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CFPB Files Complaint Against Company that Allegedly Made False Loan Offers
On September 19, the CFPB announced it had filed a complaint in the U.S. District Court for the Southern District of New York against a New Jersey-based company and two associated individuals (defendants) that allegedly offered loans to consumers who were awaiting payouts from legal settlements or statutory- or victim-compensation funds. According to the complaint, the company engaged in deceptive acts and practices in violation of the Consumer Financial Protection Act by purportedly representing itself as a direct lender, when in actuality it did not provide loans to consumers, but instead brokered transactions while charging a commission for the service. Among other things, the defendants allegedly (i) misrepresented the annual percentage rates (APR) on the advances given to consumers, often representing that interest rates were as small as one to two percent when the actual APR was much higher; (ii) falsely claimed that it had offices in all 50 states and employed a staff of accounting, financial, and legal professionals; and (iii) misled consumers by stating in their marketing materials that consumers could receive loan proceeds within one hour, when the process took longer.
According to the proposed final judgment and order, which must be approved by the district court, the defendants shall be banned from offering these types of loans or advances to consumers in the future. In addition, the company and the owner—who was responsible for decision-making and operations—are jointly liable for a $60,000 civil money penalty to the CFPB. The second individual—who was responsible for recruiting consumers through marketing materials and websites—must pay a $10,000 civil money penalty to the CFPB. The Bureau noted in the announcement that the low penalties take into account the defendants’ inability to pay greater amounts.
CFPB UDAAP Claim in Structured Settlement Factoring Case Moves Forward
On September 13, the U.S. District Court for the District of Maryland allowed a UDAAP claim brought by the CFPB to move forward in which the defendants allegedly employed abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. The court also dismissed several UDAAP claims related to an attorney acting as a financial advisor in the transactions. The 2016 complaint alleged that defendants violated the Consumer Financial Protection Act (CFPA) by encouraging consumers to take advances on their structured settlements and falsely representing that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” According to the complaint, many of the consumers “’did not understand the risks or conditions of the advances, including that the advances did not bind them to complete the transactions.” The CFPB also alleged several counts based on the conduct of an attorney acting as a financial advisor for the transactions, who allegedly provided “virtually no advice,” and whose services were arranged and directly paid by the structured settlement buyer.
In the order and memorandum, the court rejected several of the defendants’ arguments to dismiss based on procedural grounds and allowed the CFPB’s UDAAP claim against the structured settlement buyer and its officers to proceed. However, the court dismissed the claims related to the financial advisor, finding that he satisfied the requirements for an exemption under the CFPA for attorneys engaged in the practice of law.
District Judge Issues Order Against Bi-Weekly Payment Company, Denies Restitution Sought by CFPB
On September 8, a federal judge in the U.S. District Court for the Northern District of California issued an opinion and order against a company after a seven-day bench trial, finding that the company misrepresented its bi-weekly payment program in violation of the Consumer Financial Protection Act (CFPA). As previously covered in InfoBytes, the CFPB filed a complaint in 2015 against the company, its wholly owned subsidiary, and the company’s founder, alleging that the company’s false and misleading marketing practices were abusive and deceptive when it minimized the existence or amount of the program’s setup fee, misled borrowers on the amount of actual savings, and created the impression that the company was affiliated with the lender. The payment program allowed the defendants to contract with borrowers to make their mortgage, credit card, or other loan payments for them. The program automatically debited their accounts every two weeks in an amount equal to one-half of the monthly payment on the loan. This resulted in 26 payments per year, with the extra payments going towards paying down the principal on the loan. The judge granted the $7.9 million civil penalty proposed by the CFPB but denied the restitution of almost $74 million that the CFPB had sought—a full refund of all setup fees—because it found that “the CFPB has not proved that defendants engaged in the type of fraud commonly connoted by the well-worn phrase ‘snake oil salesmen,’” and specifically had “not shown, and could not show, that the [payment] program never provid[ed] a benefit to consumers, or that no fully-informed consumer would ever elect to pay to participate in the program.” The court found that further injunctive relief is warranted but directed the parties to meet and confer to determine the specific terms of the relief. The court noted that the CFPB had only sought civil penalties under the “basic tier” of the CFPA’s civil penalties provision and speculated that the CFPB did not propose higher penalties because it also expected to obtain a large amount of restitution. Nevertheless, the court found that higher penalties for reckless or knowing violations were not warranted because the defendants had taken “affirmative steps such as training, quality control, and seeking legal counsel, in an effort to stay on the right side of the line.”
FTC Enters Consent Order with Final Defendant in Alleged 2015 Debt Collection Scheme
On August 30, the FTC announced a settlement banning the final defendant who had participated in a debt collection scheme from debt collection activities. The settlement stems from a 2015 action against three groups of defendants who allegedly violated the FTC Act and the Fair Debt Collection Practices Act (FDCPA) by engaging in the following activities, among others: (i) attempting to collect debts consumers claimed they did not owe; (ii) impersonating law enforcement to threaten non-compliant consumers with arrests and lawsuits; (iii) harassing friends, family members, and employees in an attempt to collect debts; and (iv) failing to identify themselves as debt collectors. (See previous InfoBytes summary here.) In 2016, the FTC reached separate settlements (here and here) against two of the three groups of debt collectors. In addition to banning the final defendant from debt collection activities, the 2017 action also imposes a $9.39 million judgment to be suspended due to the defendant’s inability to pay. However, the judgment will become immediately due if the defendant is found to have misstated his financial condition.
FTC Files Complaint Against Debt Collection Operation for FTC Act and FDCPA Violations
On August 29, the FTC issued a press release announcing charges against a North Carolina-based debt collection business (defendants) for allegedly using a variety of “trade names” that sound like law firms to threaten individuals if they failed to pay debt they did not actually owe or that the defendants had no right to collect. According to the complaint, the defendants violated the FTC Act by making false, unsubstantiated, or misleading representations regarding debt owed on payday loans or other debts and threatening legal action. Additionally, the defendants allegedly violated the Fair Debt Collection Practices Act by: (i) communicating with consumers “at times or places known or which should be known to be inconvenient to the consumer” or “at the consumer’s place of employment when Defendants knew or had reason to know that the consumer’s employer prohibits the consumer from receiving such communications”; (ii) engaging in “unlawful third-party communications” without obtaining prior consumer consent; (iii) participating in harassing and abusive collection practices; (iv) making false, deceptive, or misleading representations, including by withholding the true status of the debt, impersonating attorneys, threatening legal action, and failing to disclose they were debt collectors; and (v) failing to provide consumers written verification of their debt within the required time frame. A federal judge in the U.S. District Court for the Western District of North Carolina has temporarily restrained and enjoined the defendants’ alleged illegal practices and frozen their assets.
District Court Dismisses CFPB Lawsuit Against Payment Processors, Cites “Blatant Disregard” for Discovery Order
On August 25, a federal judge in the U.S. District Court for the Northern District of Georgia filed an order dismissing claims brought by the CFPB against four payment processors for allegedly engaging in an illegal robocall phantom debt collection operation involving certain payment processors and a telephone broadcast service provider (defendants). (See previous InfoBytes coverage here.) According to a complaint filed in 2015, the defendants “knew, or should have known” that the debt collectors were contacting millions of consumers in an attempt to collect debt that consumers did not owe or that the collectors were not authorized to collect by using threats, intimidation, and deceptive techniques in violation of the Consumer Financial Protection Act and the Fair Debt Collection Practices Act.
According to the order, however, the CFPB displayed a “blatant disregard” for the court’s instructions when asked repeatedly to identify the factual bases for its claims, and willfully failed to present a knowledgeable 30(b)(6) witness during depositions. As examples of “willful disregard,” the court noted that the CFPB’s approach was to first “bury the Defendants in so much information that [they] cannot possibly identify, with any reasonable particularity, what supports the CFPB’s claims,” and second, to “assert privilege objections to questions that the Court … repeatedly ordered to be answered.” The court also indicated that Bureau witnesses relied on “memory aids”—which the court characterized as “scripts”—to provide answers to the defendants’ questions and were unable to testify beyond what was stated on the memory aids. This behavior made the court “not optimistic that reopening the depositions would be fruitful.” As a result, the court dismissed the defendants from the action, granting sanctions under Rule 37, which permits “a district court [to] impose sanctions upon a party for failure to comply with a discovery order,” which may include striking pleadings in whole or in part.
Massachusetts AG Takes Action Against Federal Loan Servicer for Unfair or Deceptive Practices
On August 23, Massachusetts Attorney General Maura Healey filed a complaint in the Suffolk County Superior Court against the Pennsylvania Higher Education Assistance Agency (d/b/a FedLoan Servicing) for allegedly overcharging borrowers and improperly processing claims for public service loan forgiveness. According to the Commonwealth’s lawsuit, the loan servicer purportedly engaged in unfair or deceptive acts or practices by, among other things, (i) failing to timely and properly process applications for Income Driven Repayment plans and thereby denying borrowers the opportunity to make qualifying payments under forgiveness programs; (ii) failing to properly count qualifying payments under the Public Service Loan Forgiveness program; (iii) failing to properly process certification forms in connection with the Teacher Education Assistance for College and Higher Education Grant program, thereby causing grants to be converted into loans; and (iv) collecting amounts not legitimately due and owing and failing to refund them. The complaint seeks restitution, civil penalties, reimbursement of the Commonwealth’s costs and expenses, and injunctive relief.
CFPB, 13 State Attorneys General Take Action Against Private Equity Firm for Allegedly Aiding For-Profit College Company’s Predatory Lending Scheme
On August 17, the CFPB announced a proposed settlement against a private equity firm and its related entities for allegedly aiding a now bankrupt for-profit college company in an illegal predatory lending scheme. In 2015, the CFPB obtained a $531 million default judgment against the company based on allegations that it made false and misleading representations to students to encourage them to take out private student loans. (See previous InfoBytes summary here.) However, the company was unable to pay the judgment because it had dissolved and its assets were distributed in its bankruptcy case that year. Because of the company’s inability to pay, the CFPB indicated that it would continue to seek additional relief for students affected by the company’s practices. In a complaint filed by the CFPB on August 17 in the U.S. District Court for the District of Oregon, the Bureau relied on its UDAAP authority to allege that the private equity firm engaged in abusive acts and practices when it funded the college company’s private student loans and supported the college company’s alleged predatory lending program. Specifically, the CFPB alleged that the private equity firm enabled the company to “present a façade of compliance” with federal laws requiring that at least 10 percent of the for-profit school’s revenue come from sources other than federal student aid in order to receive Title IV funds. The Bureau further alleged that both the company and the private equity firm knew that the high-priced loans made under the alleged predatory lending scheme had a “high likelihood of default.” According to the complaint, the private equity firm continues to collect on the loans made under the alleged predatory lending program. In regard to these loans, the proposed order requires the private equity firm to, among other things: (i) forgive all outstanding loan balances in connection with certain borrowers who attended one of the company’s colleges that subsequently closed; (ii) forgive all outstanding balances for defaulted loans; and (iii) with respect to all other outstanding loans, reduce the principal amount owed by 55 percent, and forgive accrued and unpaid interest and fees more than 30 days past due.
Relatedly, New York Attorney General Eric T. Schneiderman, announced on August 17 that his office, in partnership with the CFPB and 12 other state attorneys general, had reached a $183.3 million nationwide settlement with the private equity firm in partnership with the CFPB. According to a press release issued by AG Schneiderman’s office, under the terms of the settlement, an estimated 41,000 borrowers nationwide who either defaulted on their loans or attended the company’s colleges when it closed in 2014 are entitled to full loan discharges—an amount estimated to be between “$6,000 and $7,000.”
FTC Announces Settlement with Ride-Sharing Company Over Privacy Allegations
On August 15, the FTC issued a press release announcing a settlement with a ride-sharing company over allegations that it violated the Federal Trade Commission Act by making deceptive claims about its privacy and data practices. According to the complaint, the company allegedly failed to closely monitor and audit its employees’ internal access to consumer and driver data. Furthermore, the company represented to consumers and drivers that personal information stored in its databases were secure, but, according to the FTC, failed to implement reasonable measures to prevent unauthorized access to consumers and driver data maintained by the ride-sharing company’s third-party cloud service provider. Both counts, the FTC alleged, demonstrated false or misleading representations. In the press release, FTC Acting Chairman Maureen K. Ohlhausen said, “This case shows that, even if you’re a fast growing company, you can’t leave consumers behind: you must honor your privacy and security promises.”
Under the terms of the decision and order, the company has agreed to establish, implement, and maintain a written “comprehensive privacy program,” reasonably designed to: (i) “address privacy risks related to the development and management of new and existing products and services for consumers,” and (ii) “protect the privacy and confidentiality of Personal Information.” The company is also required to obtain biennial independent third-party assessments to address privacy controls requirements and “certify that the privacy controls are operating with sufficient effectiveness to provide reasonable assurance to protect the privacy of Personal Information and that the controls have operated throughout the reporting period.”
The agreement with the FTC will be subject to public comment for 30 days through September 15, at which point the FTC will decide whether to make the proposed consent order final.
Massachusetts Regulator Fines Auto Finance Companies for Violations of State Fair Lending Rules
On August 7, the Division of Banks of the Massachusetts Office of Consumer Affairs and Business Regulation (Division) announced it had entered into consent orders with several motor vehicle sales finance companies to address allegations of unlicensed and illegal auto lending practices uncovered during an investigation of approximately 200 car dealerships. According to a press release issued by the Division, the investigation resulted in “five enforcement actions, 135 cease directives, $170,000 in fines and penalties, and more than $200,000 in consumer reimbursements.” Violations include, among others, (i) pricing vehicles far above blue book value; (ii) charging interest rates that approach or are at, or exceed the state’s maximum level, which is set at 21 percent, including interest rate violations occurring as a result of the financing of debt cancellation (GAP) coverage premiums; (iii) assessing interest and/or late fees after repossession of a vehicle “on which a repossession of the collateral has been executed”; and (iv) failure to obtain a motor vehicle sales finance company license through the Division, failure to address license renewal application deficiencies, or operating without a valid license. According to one consent order, the company allegedly failed to provide consumers an opportunity to “cure a default” before using starter interrupt devices to shut down their cars. A different consent order ordered the company to identify borrowers for whom their finance charges were calculated incorrectly, or those who overpaid due to a total loss insurance claim, and reimburse borrowers the amount that was overcharged or overpaid. A third consent order was issued to a California-based auto lender who purchased finance contracts from Massachusetts auto dealers without being licensed through the Division and engaged in several of the aforementioned violations.
None of the companies entering into the consent orders admitted to any of the allegations or the existence of any violation of state or federal law concerning their operations as motor vehicle sales finance companies.