs, and used deceptive incentivized reviews to promote its services. The FTC levied five counts against the defendant. Three counts were for violations of the FTC Act — one for misrepresenting its educational services, one for falsely claiming that its consumer reviews were conducted independently, and one for failing to disclose its material connections to consumers who submitted reviews and endorsed the educational institution. Another count alleged a violation of the GLBA for making false statements to obtain consumers’ customer information about a financial institution, and the final count alleged a violation of the Telemarking Sales Rule for making deceptive telemarketing calls. The FTC requested that the court enter a permanent injunction to prevent future violations of the law and award monetary relief, among other things. The FTC’s stipulated order asked the federal court to approve a settlement to pay $43.5 million, which included $15.7 million for consumer redress and a cancellation of $27.8 million for debts owed to the defendant by consumers and former students.
Florida enacts telemarketing exemption from credit counseling services law
On April 26, the Governor of Florida signed into law HB 1031 (the “Act”), which will amend Florida’s credit counseling services law to provide an exception for telemarketers and sellers that furnish “debt relief services” (as defined under the federal Telemarketing and Consumer Fraud and Abuse Prevention Act and the Telemarketing Sales Rule: i.e., the TSR). Generally, the law places certain disclosure, financial reporting, and fee charging obligations on any person engaged in “debt management services” or “credit counseling services.” The amendment will provide those telemarketers or sellers that “provide any debt relief service” within the scope of the TSR will not be subject to the provisions of Florida’s credit counseling law as long as they do not receive from the debtor or disburse to a creditor any money or items of value. The Act will go into effect on July 1.
FTC amends the TSR on recordkeeping and prohibiting misrepresentations
On April 16, the FTC issued a final rule amending the Telemarketing Sales Rule (TSR) to add requirements for telemarketers to maintain transaction records, prohibit misrepresentations, and add a new definition for “previous donor” in the context of robocalls on behalf of charitable organizations. This will be the fifth time the TSR has been amended since its enactment in 1995, with previous amendments creating the National Do Not Call Registry in 2003, prohibiting sellers to use prerecorded messages (i.e., robocalls) in 2008, banning debt relief services from requiring an advance fee in 2010, and most recently, barring certain payment mechanisms used in fraudulent transactions in 2015. The FTC’s new amendments to the TSR will require telemarketers to retain a copy of each prerecorded message, call detail records, records to show an established business relationship, records on charitable donations and the do-not-call registry. On the rule’s efforts to prohibit misrepresentations, marketers will be prohibited from making misrepresentations about the good or service they are selling or false statements to induce a charitable contribution. The final rule also will update the definition of “previous donor” to allow telemarketers to place robocalls on behalf of a charity only to customers who have donated to a charity within the previous two years. The amendment will go into effect on May 16 with mandatory compliance beginning October 16.
FTC issues NPRM to extend TSR coverage for inbound calls on elder fraud
On April 16, the FTC published an NPRM for the Telemarketing Sales Rule (TSR) in the Federal Register to extend the TSR’s coverage to inbound telemarketing calls by consumers to include technical support service – i.e., calls that consumers would make in response to an advertisement. The FTC noted this extension of the TSR would allow the FTC to “obtain stronger relief,” such as civil penalties and consumer redress, when consumers would be affected by tech support scams. The FTC argued that this proposed expansion of the TSR would be necessary given the rise in consumer complaints regarding tech support scams, explaining that consumer complaints rose from 40,000 complaints in 2017 to nearly 115,000 complaints in 2021. Additionally, the FTC explained that in 2018, consumers reported losses totaling over $55 million from these scams and noted that the scams disproportionately affected consumers over 60 years old. The proposed rule would define technical support services as a program or service that would be marketed to repair, maintain or improve the performance and security of electronic devices. The FTC explained that this broad definition will be necessary because scammers purport to offer such services as they evolve with changes to technology and consumer behavior; additionally, scammers would aim to profit from a consumer’s problems or unfamiliarity with technology. In sum, the proposed rule would add “tech support services” to the list of categories excluded from the TSR exemptions for inbound calls, specifically when such calls are in response to an advertisement “through any medium”; this exclusion will also extend to inbound calls in response to “a direct mail solicitation” including email. The FTC will seek comments on its proposed rule, including on nine specific questions, and comments must be received by June 17.
FTC updates the Telemarketing Sales Rule, proposes tech support rule
On March 7, the FTC announced updates to the Telemarketing Sales Rule (TSR) to extend fraud protections to businesses and modernize recordkeeping requirements in response to technological advancements. These updates were part of an ongoing review of the TSR, which governs telemarketing practices and includes the Do Not Call Registry (DNC) and issued rules against telemarketing robocalls.
The newly finalized rule broadened the scope of prohibited deceptive and abusive telemarketing practices to include business-to-business calls, which were previously exempt, except in specific cases. The rule also revised the TSR's recordkeeping requirements to reflect changes in technology and telemarketing methods, which included maintaining detailed call records and consent documentation, as well as compliance with the DNC Registry.
In addition to these updates, the FTC proposed a rule that would enhance its ability to tackle tech support scams by extending the TSR's coverage to include inbound telemarketing calls for technical support services. This amendment addressed deceptive tech support schemes and would empower the FTC to seek stronger legal remedies such as civil penalties and consumer compensation. The Commission invited public feedback on a proposed definition of tech support scams.
FTC sues for-profit university for deceptive and illegal practices
On December 27, 2023, the FTC filed a suit in the U.S. District Court of Arizona against a for-profit university for allegedly deceiving students, misrepresenting the university as a nonprofit entity, and committing telemarking abuses. The FTC sued under the FTC Act and Telemarketing Sales Rule (TSR). The complaint alleges that the university in question is a for-profit institution operating as a publicly traded entity, but nonetheless marketed itself as a “nonprofit” university. The complaint further alleges that the university misled students about the cost of its “accelerated” doctoral programs and used abusive telemarketing calls to try to boost enrollment. According to the FTC, the university called those who requested not to be called by the university, as well as consumers on the National Do Not Call Registry. The FTC asserts five claims against the university. The first two counts allege violations of Section 5(a) of the FTC Act for deceptive representations about its non-profit status and for falsely advertising its doctoral programs. The last three counts allege violations of the TSR predicated on deceptive telemarketing acts or practices, contacting those who have requested to not be contacted, and calling people on the National Do Not Call Registry.
CFPB reaches $2.6 billion settlement with credit repair telemarketers
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.