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CFPB sues student loan debt-relief operation
On March 16, the CFPB sued a California-based student loan debt relief company, its owner, and manager (collectively, “defendants”) for allegedly charging borrowers more than $3.5 million in unlawful advance fees. The complaint alleged that between 2015 and 2019, the defendants violated the Telemarketing Sales Rule (TSR) and the CFPA by unlawfully marketing and enrolling borrowers in the company’s purported debt relief services. Defendants allegedly charged and collected advance fees from borrowers with federal student loans to file paperwork on their behalf in order to access free Department of Education debt-relief programs. According to the Bureau, the defendants violated the TSR by requesting and receiving payment of fees before renegotiating, settling, reducing, or altering the terms of at least one debt pursuant to an agreement, and before the consumer made at least one payment pursuant to that agreement. The Bureau also alleged that the owner defendant formed a California limited liability company (relief defendant) and unlawfully transferred a portion of the funds received from the advance fees into the relief defendant’s bank account. The complaint seeks injunctive relief, as well as restitution and civil money penalties. The complaint also seeks to have the relief defendant disgorge or compensate consumers for the funds it received.
Court dismisses credit repair association’s suit against CFPB, FTC
On March 9, the U.S. District Court for the Southern District of Florida dismissed a credit repair industry association’s challenge against the CFPB and the FTC for exceeding their constitutional authority in promulgating the Telemarketing Sales Rule (TSR). In 2020, the plaintiff filed a lawsuit on behalf of two member companies that were subject to TSR enforcement actions, seeking judgments (i) against the FTC for exceeding “its statutory authority in promulgating the TSR,” (ii) against both agencies on the basis that the TSR, as applied, “is an unconstitutional content-based restriction on protected speech,” and (iii) against both agencies on the basis that the TSR “is underinclusive and not narrowly tailored.” The plaintiff also alleged, among other things, that the Bureau was increasing its application of the TSR by “encouraging consumer reporting agencies not to investigate disputes submitted by credit repair organizations” that are reasonably determined to be “frivolous or irrelevant.” The agencies filed a motion to dismiss the complaint, arguing the court lacked subject-matter jurisdiction under the Administrative Procedures Act’s (APA) six-year statute of limitations and that the plaintiff failed to state a claim.
In granting the agencies’ motion to dismiss, the court ruled that the lawsuit was filed far beyond the APA’s six-year statute of limitations as the TSR first appeared in the Federal Register in 1995; thus all procedural attacks on the TSR were time barred. The court also ruled that because sending a civil investigative demand or filing a complaint is not considered “a final agency action,” the plaintiff failed to allege a final agency action taken by the agencies against the plaintiff’s members. Further, the court dismissed the plaintiff’s argument regarding the Bureau’s position on investigating frivolous or irrelevant disputes, ruling that the Bureau’s April 2020 Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act (covered by InfoBytes here) is just “a policy statement that has nothing to do with the TSR at issue in this case and is not a final agency action.”
FTC, multiple states halt charitable telefunding operation
On March 4, the FTC, together with state attorneys general from 38 states and the District of Columbia, the secretaries of state from Colorado, Georgia, Maryland, North Carolina, and Tennessee, the Florida Department of Agriculture and Consumer Services, and the Utah Division of Consumer Protection (collectively, “plaintiffs”), announced settlements with a telefunding operation whose charitable fundraising calls allegedly collected over $110 million using deceptive solicitations. The plaintiffs’ complaint alleged, among other things, that the defendants engaged in deceptive fundraising by placing more than 1.3 billion prerecorded robocalls to convince consumers to donate to “practically nonexistent charitable programs.” The charitable organizations then paid the defendants typically 80 to 90 percent of every donation, the complaint states, noting that certain defendants knew that almost none of the donations would be spent supporting the charitable programs. The plaintiffs contended that these false or misleading actions violated the FTC Act. Moreover, in many instances, the plaintiffs alleged that the defendants knowingly violated the Telemarketing Sales Rule (TSR) by using soundboard technology to place the telemarketing calls. Using pre-recorded messages in calls to first-time donors is a violation of the TSR, the plaintiffs stated, as is using soundboard technology in calls to prior donors without first disclosing to recipients that they may opt-out of all future calls and providing them with a mechanism to do so.
Proposed settlements (see here, here, and here) reached with one group of defendants will, among other things, permanently ban them from engaging in any fundraising activities, conducting telemarketing to sell goods or services, or using existing donor information. The defendants will also be required to pay $110,063,848 each, which is either partially or fully suspended due to the defendants’ inability to pay.
Additionally, proposed settlements reached with the two fundraising company defendants and their senior managers (see here, here, and here) will permanently prohibit them from engaging in any fundraising activities or consulting on behalf of a charitable organization or nonprofit organization claiming to work on behalf of causes similar to those noted in the complaint. These defendants will also be banned from using robocalls connected to telemarketing, engaging in abusive calling practices, or making misrepresentations about a good, service, or contribution. The defendants will further be required to disclose when a donation is not tax deductible. The individual defendants also are required to pay $110,063,843 each, which is partially suspended due to the defendants’ inability to pay, while the two corporate defendants, along with two of the individual defendants, are subject to a partially suspended monetary judgment of $1.6 million.
FTC settles with income scam operation targeting Latina consumers
On March 2, the FTC announced a settlement with a company and its owners (collectively, “defendants”) that used Spanish-language ads targeting Latina consumers with false promises of large profits reselling luxury products. The action—a part of the FTC’s “Operation Income Illusion” sweep (covered by InfoBytes here)—alleged the defendants violated the FTC Act by making false or unsubstantiated earnings claims when marketing work-at-home opportunities. The FTC also claimed the defendants violated the Telemarketing Sales Rule by, among other things, misrepresenting material aspects of the investment opportunities and routinely using threats or intimidation “to coerce consumers to pay Defendants, including but not limited to threatening consumers with damage to consumers’ credit history, false legal actions, and reports to federal government authorities.” The proposed settlement imposes a $7 million judgment, which is partially suspended due to the defendants’ inability to pay. The defendants are also permanently banned from (i) selling any goods or service that is represented as a means for consumers to make money working from home or elsewhere; (ii) making any deceptive claims about the risk, liquidity, earnings potential, or profitability of any goods or services, and making such claims through telemarketing; and (iii) using threats or intimidation to coerce consumers to pay for goods or services.
CFPB sues payment processor for fraudulent practices
On March 3, the CFPB filed a complaint against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Sales Rule. According to the complaint, the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau stated, noting that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized. The Bureau noted that the defendants also responded to inquiries from police departments across the country concerning consumer complaints about being defrauded by the defendants. Further, the Bureau cited high return rates experienced by the tech-support clients, including an average unauthorized return rate of 14 percent—a “subset of the overall return rate where the reason for the return provided by the consumer is that the transaction was unauthorized.” The Bureau is seeking an injunction, as well as damages, redress, disgorgement, and civil money penalties.
FTC settles with credit card laundering defendants
On February 10, the FTC announced settlements with several defendants that allegedly violated the FTC Act and the Telemarketing sales Rule by assisting an operation responsible for laundering millions of dollars in credit card charges through fraudulent merchant accounts. As previously covered by InfoBytes, the defendants engaged in a credit card laundering scheme with the operation to process credit card charges through merchant accounts set up by the operation under fictitious company names instead of processing charges through a single merchant account under the operation’s name. According to the FTC’s complaint, the defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants.
The settlements (see here, here, and here) permanently ban three of the defendants from payment processing and telemarketing or acting as independent sales organizations or sales agents in the payment processing industry. A previously issued settlement against a fourth defendant banned him from payment processing or acting as an independent sales organization or sales agent in the payment processing industry. Monetary judgments totaling more than $10.7 million collectively have been suspended due to the defendants’ inability to pay.
FTC settles with training companies that charged consumers to obtain credit cards
On January 29, the FTC announced a settlement with two Nevada companies and two individuals (collectively, “defendants”), resolving allegations that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Credit Repair Organizations Act, and the Consumer Review Fairness Act by charging consumers thousands of dollars to apply for numerous personal credit cards in order to pay for real estate investment training programs offered by other companies. According to the complaint, the training companies (many of which, the FTC claims, have been the subject of FTC enforcement actions for operating deceptive training schemes) pitch the defendants’ funding services to individuals who want to participate in the training companies’ programs and coaching about starting businesses or becoming real estate investors. However, the FTC claims that, in reality, the defendants are not lenders and do not actually provide any form of financing themselves. Rather, the defendants charge $3,000 or more to apply for multiple credit cards with total credit lines of at least $50,000 on behalf of the individuals—a practice known as “credit card stacking.” In addition, the FTC claims that the defendants inflated individuals’ annual incomes on credit card applications and told individuals they could anticipate earning around $100,000 if they used the training companies’ program, which individuals often purchased using credit cards they obtained from the defendants. Because most individuals did not earn the expected money, they incurred substantial credit card debt and experienced significant credit score declines.
The proposed settlement imposes a $2.1 million monetary judgment against the defendants, and permanently bans the defendants from, among other things, selling consumer credit services, misrepresenting the financial status of any consumer to a financial institution, engaging in business connected with the offer or sale of a credit repair service, and applying for or obtaining credit cards for consumers in exchange for a fee.
Court permanently bans companies and officer from payment processing
On January 22, the U.S. District Court for the District of Arizona entered judgments (available here and here) prohibiting two companies and one officer from engaging in payment processing services, credit card laundering, and telemarketing as a result of their involvement in a credit card laundering scheme. As previously covered by InfoBytes, in July 2017, the FTC filed a complaint against 12 defendants, comprised of an independent sales organization (ISO), sales agents, payment processors, and identified principals, for allegedly violating the FTC Act and the Telemarketing Sales Rule by laundering credit card transactions on behalf of a “telemarketing scam” operation through fictitious merchant accounts. The defendants purportedly (i) underwrote and approved the operation’s fictitious companies; (ii) set up merchant accounts with its acquirer for the fictitious companies; (iii) used sales agents to market processing services to merchants; (iv) processed nearly $6 million through credit card networks; and (v) transferred sales revenue from the transactions to companies controlled by the defendants. In addition to the permanent injunctions, the court entered into an over $4.6 million suspended judgment against the companies and an over $460,000 suspended judgment against the officer. However, the judgments can be lifted should the court find that the officer failed to disclose material assets or the accurate value of material assets.
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.
Court enters judgments against multiple defendants in CFPB debt-relief action
On December 15, the U.S. District Court for the Central District of California entered final judgment against two defendants (defendants) and a default judgment against another defendant (defaulting defendant) in an action brought by the CFPB alleging the defendants (and others not subject to these judgments) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defendants, one other company, its two owners, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with one of the owners of the other company and three of the attorneys. In December, the court entered a default judgment against the other company and another owner (previous InfoBytes coverage available here).
The final judgment permanently bans the defendants from engaging in any debt-relief service or telemarketing of any consumer financial product or service. Additionally, the court entered a suspended judgment of over $11 million in redress, which will be satisfied by a payment of $5,000 (due to an inability to pay) and each defendant is required to pay a civil money penalty of $1 to the Bureau. Liability for nearly $5 million was entered by default judgment against the defaulting defendant and a civil monetary penalty in the amount of $5 million.