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  • CFPB settles lawsuit against debt settlement provider

    Federal Issues

    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.

    Federal Issues CFPB Enforcement Debt Settlement Telemarketing Sales Rule CFPA

  • Maryland approves bills on debt settlement services, mortgage lenders, and credit service businesses

    State Issues

    On April 18, the Maryland governor approved several bills concerning debt settlement service providers, mortgage lenders, and credit service businesses.

    Under HB 59, registrants providing debt settlement services are required to apply for a license or renewal and obtain a valid unique identifier issued by the Nationwide Multistate Licensing System and Registry (NMLS) on or after July 1. HB 59 also requires the Office of the Commissioner of Financial Regulation (OCFR) to establish a time period of at least two months within which registrants must transfer licensing information to NMLS. Additionally, registration fees are decreased to $400 from $1,000 for the issuance or renewal of a registration.

    HB 61 amends the Annotated Code of Maryland related to mortgage lenders, loan servicers, and loan originators to, among other things, (i) alter and clarify certain tangible net worth requirements and criteria for mortgage lenders, servicers, and originators; (ii) repeal a provision that requires licensees to reapply for a license should a location change request not be filed in a timely manner with the OCFR; (iii) extend examination cycle periods; and (iv) amend certain expiration provisions related to mortgage loan originator licensees. The amendments take effect October 1.

    Finally, SB 68 amends the definition of a “credit service business” to mean, among other things, any person who represents the ability to provide advice or assistance to consumers concerning improving a consumer’s credit record, establishing a new credit file, or obtaining credit extensions. SB 68 also exempts certain credit services businesses from certain information statement requirements when engaged to obtain an extension of credit for a consumer. Credit services businesses that qualify for an exemption must provide the consumer with certain information concerning the right to file a complaint as well as a copy of the contract before the consumer executes the contract. SB 68 takes effect October 1.

    State Issues State Legislation Licensing Debt Settlement Mortgages Credit Services Business

  • FTC Seeks Order to Stop Alleged Telemarketing Debt Relief Scam

    Consumer Finance

    On December 4, the FTC announced that it charged two debt relief companies and five individuals with violations of the FTC Act and the Telemarketing Sales Rule (TSR) in connection with their sale of “bogus” credit card interest rate reduction services. According to the complaint, the defendants contacted consumers using illegal robocalls and made false guarantees to “substantially and permanently” lower the consumers’ credit card interest rates and/or save the consumer thousands of dollars in interest payments. However, the scheme rarely obtained the promised results. In some instances where consumers did get lower interest rates, those rates were only temporary “teaser” rates that did not result in a permanent rate reduction. In addition, defendants failed to disclose the associated balance transfer fees that accompanied the lower teaser rates. The FTC also charged the defendants with TSR violations for (i) collecting illegal upfront fees; (ii) making illegal robocalls; (iii) contacting consumers on the National Do Not Call Registry; and (iv) not paying the required fees to the Registry. The FTC charged one additional individual defendant with substantially assisting the two debt relief operations with the allegedly illegal conduct. The FTC is seeking a temporary restraining order (TRO) against the defendants, requesting the appointment of a receiver to control the two corporate entities, and an asset freeze to assist in potential consumer redress.

    Consumer Finance FTC Credit Cards Debt Settlement Telemarketing Sales Rule

  • CFPB Takes Action Against Largest Debt Settlement Provider

    Consumer Finance

    On November 9, the CFPB announced the filing of a complaint against the largest debt settlement provider in the country and its co-CEO for allegedly deceiving consumers about its debt settlement services. According to the complaint, the defendants engaged in deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by:

    • misleading consumers about the settlement provider’s ability to negotiate with creditors that the settlement provider knew maintained policies against working with settlement companies;
    • instructing consumers to mislead creditors when asked about their participation in a debt settlement program;
    • leading consumers to believe the defendants would negotiate on their behalf when, in fact, some consumers were only “coached” on how to negotiate settlements on their own;
    • misleading consumers by charging them the full fee when creditors stop collection efforts without the defendants taking any action despite advertising that the fee is only charged if settlement is negotiated by the settlement provider and payments begin under the terms of a settlement; and
    • failing to clearly and conspicuously disclose consumers’ rights to refunds from their deposit accounts if they leave the settlement program.

    The CFPB is seeking monetary relief, civil money penalties, and injunctive relief against the defendants.

    Consumer Finance CFPB Debt Collection Enforcement Debt Settlement Telemarketing Sales Rule CFPA

  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State Attorney General Student Lending Debt Settlement Enforcement Debt Relief

  • FTC Announces Orders Banning Owners of a Debt Relief Operation from Related Activities

    Consumer Finance

    On September 8, the FTC announced that, under separate stipulated final orders (here and here), two owners of a debt relief operation are permanently banned from the debt relief business for violations of the FTC Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, and the Telemarketing Sales Rule. The FTC’s 2015 complaint alleged that the companies and the owners (collectively, defendants) convinced consumers with payday loan debts to enroll in their “Financial Hardship Program” (Program) by falsely promising to renegotiate the terms of their loans. Consumers were advised to stop making payments to their lenders and pay money to the Program instead, including enrollment and bi-weekly fees. According to the FTC, the defendants “failed to provide the consumers with the promised debt relief, and consumers ended up in deeper financial trouble, having paid hundreds of dollars for no reduction or settlement of their loans.” The stipulated final orders each impose monetary judgments of more than $23.7 million. The judgments will be partially suspended when the individually named owners pay $149,537 and approximately $8,037, respectively. In addition to barring the defendants from the debt relief operation business, the orders further prohibit them from “making representations about financial and other products and services, and from making unsubstantiated claims about any products or services,” and “from profiting from consumers’ personal information and failing to dispose of it properly.”

    FTC Enforcement Telemarketing Sales Rule Debt Settlement

  • CFPB Issues Consent Order against San Diego-Based Student Debt Loan Relief Company

    Consumer Finance

    On March 30, the CFPB filed a consent order against a San Diego-based student debt relief operation for alleged violations of the CFPA, the Telemarketing Sales Rule, and Regulation P. According to the CFPB, the company – marketing its services through outbound and inbound telemarketing and direct mail and falsely claiming to be affiliated with the Department of Education – charged consumers upfront fees up to $495 to enroll in federal student loan repayment programs, as well as a monthly maintenance fee of $39. The CFPB’s consent order requires the company to (i) cease all student debt relief operations; (ii) rescind all contracts entered into up to and including the date of the consent order and stop assessing fees pursuant such contracts; (iii) ensure that consumers enrolled in income-driven repayment or forgiveness plans with the Department of Education receive the paperwork necessary for annual recertification or renewal deadlines; and (iv) pay a civil money penalty of $50,000.

    In light of the action, the CFPB reminded consumers of its December 2014 advisory notifying them to be mindful of companies “falsely claiming special expertise or a relationship with the Department of Education.”

    CFPB Debt Settlement Department of Education

  • California Federal Court Enters Final Judgment Against Debt Relief Company; Rules in Favor of CFPB

    Consumer Finance

    Last week, a California federal district court entered a final judgment against a California-based debt settlement company to resolve the CFPB’s charges that the company violated the Telemarketing Sales Rule and the CFPA. Specifically, the CFPB alleged that the company disguised illegal advance fees for its debt relief services as fees for bankruptcy-related services and misrepresented its services by making consumers believe that they would become debt free when, in fact, “few, if any” consumers became debt free using the company’s services. The court’s final judgment orders the company, which has declared bankruptcy, to pay (i) more than $132 million in restitution to borrowers enrolled in the company’s program between October 27, 2010 and June 18, 2015; and (ii) a $40 million civil money penalty. The order comes after an October 2015 order against the company’s owner, which ordered him to pay $500,000 in consumer redress and permanently banned him from the debt relief industry.

    CFPB Debt Settlement

  • FTC Takes Action against Debt Relief Operation

    Consumer Finance

    On February 24, the FTC announced that it charged a debt relief operation and two individuals with violations of the FTC Act and the Telemarketing Sales Rule (TSR). According to the FTC, the named defendants misrepresented their ability to help financially distressed homeowners and student loan borrowers modify their loans. Additionally, one of the companies involved in the debt relief operation and its owner also were charged with violations of the Mortgage Assistance Relief Services (MARS) rule/ Regulation O for (i) failing to provide homeowners with disclosures during the purported loan restructure process; (ii) charging upfront fees to consumers for mortgage assistance relief services; (iii) advising homeowners to cease communication with lenders or servicers; and (iv) misrepresenting material aspects of  their mortgage assistance relief services. The FTC’s February 16 complaint seeks to permanently enjoin the named defendants from future violations of the FTC Act, the TSR, and the MARS Rule/Regulation O as well as obtain redress for injured consumers through rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.

    FTC Telemarketing Sales Rule Debt Settlement

  • CFPB Monthly Complaint Snapshot Highlights Financial Services Markets

    Consumer Finance

    On January 28, the CFPB released its monthly complaint report focusing on a number of financial services markets, including debt settlement, check cashing, tax refund anticipation checks, money order providers, and credit repair. The report states that, since July 19, 2014, the CFPB has handled approximately 2,700 complaints relating to these other types of financial services. According to the report, debt settlement and credit repair complaints are among the more common complaints, and over a quarter of these complaints mention student loans, with borrowers selecting fraud or scam as their primary issue. Additional findings highlighted in the snapshot include: (i) consumers being charged excessive fees, including upfront fees that are generally prohibited by law, for debt settlement and credit repair services; (ii) consumers encountering problems redeeming money orders, taking issue with the amount of time it took to resolve errors with customer service representatives; and (iii) consumers complaining they were victims of fraud when using money orders and travelers checks. The CFPB identified New York State and the New York metro area as its geographic spotlight in this issue, noting that, as of January 1, 2016, the CFPB has received 50,400 complaints from New York State consumers alone. Similar to past reports, mortgages remain the most complained-about product.

    CFPB Student Lending Consumer Complaints Debt Settlement

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