Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations
Section Content

Upcoming Events

Filter

Subscribe to our InfoBytes Blog weekly newsletter for news affecting the financial services industry.

  • Court approves $12 million settlement between FTC and student debt relief company

    Courts

    On June 8, the U.S. District Court for the Central District of California approved an order requiring an owner and his multiple student debt relief companies (defendants) to pay almost $12 million to settle allegations that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) when marketing and selling student debt relief services. As part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC filed a complaint in September 2017 alleging the defendants, among other things, charged upfront and monthly fees to enroll students in free government programs to manage student loan debt, but did not perform any services. Additionally, the FTC alleged that the defendants marketed themselves as associated with the Department of Education and called consumers listed on the Do Not Call Registry. Under the settlement order, in addition to the nearly $12 million fine, the defendants are permanently banned from: (i) advertising, marketing, promoting, offering, or selling debt relief or credit repair products or services, or assisting others in such activities; (ii) misrepresenting or assisting others in misrepresenting information relating to any products or services and, specifically, financial products or services; (iii) making any misleading or unsubstantiated representation or assisting others in making any such representation about the benefits, performance, or result of any financial product or service; and (iv) engaging in any unlawful telemarketing practices. The defendants neither admit nor deny any of the FTC’s allegations.

    Courts Consumer Finance FTC Federal Issues Enforcement Student Lending Debt Relief

    Share page with AddThis
  • FTC settles with two student loan debt relief companies

    Federal Issues

    On May 31, as part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC announced settlements with two student loan debt relief companies. According to the FTC, the settlements resolve claims that the companies violated the FTC Act and the Telemarketing Sales Rule (TSR) by illegally charging consumers upfront fees and falsely promising to reduce or eliminate their student loan debt. The first settlement is the result of a lawsuit filed by the FTC in 2017, alleging that the company would enroll consumers in debt relief programs with an upfront fee and subsequent monthly payments, but would not fulfill promises to apply the payments to the consumers’ student loans. In addition to a $17 million fine, which will be partially suspended if the defendants turn over substantially all assets worth more than $4 million, the settlement bars the defendants from debt relief and credit repair activities in the future.

    The second settlement also results from a 2017 complaint by the FTC alleging that a Los Angeles-based company defrauded consumers through programs offering mortgage assistance and student debt relief. According to the FTC, the company falsely promised distressed homeowners assistance in preventing foreclosure and promised student borrowers reduced monthly payments or loan forgiveness purportedly through the Department of Education. The $9 million settlement, which will be partially suspended once defendants turn over all assets worth $54,000 because of their inability to pay, also bans defendants from participating in debt relief and telemarketing activities in the future.

    For more InfoBytes coverage on Operation Game of Loans see here.

    Federal Issues Consumer Finance FTC Debt Relief Enforcement Student Lending

    Share page with AddThis
  • New Jersey Attorney General seeks to partner with Department of Education on for-profit investigations

    State Issues

    On May 17, the New Jersey Attorney General, Gurbir Grewal, sent a letter to the Secretary of Education, Betsy Devos, regarding concerns that the Department of Education (Department) is no longer investigating fraudulent activities at for-profit colleges. Grubir cited work that State Attorneys General did with the Department during the previous administration regarding these investigations and noted that the cooperation between his office and the Department has “ground to a halt.” The letter concludes with Grubir requesting the Department continue several investigations that are in progress and offers to assist in sharing information and supplementing resources or, if the Department chooses not to pursue the investigations, to allow the New Jersey Attorney General to “pick up where [the Department] leave[s] off.”

    State Issues State Attorney General Department of Education For-Profit College Student Lending

    Share page with AddThis
  • Court orders Department of Education to cease collection efforts on student loans used for defunct for-profit school

    Courts

    On May 25, the U.S. District Court for the Northern District of California granted in part a preliminary injunction barring the U.S. Department of Education (Department) from continuing collection efforts on student loans used for programs at a now defunct for-profit college. The for-profit school closed in 2015 after a federal fraud investigation by the Department. The decision results from a December 2017 putative class action filed by former students of the school against the Department. The complaint alleged the Department violated the Administrative Procedures Act (APA) and the Privacy Act of 1974 by its December 2017 announcement that it would use an “average earnings” metric to determine what to charge students for the value of the education they received at the college. According to the former students, the previous policy—which measured the job placement rate of graduates—would have provided full loan forgiveness for the federal student loans used for the defunct school. In response to the students’ motion for a preliminary injunction, the court granted the students’ request to prevent the Department from using the “average earnings” metric, but denied the motion to require the Department to use the previous job placement metric. Additionally, among other things, the judge denied the students’ request to order the Department to remove all negative credit reporting but did order the Department to cease collection efforts on the loans.

    Courts Department of Education Debt Collection Student Lending Lending Consumer Finance

    Share page with AddThis
  • Department of Education plans to use servicers, not private debt collectors, to assist delinquent borrowers

    Federal Issues

    On May 23, the Department of Education (Department) affirmed plans to begin using “‘enhanced servicers’ to assist delinquent borrowers prior to default” instead of private debt collection agencies. The affirmation was made in a reply brief supporting the Department’s motion to dismiss an action filed by collection agencies in the U.S. Court of Federal Claims that challenged the Department’s decision to award contracts to two private debt collectors. The Department argues in the reply brief that the challenge is moot because the Department cancelled the solicitation under which the contracts were awarded to pursue a new collection plan using “enhanced servicers.” According to the brief, the new collection approach will “place a greater emphasis on customer service and early outreach to address delinquencies with a full range of early options for borrowers.”

    Federal Issues Department of Education Student Lending Debt Collection Servicing Consumer Finance

    Share page with AddThis
  • Maryland expands scope of unfair and deceptive practices under the Maryland Consumer Protection Act, increases maximum civil penalties

    State Issues

    On May 15, the Maryland governor signed HB1634, the Financial Consumer Protection Act of 2018, which expands the definition of “unfair and deceptive trade practices” under the Maryland Consumer Protection Act (MPCA) to include “abusive” practices, and violations of the federal Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA). The law also, among other things:

    • Civil Penalties. Increases the maximum civil penalties for certain consumer financial violations to $10,000 for the initial violation and $25,000 for subsequent violations
    • Debt Collection. Prohibits a person from engaging in unlicensed debt collection activity in violation of the Maryland Collection Agency Licensing Act or engaging in certain conduct in violation of the federal FDCPA.
    • Enforcement Funds. Requires the governor to appropriate at least $700,000 for the Office of the Attorney General (OAG) and at least $300,000 to the Office of the Commissioner of Financial Regulation (OCFR) for certain enforcement activities.
    • Student Loan Ombudsman. Creates a Student Loan Ombudsman position within the OCFR and establishes specific duties for the role, including receiving, reviewing, and attempting to resolve complaints from student loan borrowers.
    • Required Studies. Requires the OCFR to conduct a study on Fintech regulation, including whether the commissioner has the statutory authority to regulate such firms. The law also requires the Maryland Financial Consumer Protection Commission (MFCPC) to conduct multiple studies, including studies on (i) cryptocurrencies and initial coin offerings and (ii) the CFPB’s arbitration rule (repealed by a Congressional Review Act measure in November 2017).

    State Issues UDAAP SCRA Military Lending Act FDCPA Student Lending Arbitration Civil Money Penalties Fintech Cryptocurrency State Legislation

    Share page with AddThis
  • CFPB Succession: Bureau dismantles Office for Students; no longer plans student loan regulations; and more

    Federal Issues

    On May 9, according to multiple reports, the CFPB internally announced that the Bureau would eliminate the Office of Students & Younger Consumers and move its staff into the Office of Financial Education as part of acting Director Mulvaney’s agency reorganization. The Bureau will continue to have a Student Loan Ombudsman position, which is required by the Dodd-Frank Act. It is also reported that the Bureau intends to create a new “Office of Cost Benefit Analysis” and rename certain existing offices. As previously covered by InfoBytes, acting Director Mulvaney plans to move the Office of Fair Lending and Equal Opportunity from the Division of Supervision, Enforcement and Fair Lending to the Office of the Director, in order to focus on “advocacy, coordination and education.”  Day-to-day responsibility for enforcement and supervision oversight will remain in the renamed Division of Supervision and Enforcement (SE).

    The Office of Management Budget (OMB) released the CFPB’s Spring 2018 rulemaking agenda, which no longer includes “Student Loan Servicing” as a Long-Term Action. In previous agendas, the Bureau described its plan for Student Loan Servicing as “The CFPB will continue to monitor the student loan servicing market for trends and developments.  As this work continues, the Bureau will evaluate possible policy responses, including potential rulemaking.  Possible topics for consideration might include specific acts or practices and consumer disclosures.” In addition to dropping Student Loan Servicing, the Spring 2018 agenda also no longer lists plans for Supervision of Larger Participants in Markets for Personal Loans, Overdraft Services, or Submission of Credit Card Agreements under TILA (more information on the CFPB’s previous plans for these rules can be found here).

    As expected, the Spring 2018 agenda also included two new additions to the Proposed Rule Stage:

    • HMDA. The Bureau has previously announced it intends to engage in a broader rulemaking to (i) re-examine the criteria determining whether institutions are required to report data; (ii) adjust the requirements related to reporting certain types of transactions; and (iii) re-evaluate the required reporting of additional information beyond the data points required by the Dodd-Frank Act (InfoBytes coverage here). The Bureau indicates it expects a Notice of Proposed Rulemaking (NPRM) on any changes to the HMDA rule before 2019. 
    • Payday, Vehicle Title, and Certain High-Cost Installment Loans. In January, the Bureau announced the intention to reconsider the 2017 payday rule (covered by InfoBytes here). The OMB agenda indicates the Bureau expects a NPRM by February 2019.

    Notably, the CFPB continues to include “Debt Collection Rule” in a Proposed Rule Stage, as it has in previous agenda iterations. However, the Bureau has extended the deadline for its NPRM to February 2019.

      

    Federal Issues CFPB Succession Student Lending CFPB Overdraft Debt Collection Payday Lending HMDA

    Share page with AddThis
  • Student loan servicer must comply with CFPB CID pending appeal

    Courts

    On April 17, the U.S. District Court for the Western District of Pennsylvania ordered a student loan servicer to comply with a CFPB Civil investigative Demand (CID), while the servicer awaits appeal. As previously covered by InfoBytes, in February the court enforced a CFPB CID issued against the student loan servicer in June 2017. In granting the Bureau’s petition to enforce the CID, the court found that the CID’s Notification of Purpose met the statutory notice requirements because nothing in the law bars the CFPB “from investigating the totality of a company’s business operations.” The court also found that the investigation was for a “legitimate purpose,” the information requested is relevant and not already known by the Bureau, and the request is not unreasonably broad or burdensome. On March 26, the servicer filed a motion to stay the court’s order pending appeal to the U.S. Court of Appeals for the 3rd Circuit. In denying the servicer’s motion, the court held that the servicer would not be irreparably harmed if it responded to the CID should the 3rd Circuit reverse the court’s decision as the Appeals Court could order all documents to be returned and prevent the CFPB from acting upon information learned through the CID. Additionally, the servicer argued that the CFPB would not be injured if the court granted the stay because the agency has not yet brought an enforcement action. The court disagreed with this argument, holding that the CFPB cannot bring an enforcement action without reviewing the relevant documents and granting the stay would only “further stall the CFPB’s efforts to obtain documents and information that it requested nine months ago.”

    Courts CFPB Student Lending CIDs Appellate Third Circuit

    Share page with AddThis
  • Department of Education, Veterans Affairs team up to simplify student loan discharge process for disabled veterans

    Lending

    On April 16, the U.S. Department of Education announced a partnership with the U.S. Department of Veterans Affairs (VA) to identify disabled student loan borrowers who qualify for debt forgiveness. Eligible veterans with federal student loans or aid through the Teacher Education Assistance for College and Higher Education Grant Program that are identified as a match on the National Student Loan Data System and the VA database will be notified of their potential eligibility in the mail and will receive a Total and Permanent Disability Discharge application.

    Lending Student Lending Department of Education Department of Veterans Affairs Debt Cancellation

    Share page with AddThis
  • Department of Education restores accreditor’s federal recognition pending review of its 2016 petition

    Federal Issues

    On April 3, Department of Education (Department) Secretary, Betsey DeVos restored the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a federally recognized accrediting agency, effective as of December 12, 2016. The order follows the U.S. District Court for the District of Columbia’s March 23, 2018 remand of the former Secretary’s December 2016 decision withdrawing recognition. The order states that while federal recognition is restored, the Department will review ACICS’ January 2016 petition to determine whether continued recognition is warranted. As previously covered by InfoBytes, a coalition of state Attorneys General urged the Department to reject ACICS’ application to regain recognition, citing to what the Attorneys General called “ACICS’ systemic accreditation failures.”

    Federal Issues Student Lending Department of Education State Attorney General

    Share page with AddThis

Pages