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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.
CFPB reaches settlement with unlicensed debt collector
On December 8, the CFPB announced a settlement with a New Jersey-based debt collector resolving allegations that the defendant violated the FDCPA and the CFPA’s prohibition against deceptive acts or practices by obtaining judgments and demanding payments from consumers in states where it was not legally licensed to do so. According to the Bureau, the defendant purchased consumer debts from debt brokers, used law firms to obtain judgments against the consumers, and “continued to collect on those judgments . . . as well as on a handful of payment agreements it obtained from debtors.” The Bureau found that the defendant falsely implied that it had a legally enforceable right to recover payments from consumers in Connecticut, New Jersey, and Rhode Island, and demanded payments and threatened legal action even though it did not hold the debt collection licenses required under the laws of those states. The consent order requires the defendant to pay a $204,000 civil money penalty, and prohibits the defendant from collecting on the judgments against, or payment agreements entered into with, consumers in Connecticut, New Jersey, and Rhode Island when it was not legally allowed to do so. The defendant is also required to “take all necessary steps to vacate all judgments not discharged in bankruptcy or [that were] previously satisfied,” and must suspend collection of those judgments and provide notice to consumers with payment agreements that have been satisfied.
CFPB settles with auto loan company over deceptive sales practices
On November 20, the CFPB announced a settlement with a Florida-based nonbank and the nonbank’s founder (collectively, “defendants”), resolving allegations that the defendants violated the Consumer Financial Protection Act by making misleading statements in disclosures and advertisements for their auto loan payment accelerator program. According to the Bureau, the defendants’ program automatically deducts partial payments on a bi-weekly basis from consumers’ bank accounts and then forwards those payments every month to consumers’ lenders or servicers. As a result, enrolled consumers end up making the equivalent of 13 monthly payments each year instead of 12. While the program is marketed as an opportunity for consumers to save money, the Bureau claimed that the defendants misrepresented the amount consumers would save by not disclosing a $399 enrollment fee in the savings calculations presented to consumers. Due to the enrollment fee, the program’s costs “ordinarily exceed[ed] any savings,” the Bureau alleged, noting that the defendants had no basis for claiming that thousands of consumers saved money by enrolling in the program.
The consent order requires the defendants to pay a $1 civil money penalty and $9.3 million in consumer redress, which is suspended upon payment of $900,000 based on the defendants’ demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The defendants are also prohibited from making any deceptive misrepresentations about the payment program or any other payment accelerator programs.
CFPB charges lender with misrepresenting loan risks
On November 5, the CFPB filed a complaint in the U.S. District Court for the Southern District of Florida against a Florida-based company and its CEO (collectively, “defendants”) alleging violations of the Consumer Financial Protection Act through their offering of short-term, high-interest loans funded by deposits made by other consumers. According to the complaint, the defendants allegedly misrepresented both the risks associated with the deposit product as well as the annual percentage rate (APR) for the loans offered to other consumers. The Bureau alleges that the defendants engaged in deceptive acts or practices by, among other things, (i) purportedly marketing loans, which ranged from $100 to $500 each, as having a 440 percent APR, when in reality the actual APR ranged from 975 to 978 percent; (ii) claiming that deposits received by consumers to fund its loans are guaranteed a 15 percent annual percentage yield; (iii) guaranteeing that consumers’ deposits are FDIC insured and held at “‘member financial institutions’ and ‘participating banks’”; and (iv) claiming that roughly every minute a new consumer makes a deposit. However, the Bureau contends that deposits are not held in FDIC-insured accounts, that the rate of return is not guaranteed, and that “the average rate of new customers is just a few each day.” The Bureau further alleges that because the majority of the loans violate Florida’s criminal-usury law, rendering them uncollectable, the defendants would be unable to collect delinquent loans or meet their obligations to consumers seeking to withdraw their deposited funds. Among other things, the Bureau seeks an injunction against the defendants, damages, consumer redress, disgorgement, and a civil money penalty.
CFPB settles with payment plan company over deceptive sales practices
On November 2, the CFPB announced a settlement with a Texas-based payment plan company, resolving allegations that the company’s loan payment program disclosures contained misleading statements in violation of the Consumer Financial Protection Act. According to the Bureau, the company’s loan payment program for auto loans is marketed as an opportunity for consumers to pay off loans faster and more cheaply, where automatic partial payments are deducted bi-weekly from consumers’ bank accounts and then forwarded to consumers’ lenders or servicers. However, consumers who enrolled in the bi-weekly program end up “making 13 monthly payments or one full extra payment to [the company] each year,” the Bureau alleged, in addition to paying a bi-weekly debit fee. According to the consent order, the company, among other things, allegedly provided consumers with a customized “benefits summary” that stated a specific amount of interest savings the consumer would receive by enrolling in the program. The Bureau alleged that the benefits summary, however, failed to disclose that the fees would ordinarily exceed the interest savings. The program—which was purportedly marketed as a “financial benefit to consumers”—created the misleading impression that consumers would save money using the product even though the company allegedly knew the majority of enrolled consumers ended up paying more in total on their loans.
The consent order requires the company to pay a $1 civil money penalty and $7.5 million in consumer redress, which is suspended upon payment of $1.5 million based on the company’s demonstrated inability to pay the full judgment. The Bureau noted in its press release that harmed consumers may be eligible to receive additional relief from the Bureau’s Civil Penalty Fund. The company is also prohibited from making any misrepresentations about its payment program or any other payment accelerator programs.
CFPB settles with auto servicer over deceptive practices
On October 13, the CFPB announced a settlement with the Texas-based auto-financing subsidiary of a Japanese automobile manufacturer to resolve allegations that the servicer violated the Consumer Financial Protection Act by engaging in illegal repossession and collection practices. The CFPB alleged that the servicer engaged in unfair and deceptive practices by (i) wrongfully repossessing vehicles even though customers made payments to decrease their delinquency to less than 60 days past due or kept a promise to pay; (ii) limiting the ability of borrowers who pay over the phone to select payment options with significantly lower fees; (iii) making false statements in loan extension agreements, which “created the net impression that consumers could not file for bankruptcy”; and (iv) knowing its repossession agents were charging customers upfront storage fees before returning personal property left inside repossessed cars.
Under the terms of the consent order, the servicer must pay a $4 million civil money penalty, as well as up to $1 million in consumer redress. The servicer must also credit any outstanding fees stemming from the repossession and pay consumers redress for each day it wrongfully held their vehicles. The servicer is also ordered to, among other things, (i) cease using language that creates the impression that customers may not file for bankruptcy; (ii) conduct a quarterly review to identify and remediate any future wrongful repossessions; (iii) adopt policies and procedures to correct its repossession practices; (iv) prohibit its repossession agents from charging fees to get personal property returned; and (v) clearly disclose phone payment fees to consumers.
Senate Democrats question CFPB’s lack of restitution in VA ad settlements
On October 1, sixteen Democratic Senators sent a letter to CFPB Director Kathy Kraninger, expressing concern over the Bureau’s failure to obtain restitution in eight recent settlements with mortgage lenders for allegedly mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that contained misleading statements or lacked required disclosures (covered by InfoBytes here). The letter states that while the Bureau collected approximately $2.8 million in civil penalties over the eight settlements, it did not require any company to pay restitution to harmed consumers. The letter argues that the failure to obtain restitution in these matters was a departure from the Bureau’s practice in previous cases where it obtained restitution for consumers who enrolled in a service connected to allegedly deceptive advertising. The letter notes that, if the Bureau was not able to determine a restitution amount based on the “millions of advertisements” that were sent, it had the authority to seek disgorgement as a remedy. The letter requests the Bureau elaborate on, among other things, its decision not to seek restitution for consumers in the cited actions and to provide information about the standard the Bureau uses to determine when to provide restitution.
CFPB settles with auto lender on unfair LDW practices
On September 21, the CFPB announced a settlement with a California-based auto-loan servicer to resolve allegations that the company engaged in unfair practices with respect to its Loss Damage Waiver (LDW) product, in violation of the Consumer Financial Protection Act. The CFPB alleged that the company engaged in unfair practices by charging certain borrowers for LDW coverage, but then failed to provide the coverage. Specifically, the LDW agreement allowed the company to suspend coverage if borrowers became 10-days delinquent on their auto loans. The company, however, continued to charge borrowers LDW premiums even though coverage was no longer being provided. The Bureau also alleged that the company assessed LDW claim-related fees that were not disclosed in the LDW contract, which the borrowers were not contractually obligated to pay.
Under the terms of the consent order, the company is required to pay more than $1.3 million in consumer redress to approximately 4,000 impacted consumers, as well as a $100,000 civil money penalty. The order also prohibits the company from “failing to provide consumers with LDW coverage, collateral protection insurance, or similar products or services for which [the company] has charged consumers” or from “charging consumers fees that are not authorized by its LDW contracts.”
Joint settlement requires forgiveness on $330 million of student loans
On September 15, the CFPB filed a complaint and proposed stipulated judgment against a trust, along with three banks acting in their capacity as trustees to the trust, for allegedly providing substantial assistance to a now defunct for-profit educational institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act. The Bureau asserted that the trust owned and managed private loans for students attending the defunct institution, even though the trust “allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them.” The Bureau alleged that the defunct institution induced students to take out loans through several unfair practices, including “using aggressive tactics, and in some cases, gaining unauthorized access to student accounts to sign students up for loans without permission.” These loans, the Bureau contended, carried default rates well above what was expected for student loans. According to the Bureau, the trust was allegedly actively involved in the servicing, managing, and collection of these student loans.
If approved by the court, the Bureau’s proposed settlement would require the trust to (i) cease collection efforts on all outstanding loans owned and managed by the trust; (ii) discharge all outstanding loans owned and managed by the trust; (iii) ask all consumer reporting agencies to delete information related to the trust’s loans; and (iv) notify all affected consumers of these actions. The Bureau estimated that the total amount of loan forgiveness is roughly $330 million.
This settlement is the third reached by the Bureau in relation to the defunct institution’s private loan programs. In 2019, the defunct institution reached a settlement with the Bureau (covered by InfoBytes here), which required the payment of a $60 million judgment. Additionally, the Bureau entered into another settlement in 2019 with a different company that managed student loans for the defunct institution’s students, which required the loan management company to comply with similar requirements as the trust (covered by InfoBytes here).
Also on September 15, attorneys general from 47 states plus the District of Columbia reached a national settlement with the trust.
CFPB settles with eighth lender on misleading VA advertising
On September 14, the CFPB announced a settlement with an eighth mortgage lender for mailing consumers advertisements for Department of Veterans Affairs (VA) mortgages that allegedly contained misleading statements or lacked required disclosures. According to the Bureau, the lender offers and provides VA guaranteed mortgage loans, and allegedly sent false, misleading, and inaccurate direct-mail advertisements to servicemembers and veterans in violation of the CFPA, the Mortgage Acts and Practices – Advertising Rule (MAP Rule), and Regulation Z. Among other things, the Bureau alleged the advertisements (i) failed to include required disclosures; (ii) stated credit terms that the lenders were not actually prepared to offer; (iii) made “misrepresentations about the existence, nature, or amount of cash available to the consumer in connection with the mortgage credit product”; (iv) gave the false impression the lenders were affiliated with the government; and (v) used the name of the consumer’s current lender in a misleading way.
The settlement imposes a civil money penalty of $625,000 and bans the lender from future advertising misrepresentations similar to those identified by the Bureau. Additionally, the settlement requires the lender to use a compliance official to review mortgage advertisements for compliance with consumer protection laws.
The latest enforcement action is part of the Bureau’s “sweep of investigations” related to deceptive VA-mortgage advertisements. Previously, the Bureau issued consent orders against seven other mortgage lenders for similar violations, covered by InfoBytes here, here and here.