Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Court grants summary judgment in favor of FTC and Florida State Attorney General in debt relief scam case
On December 10, the U.S. District Court for the Middle District of Florida granted the FTC and the Florida Attorney General’s motion for summary judgment against an individual accused of participating in a scheme that allegedly targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. According to a 2016 complaint, several interrelated companies and the founder of such companies (defendants), among other things, allegedly violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act by (i) claiming to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates; (ii) charging up-front payments for debt relief and rate-reduction services; and (iii) pitching credit card debt-elimination services, claiming the defendants could access money from a government fund to pay off consumers’ credit card debt in 18 months, when in actuality, no such government fund existed. In some cases, the defendants instructed consumers to stop paying their credit-card bills, resulting in “significant harm in the form of reduced creditworthiness, higher interest rates on their existing credit-card debt, and higher overall credit-card debt due to the accrual of late fees and interest charges.”
The court entered a permanent injunction ordering the defendant founder of the companies involved to pay over $23 million in equitable monetary relief. The order also permanently restrains and enjoins such defendant from, among other things, participating—whether directly or indirectly—in (i) telemarketing; (ii) advertising, marketing, selling, or promoting any debt relief products or services; or (iii) misrepresenting material facts.
On December 7, as part of Operation Game of Loans—a coordinated effort between the FTC and state law enforcement—the FTC announced settlements with operators of two student loan debt relief operations to resolve allegations that the defendants violated the FTC Act and the Telemarketing Sales Rule by, among others (i) charging consumers who purchased the debt relief services illegal upfront fees; and (ii) falsely promising to assist consumers in enrolling in government programs that would reduce or forgive their student loan debt.
Under the terms of the settlement, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Combined, the settlements total more than $36 million, though judgments have been partially suspended due to the defendants’ inability to pay.
FTC settles with one student loan debt relief operation; seeks separate permanent injunction against another
On November 20, the FTC announced a settlement with operators of a student loan debt relief operation to resolve allegations that the defendants defrauded consumers through programs offering mortgage assistance and student debt relief. Regarding the student debt operations, the FTC alleged that the defendants falsely offered student borrowers reduced monthly payments or loan forgiveness by falsely claiming to be affiliated with the Department of Education. In a 2017 complaint, the FTC alleged that the defendants also falsely promised foreclosure prevention and mortgage relief to distressed homeowners, but instead collected advance fees in violation of the Telemarketing Sales Rule (TSR) and the Mortgage Assistance Relief Services Rule. Among other things, the settlement includes a judgment of more than $9 million—which will be partially suspended once the defendants turn over all assets worth approximately $305,000 because of their inability to pay—and bans the defendants from participating in debt relief and telemarketing activities in the future.
The same day, the FTC also announced it was charging a separate student loan debt relief operation with violations of the FTC Act and the TSR for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, the operators of the scheme—which include a recidivist scammer previously banned from participating in debt relief activities—allegedly “promoted a 96 percent success rate in reducing consumers’ student loan payments.” However, the FTC stated that consumers who purchased the debt relief services and often paid illegal upfront fees “often did not receive any debt relief and lost hundreds of dollars.” On November 13, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
Pension advance company settles with Virginia Attorney General over high-interest loans targeting veterans and retirees
On November 15, the Virginia Attorney General announced a $51.7 million settlement with a pension advance company, its owner, and related entities (defendants) to resolve allegations concerning allegedly illegal, high-interest loans made to more than 1,000 Virginia veterans and retirees in violation of the Virginia Consumer Protection Act (VCPA). According to the Attorney General’s complaint, the defendants allegedly “disguised [the] illegal, high interest loans as ‘pension sales’ that could provide Virginia pension holders with a quick lump sum of cash,” and seemingly concentrated the sales in two Virginia areas where a large number of retired veterans and civil servants reside. Following the lawsuit, the defendants shut down lending operations in Virginia and around the country. Under a permanent injunction and final judgment, the court—which declared the defendants’ agreements to be “usurious and illegal”—ordered the defendants to: (i) provide over $20 million in borrower debt forgiveness; (ii) pay a $31.7 million civil money penalty; (iii) pay $414,473 in restitution; (iv) pay $198,000 for costs and attorneys’ fees; and (v) agree to injunctive relief to prevent further violations of the VCPA.
On September 28, as part of Operation Game of Loans, a coordinated effort between the FTC and state law enforcement, the FTC announced settlements with several individuals and their associated companies (defendants), accused of violating the FTC Act and the Telemarketing Sales Rule when marketing and selling student debt relief services. According to the FTC, the defendants, among other claims: allegedly (i) misrepresented to consumers that they were affiliated with the Department of Education or a borrower’s loan servicer; (ii) claimed that consumers who paid an up-front fee—as much as $1,000 according to the FTC’s complaint—would qualify for or be approved to receive permanently reduced monthly payments or have their student loans forgiven or discharged; and (iii) engaged in deceptive advertising practices through social media, falsely claiming they could qualify, establish eligibility for, approve, or enroll consumers in loan forgiveness programs.
Under the terms of the settlements, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief products or services—or from assisting others to do the same. The defendants also are prohibited from making misrepresentations related to financial products and services. Combined, the settlements total more than $19 million in monetary judgments, all of which have been partially suspended due to the defendants’ inability to pay the entire amount of their respective judgments. The more than $5 million in unsuspended amounts may be used for equitable relief, including consumer redress.
On September 20, the New York Attorney General announced a lawsuit against nine student loan debt relief companies, along with their financing company, and two individuals (collectively, “defendants”), alleging that the defendants fraudulently, deceptively, and illegally marketed, sold, and financed student debt relief services to consumers nationwide. Among other things, the complaint alleges that the defendants (i) sent direct mail solicitations to consumers that deceptively appeared to be from a governmental agency or an entity affiliated with a government agency; (ii) misrepresented that they would apply fees paid by borrowers to student loan balances; (iii) charged consumers over $1,000 for services that were available for free; (iv) requested upfront payments in violation of federal and state credit repair and debt relief laws; (v) charged usurious interest rates; and (vi) provided consumers with “incomplete and harmful advice,” such as counseling borrowers to consolidate federal student loans without explaining that in certain circumstances borrowers could “lose months or years of loan payments they had already made that would qualify toward forgiveness of their loans under the Public Service Loan Forgiveness Program.” The New York Attorney General maintains that these practices violated several federal and state consumer protection statutes, including the Telemarketing Sales Rule, New York General Business Law, the state’s usury cap on interest rates as covered by New York Banking Law and New York General Obligations Law, disclosure requirements under the Truth in Lending Act, and the Federal Credit Repair Organization Act.
On June 7, the FTC announced a settlement with an individual who allegedly operated a mortgage relief scheme, which charged distressed homeowners thousands in upfront fees while falsely promising foreclosure prevention or payment modifications. According to the FTC, the defendant, operating through multiple company names, falsely suggested the businesses were endorsed by the federal government and encouraged consumers not to communicate with their mortgage company and to stop making monthly mortgage payments. The settlement order imposes a judgment of more than $15.5 million but suspends the judgment due to the individual’s inability to pay. The settlement prohibits the individual from, among other things, (i) advertising, marketing, promoting, offering, or selling debt relief services or products; and (ii) misrepresenting, or assisting others in misrepresenting information relating to the offering of financial products and services. Additionally, the settlement bars the individual from disclosing or benefitting from the information collected from the consumers through the business operations.
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.
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.
On May 22, the U.S. District Court for the District of Maryland entered a default judgment, in favor of the CFPB, against two debt relief companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. As previously covered by InfoBytes, the CFPB filed a complaint in October 2017 against the defendants for allegedly violating the Telemarketing Sales Rule and the Consumer Financial Protection Act by, among other things, purportedly claiming to be affiliated with the federal government and misrepresenting the abilities of their services. In granting the CFPB’s request for default judgment, the court held that the defendants failed to defend the action and ordered they pay almost $5 million in restitution, as well as $16 million in civil money penalties. In addition to the fines, the defendants are prohibited from engaging in telemarketing, debt relief and credit repair activities in the future.
- Jonice Gray Tucker to discuss "Trends in regulatory enforcement" at the American Bar Association Banking Law Committee Meeting
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo