CFPB And FTC Continue To Take Action Against Debt Settlement Companies

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On May 11, the CFPB a fined a Tennessee-based debt-relief payment processor more than $11 million in consumer redress and civil money penalties to address UDAAP allegations, and banned the company from operating in the payment-processing and account management industry.  According to the CFPB, the payment processors violated the TSR and CFPA by substantially assisting student-loan and traditional debt-relief companies in unlawfully requesting and accepting advance fees for debt-relief services, misrepresenting their payment-processing actions to consumers, and unfairly disbursing unearned fees for debt-relief services even after consumers had canceled services.   The respondents agreed to repay consumers $8.7 million in unrefunded fees and pay an additional $3 million in penalties.  The respondents consented to an injunction involving an industry ban for one corporate respondent and the two individuals, remedial measures for the remaining corporate respondent.

On May 4, at the request of the FTC, a Florida federal court granted a temporary restraining order against a credit repair operation.  In its complaint against the credit repair scheme and its owners, the FTC alleged that the defendants engaged in deceptive tactics in violation of the FTC Act, the Credit Repair Organizations Act, the Business Repair Opportunity Rule, the TSR, and the COVID-19 Consumer Protection Act.   According to the FTC, since 2019, the company has been illegally charging thousands of dollars for credit repair services up front.  Throughout operations, the company encouraged consumers to invest pandemic related governmental benefits into the company. The company is also accused of engaging in a credit piggybacking scheme. It allowed consumers seeking to raise credit scores to be added as authorized users to a credit card account—belonging to someone with higher credit—in name only.  Finally, the defendants are said to have pitched their consumers the opportunity to resell their own unlawful credit repair services—consumers were told they could make “tens of thousands” each month.  The FTC asked the federal district court to halt the company’s illegal operations, appoint a receiver, and freeze the defendants’ assets. The court issued a temporary restraining order granting these requests.

Putting It Into Practice:  These enforcement action serves as a reminder for companies operating in the debt-relief and payment processing industries to monitor their compliance with federal telemarketing and other unfair and deceptive practices laws to ensure full and accurate disclosure of relevant information before signing consumers up for services and engaging third-party service providers (we have discussed the CFPB’s recent use of the CFPA and TSR in a prior blog posts here).  As a general matter, such companies should carefully consider their operations, policies, and procedures relative to advertising and marketing to consumers, including websites, telephone sales scripts, direct mail solicitations, emails, or other electronic communications, as well as screening for conflict of interest before engaging any third-party service providers.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 133