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On April 6, CFPB Director Rohit Chopra expressed cautious optimism about medical debt credit reporting changes during remarks to the CFPB’s Consumer Advisory Board. The Bureau has studied the burden of medical debt on consumers since the agency’s inception and has issued reports examining the impact of including data related to unpaid medical bills on credit reports. Chopra noted that a report released by the Bureau last month (covered by InfoBytes here) found that $88 billion of outstanding medical bills in collections affect one in every five consumers, with medical debt accounting for 58 percent of all uncollected debt tradelines reported to credit reporting agencies (CRAs). Shortly after the Bureau released the report, the three major CRAs announced they planned to eliminate nearly 70 percent of medical collection debt tradelines from consumer credit reports. As previously covered by InfoBytes, beginning July 1, paid medical collection debt will no longer be included on consumer credit reports issued by those three companies, and unpaid medical bills will only be reported if they remain unpaid for at least 12 months. Additionally, starting in 2023, medical collection debt under $500 will no longer be included on credit reports issued by these CRAs.
In response to the announcement from the CRAs, Chopra cautioned that “[i]mportant decisions about credit reporting should not be left up to three firms that arbitrarily decide how reporting will impact consumers’ access to credit.” While he acknowledged the importance of providing more time for providers and insurance companies to process claims before debts are reported, he stated that the announcement failed to “fundamentally address the concern that the credit reporting system can be used as a tool to coerce patients into paying bills they may not even owe.” Chopra presented three questions to the Consumer Advisory Board for consideration: (i) should unpaid medical bills be treated as a typical “debt”? (ii) if medical bills are not a good factor in predicting repayment on future loan obligations, should they be included in credit reports? and (iii) how should the inclusion of allegedly unpaid medical bills in credit reports be reviewed as part of the broader question of how data is used in consumer finance markets?
On April 5, the U.S. District Court for the Central District of California denied a motion to dismiss claims brought by the CFPB alleging violations of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). As previously covered by InfoBytes, the California-based software company and its owner (collectively, “defendants”) market and sell credit-repair business software and other tools to credit-repair businesses charging unlawful advance fees to consumers. According to the Bureau, the defendants provide substantial assistance to these businesses and purportedly encourage them to “charge unlawful advance fees” even though, under the TSR, companies that telemarket their services are prohibited from requesting or receiving fees from consumers until consumers are provided with a credit report showing that the promised results have been achieved.
The court was unpersuaded by the defendants’ argument that the Bureau exceeded its authority to pursue enforcement actions against them, claiming the credit-repair businesses that use defendants’ products and services are not “covered persons” under the CFPA, as the businesses “provide only retrospective credit-repair services and thus do not provide prospective consumer financial services under the CFPA.” The court held that the CFPA’s broad purpose and expansive language covers the services provided by the credit-repair businesses to improve or repair consumers’ credit and that such activity is considered “credit counseling” under the CFPA and is therefore a “consumer financial product or service.” The court further held that the credit-repair businesses were “covered persons” based on allegations that they provide consumers’ credit history to help with the approval of a mortgage or auto loan, recognizing that performing analysis relating to the credit history of consumers in connection with a decision regarding a consumer financial product or service is covered by the CFPA. The court also disagreed with the defendants’ argument that they are not “service providers” under the statute, in part, because the defendants “have the capacity to vet and monitor” the credit-repair businesses. The court also was not persuaded that the Credit Repair Organizations Act’s (CROA) provision allowing credit-repair businesses to charge monthly fees supersedes the TSR requirement that such a company cannot collect payment until the promised results have been achieved, holding that the requirements of each are not in conflict and noting that “if a credit repair agency does not qualify as a telemarketer, then it need not comply with the TSR—only the CROA is applicable,” and that nothing in the language of the CROA indicates that the defendants’ activities “may not simultaneously be regulated by the [TSR].”
On March 21, the FTC and DOJ announced that the U.S. District Court for the Southern District of Texas entered a permanent injunction against a credit repair organization accused of allegedly defrauding consumers out of millions of dollars by promising to remove negative information from their credit reports, while actually filing fake identity theft reports to explain the negative items. (Press releases linked here and here.) According to the complaint, filed by the DOJ on behalf of the FTC, the defendants allegedly claimed their “two-step process” could remove negative items from consumers’ credit histories or credit reports through “advance disputing” of negative information and help boost credit scores by adding “credit building products” to consumers’ credit reports. However, according to the FTC, defendants failed to follow through on their credit repair promises, and instead filed identity theft reports even when consumers had not actually been victims of identity theft. The FTC claimed many consumers actually saw their credit scores decrease because the defendants’ “unsupported challenges rarely if ever cause[d] credit reporting agencies to delete or change any consumer’s credit information.” Company representatives also allegedly informed consumers that the process could boost consumers’ credit scores by 50-200 points within 90 days—a violation of the Credit Repair Organizations Act and the Telemarketing Sales Rule. Additionally, the FTC claimed that the defendants illegally required consumers to pay upfront fees up to $1,500, and failed to include disclosures detailing cancellation policies or provide consumers with copies of the contracts they were required to sign in order to obtain the defendants’ services. The permanent injunction imposes financial restrictions on the defendants and halts their operations.
On August 10, the U.S. District Court for the District of Massachusetts denied a motion to dismiss filed by a credit repair organization and the company’s president and owner (collectively, “defendants”) in a joint action taken by the CFPB and the Massachusetts attorney general, which alleged the defendants committed deceptive acts and practices in violation of the Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Law, and the FTC’s Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, the complaint alleges the defendants, among other things, claimed their credit-repair services could help consumers substantially improve their credit scores and promised to fix “unlimited” amounts of negative items from consumers’ credit reports, but, in “numerous instances,” the defendants failed to achieve these results. The defendants also allegedly violated the TSR by engaging in abusive acts and by requesting and collecting fees before achieving any results related to repairing a consumer’s credit. The defendants moved to dismiss, arguing that they were governed by the Credit Repair Organizations Act (CROA), which cannot be reconciled with the TSR, the TSR definition of “telemarketing” is vague and violates the Due Process Clause, and that applying the TSR’s definition of telemarketing would place an unfair content-based restriction on speech that restricts when they can collect payments for their services. Moreover, the defendants claimed, among other things, that the FTC “exceeded its authority in promulgating rules targeting their conduct because Congress intended that only unsolicited telemarketing calls would be addressed by the FTC’s regulations.”
The court disagreed, holding first that that the CROA and the TSR do not conflict. “[C]ompliance with the TSR’s payment requirement would not cause defendants to violate the CROA,” the court stated. “The TSR simply adds a precondition to requesting payment…” Additionally, the court noted that the TSR’s “restriction is on conduct—the timing of the payment—not on speech,” adding that while “Congress directed the FTC to create rules regarding specific telemarketing activities. . ., Congress also authorized the FTC to create additional rules addressing ‘deceptive telemarketing acts or practices’ at its discretion.” As such, the court held that defendants did not show that “Congress intended the FTC to exclusively address unsolicited telemarketing calls.” Furthermore, the court held that the plaintiffs adequately defined the defendants’ allegedly deceptive conduct and that the alleged violations of state law are plausible.
On May 22, the New York attorney general (NYAG) announced a proposed settlement with three student loan debt relief companies and two of the companies’ executive officers (collectively, “defendants”), resolving allegations that the defendants participated in a broader scheme that fraudulently, deceptively, and illegally marketed, sold, and financed student debt relief services to consumers nationwide. As previously covered by InfoBytes, the September 2018 complaint alleged that a total of nine student loan debt relief companies, along with their financing company, and the two individuals violated several federal and state consumer protection statutes, including the Telemarketing Sales Rule, New York General Business Law, the state’s usury cap on interest rates, disclosure requirements under TILA, and the Federal Credit Repair Organization Act. Specifically, the NYAG asserted, among other things, that the defendants (i) sent direct mail solicitations to consumers that deceptively appeared to be from a governmental agency or an entity affiliated with a government agency; (ii) charged consumers over $1,000 for services that were available for free; (iii) requested upfront payments in violation of federal and state credit repair and debt relief laws; and (iv) charged usurious interest rates.
If approved by the court, the proposed consent judgment would require the five defendants to pay $250,000 of a $5.5 million total judgment, due to their inability to pay. Additionally, the defendants are also permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Additionally, the defendants must request that any credit reporting agency to which the defendants reported consumer information in connection with the student loan debt relief services remove the information from those consumers’ credit files. The defendants also agreed not to sell, transfer, or benefit from the personal information collected from borrowers.
The NYAG previously settled with two other defendants in February, covered by InfoBytes here.
On May 21, a credit repair trade association filed a complaint against the CFPB in the U.S. District Court for the Southern District of Florida alleging the Bureau violated the credit repair organizations’ First Amendment rights under the Constitution by enforcing a six-month payment waiting period in the FTC’s Telemarketing Sales Rule (TSR). The association is challenging Section 310.4(a)(2)(ii) of the TSR, which prohibits credit repair organizations from requesting or receiving payment for services rendered for a minimum of six months after the services have been performed. The complaint alleges that the prohibition (i) exceeds the FTC’s statutory authority under the Telemarketing and Consumer Fraud and Abuse Prevention Act; (ii) conflicts with the Credit Repair Organizations Acts (CROA); and (iii) is an infringement on the First Amendment rights of credit repair organizations by improperly impairing fully protected speech. Specifically, the association argues that the TSR is only applicable to credit repair organizations in certain situations, and the CROA—which does not require the six-month waiting period nor proof that “results were achieved”—is “the final and decisive law concerning credit repair organizations, including the time and manner of their billing practices.” Moreover, the complaint argues that the Bureau does not have the authority to enforce the TSR against credit repair organizations, as the Dodd-Frank Act did not explicitly transfer the authority from the FTC. The complaint is seeking a declaratory judgment that the TSR is unenforceable, invalid, and unlawful.
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar
- James C. Chou to discuss ransomware at NAFCU’s Regulatory Compliance & BSA seminar
- Jedd R. Bellman to provide an “Attorney exemption/medical debt update” at the North American Collection Agency Regulatory Association annual conference
- Kathryn L. Ryan to discuss “What should crypto regulation look like: Legislation, regulation and consumer issues” at WCL's First Annual Virtual Currency Law Institute
- Elizabeth E. McGinn to discuss “How to mitigate and manage third-party risks: Leveraging tools and best practices” at The Knowledge Group’s webcast
- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The evolving regulatory landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
- Sherry-Maria Safchuk to discuss “For your eyes only: Privacy updates for 2022-2023” at CCFL’s Annual Consumer Financial Services Conference
- James T. Parkinson to present a “Global anti-corruption update” at IBA’s annual conference