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On February 7, the U.S. District Court for the Northern District of Illinois entered a default judgment and order against a debt-relief company (default defendant) accused of allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. As previously covered by InfoBytes, the Bureau filed the complaint in 2020 alleging that the company and its two owners (collectively, “defendants”) misrepresented material aspects of their student loan debt-relief services, and violated the TSR by requesting and receiving payment of disproportionate fees for their services before they altered or resolved the terms of the debts. The judgment against the default defendant imposes both permanent injunctive relief and monetary remedies including a $41.1 million civil monetary penalty. The default defendant must also pay $2.1 million in consumer restitution and is permanently enjoined from participating in the financial-advisory, debt-relief, or credit-repair service markets in any way, including through marketing or ownership of such services.
On November 17, the California Department of Financial Protection and Innovation (DFPI) issued an invitation for comments on proposed rulemaking under the California Consumer Financial Protection Law (CCFPL). The CCFPL provides DFPI with the authority to require companies that provide financial products and services to California consumers to register with the agency. DFPI is also able to “require registrants to generate and provide records to facilitate oversight of registrants and detect risks to California consumers.” The draft rule proposes requiring registration for industries that engage in the following financial products and services: debt settlement, student debt relief, education financing, and wage-based advances. According to DFPI’s notice, with respect to education financing, the proposed rulemaking covers providers of any form of credit where the credit’s purpose is to fund postsecondary education. It also covers “credit regardless of whether the provider labels the credit a loan, retail installment contract, or income share agreement, and regardless of whether the credit recipient’s payment obligation is absolute, contingent, or fixed.” Additionally, DFPI notes that “[w]ith respect to education financing with income-based payments, including contracts sometimes referred to as income share agreements,” DFPI proposes “reporting requirements that in some cases diverge from the reporting requirements for education financing with fixed payments.”
The proposed rulemaking provides definitions to implement the CCFPL registration regulations and addresses several registration provisions including the following:
- Provides that a person must not engage in the business of offering or providing the designated products and services without first registering with the commissioner unless exempt. The DFPI’s notice stipulates that registering with the commissioner “does not constitute a determination that other laws, including other licensing laws under the commissioner’s jurisdiction, do not apply” and the proposed rulemaking further provides that “granting registration to an applicant does not constitute a determination that the applicant’s acts, practices, or business model complies with any law or regulation.”
- Outlines registration requirements and designates NMLS to handle all applications, registrant filings, and fee payments on behalf of the commissioner. The proposed rulemaking lays out information that must be submitted and maintained as part of the registration application, as well as notices required by state law, and steps registrants must take when making changes to an application filing. An applicant’s failure to provide all or any part of the requested information may prevent approval, DFPI states.
- Outlines requirements for registrants seeking to conduct business at a new branch office or at a new location for an existing branch. Requests must be filed with NMLS within 30 calendar days of the date a registrant engages in business at the new branch office or new location.
- Addresses procedures related to annual assessments and pro rata payment requirements, as well as annual reporting requirements for registrants based on the products and services they provide.
- Outlines procedures and requirements for rescinding a summary revocation order when a former registrant submits a written request for reinstatement to the commissioner.
- Discusses procedures related to the effectiveness, surrender, and revocation of a registration. DFPI provides that a “registration issued under this subchapter is effective until it is revoked by the commissioner, is surrendered by the registrant, or becomes inoperative under subdivision (b) of Financial Code section 90009.5.”
DFPI’s notice also seeks comments on proposals to streamline the registration process and improve transparency and clarification on matters related to, among other things: (i) the types of information that may be subject to public disclosure; (ii) annual reporting requirements not included in the proposed rulemaking; and (iii) certain registration requirements that may be applicable to DFPI licensees and licensees and registrants of other state agencies. In addition, DFPI seeks stakeholder feedback on the economic impact of the draft rules on businesses and consumers in California.
Comments on the proposed rulemaking are due December 20.
On July 2, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against an online debt-settlement company to resolve CFPB allegations concerning violations of the TSR and the CFPA’s prohibition on abusive acts or practices. As previously covered by InfoBytes, the Bureau filed a complaint against the company in April claiming it took “unreasonable advantage of consumers’ reasonable reliance that [the company] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The Bureau also alleged that the company regularly prioritized creditors with which it had undisclosed relationships when settling consumers’ debts. Under the terms of the order, the company—who neither admits nor denies the allegations except as specified—is required to pay approximately $646,769 in redress and a $750,000 civil money penalty. The company is also (i) prohibited from settling consumers’ debts owed to any affiliated company with which it shares direct or indirect ownership; (ii) required to disclose to consumers any affiliation with any provider of the specific loans; and (iii) required to notify consumers with currently enrolled debts that it will no longer seek to settle those debts. Additionally, the company is required to comply with the TSR when marketing or selling any debt relief products or services, including by providing accurate disbursement amounts, not charging settlement-performance fees, clearly disclosing estimated costs, and not misrepresenting any material facts.
On April 13, the CFPB entered into a preliminary settlement with an online debt-settlement company for allegedly violating the CFPA’s prohibition on abusive acts or practices and failing to clearly and conspicuously disclose total cost under the Telemarketing Sales Rule. The complaint alleges that the company took “unreasonable advantage of consumers’ reasonable reliance that [it] would protect their interests in negotiating their debts” by failing to disclose its relationship to certain creditors and steering consumers into high-cost loans offered by affiliated lenders. The CFPB alleges that the company regularly prioritized creditors with which it had undisclosed relationships in settlements of consumers’ debts. Under the terms of the proposed stipulated final judgment and order, the CFPB is seeking restitution, damages, disgorgement, and civil money penalties.
In the Bureau’s announcement, acting Director David Uejio states that “[t]he CFPB will not tolerate companies that purport to represent consumers, but instead abuse their trust in a self-dealing scheme. This case provides a clear example of what Congress intended to prohibit when it created the CFPB and gave it authority to prevent abusive practices.”
On November 20, the CFPB announced it filed a complaint in the U.S. District Court for the Northern District of Illinois against a debt-relief company and its two owners (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. According to the complaint, between 2011 and April 2019, the defendants allegedly misrepresented material aspects of their student loan debt-relief services, by, among other things, falsely representing that the services would reduce or eliminate payments, stop wage garnishment, lift tax liens, and improve credit scores. Additionally, the Bureau alleges the defendants violated the TSR by requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement. Moreover, the defendants’ fees were allegedly not proportional to or a percentage of the amount saved as a result of their services. The complaint seeks injunctions against the defendants as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.
On November 5, the CFPB announced an action filed in the U.S. District Court for the Central District of California against a student loan debt-relief company, a debt-settlement company, and the owner of both companies (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by charging illegal advance fees and using deceptive tactics to induce consumers to sign up for services. According to the complaint, from 2015 to the present, the defendants allegedly charged consumers upfront fees between $1,000 and $1,450 for the debt-relief company to file paperwork with the U.S. Department of Education to obtain loan consolidation, loan forgiveness, or income-driven repayment plans. According to the complaint, some consumers paid the upfront fee using a third-party financing company and paid an APR between 17 and 22 percent. Additionally, the CFPB alleges that the defendants required some consumers to pay the fee in installments into a trust plan, which carried a $6 monthly banking fee paid to the administrator of the trust accounts. The Bureau alleges that the defendants failed to provide the proper disclosures under the TSR. Moreover, the complaint asserts that from 2019 to the present, the defendants violated the CFPA by representing to consumers that they were turned down for a loan in order to pitch the company’s settlement services.
The complaint seeks consumer redress, injunctive relief, and civil money penalties.
On July 10, the CFPB released the latest quarterly consumer credit trends report on debt settlement and credit counseling from 2007 through 2019. The report notes that debt settlements “increased sharply” during the 2008 recession. It also noted that debt settlement activity has been on the rise again following changes in delinquencies and credit tightness. The Bureau concludes that the recent increase in debt settlement activity is a “function of changing macroeconomic conditions, creditor account management strategies, and apparent increases in for-profit [debt settlement] activity.” The report notes that there is no corresponding increase in credit counseling activities, which is consistent with debt settlement companies “gaining market presence” and a reduction in the availability of credit counseling programs.
On April 22, the Virginia legislature enacted SB 77, which requires entities servicing student loans in the Commonwealth to be licensed by the State Corporation Commission (SCC). Notably, banks, savings institutions, credit unions, and financial institutions regulated under 12 U.S.C. § 2002 are exempt from the licensing requirements. In addition to outlining specific licensing requirements, SB 77 states that non-exempt student loan servicers must also refrain from, among other things, (i) engaging in any unfair or deceptive act or practice in connection with the servicing of a qualified education loan by misrepresenting the amount, nature, or terms of any loan fees or payments, the terms and conditions of the loan agreement, or the borrower’s loan obligations; (ii) misapplying loan payments to an outstanding balance; (iii) failing to report both the favorable and unfavorable payment history of a borrower to a nationally recognized consumer credit bureau at least once a year provided the loan servicer regularly reports such information; (iv) failing to communicate with a borrower’s authorized representative; and (v) making false statements or omitting material facts in connection with information provided to the SCC or another government authority. Student loan servicers must also comply with other requirements, such as evaluating qualified borrowers for income-driven repayment programs, and responding to borrowers’ written inquiries within 30 days.
Additionally, SB 77 creates a private cause of action available to “[a]ny person who suffers damage as a result of the failure of a qualified education loan servicer to comply” with the bill’s requirements or with applicable federal student loan servicing laws and regulations. The bill further provides that violations are subject to a civil penalty not exceeding $2,500 and are considered prohibited practices under the Virginia Consumer Protection Act. SB 77 has a delayed effective date of July 1, 2021; however, the SCC will begin accepting applications starting on or before March 1, 2021.
On April 7, the Virginia governor signed HB 1553, which outlines licensing and regulatory requirements for debt settlement services providers. Among other things, HB 1553 specifies that all debt settlement services providers must be licensed by the state, must file a bond with the state commissioner, and must comply with outlined record retention, reporting, and examination requirements. HB 1553 also outlines prohibited conduct, including prohibiting licensees from accepting a fee from a consumer prior to providing the requested debt settlement service, or from using false, misleading, or deceptive advertisements in connection with the offered services. HB 1553 also provides for cease and desist orders and civil penalties to be issued against licensees that violate these requirements, grants consumers a private right of action against licensees, and makes a violation a prohibited practice under the Virginia Consumer Protection Act. Additionally, the State Corporation Commission is directed to “establish a procedure, to be in effect by March 1, 2021, for any person to apply, prior to July 1, 2021, for a license” that will take effect when HB 1553’s requirements become effective on July 1, 2021.
On July 9, the CFPB announced a $25 million settlement with the nation’s largest debt settlement provider to resolve allegations that the company engaged in deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act. As previously covered by InfoBytes, in 2017 the Bureau claimed, among other things, that the company (i) misled consumers about its ability to negotiate with creditors that the company knew maintained policies against working with settlement companies; (ii) charged advance fees without settling consumers’ debts; and (iii) failed to inform consumers about their rights to refunds from their deposit accounts if they left the settlement program. The proposed stipulated final judgment and proposed order requires the company to pay $20 million in restitution to affected consumers and a $5 million civil money penalty (CMP), in addition to providing certain upfront disclosures to consumers before enrollment. The settlement further enjoins the company from engaging in the alleged unlawful conduct in the future and stipulates that $493,500 of the CMP will be remitted in light of a penalty the company previously paid under a consent order issued by the FDIC in 2018.
- Kathryn L. Ryan and Jedd R. Bellman to discuss “Risk and compliance management: Are you covered?” at a Mortgage Bankers Association webinar
- Melissa Klimkiewicz and Daniel A. Bellovin to discuss “Things to know about flood insurance” at a NAFCU webinar
- Hank Asbill to discuss “Ethical issues at sentencing” at the 31st Annual National Seminar on Federal Sentencing
- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Jeffrey P. Naimon to provide “An update on key fair lending cases and the CRA and UDAAP rules” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- 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