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CFPB files emergency motion to hold phantom debt scammers in contempt
On January 22, the CFPB filed an emergency motion seeking to hold two individual defendants in contempt of court for allegedly failing to honor the terms of a default judgment and order related to a 2015 enforcement action. The defendants are two of multiple participants that were allegedly involved in an illegal phantom debt collection scheme involving payment processors and a telephone broadcast service provider. As previously covered by InfoBytes, the Bureau claimed that the defendants attempted to collect debt that consumers did not owe or that the collectors were not authorized to collect, used harassing and deceptive techniques in violation of the CFPA and FDCPA, and placed robo-calls through a telephone broadcast service provider to millions of consumers stating that the consumers had engaged in check fraud and threatening them with legal action if they did not provide payment information. At the time, the Bureau obtained a preliminary injunction to halt the debt collection activities and freeze the assets of all defendants named in the lawsuit.
According to the Bureau, the two defendants named in the emergency motion failed to comply with any of the required terms under the default judgment entered last October, which required, among other things, the payment of civil money penalties ranging from $100,000 to $500,000, and permanently banned the defendants from attempting collections on any consumer financial product or service and from selling any debt-relief service. (Covered by InfoBytes here.) The defendants’ disregard for court orders “has been a recurring theme of this case,” the Bureau wrote in its the motion, claiming that the defendants, among other things, failed to show up for scheduled depositions or produce requested documents, and violated the preliminary injunction by transferring assets and concealing properties that they owned. After both defendants were found to be in contempt for not complying with the preliminary injunction, a receiver was appointed to conserve the assets for the benefit of affected consumers, which one of the defendants “promptly” violated. After the defendants failed to respond to additional requests, the Bureau filed the motion to have them both found in contempt. The defendants have “provided no cause for comfort that they will respect rulings of the Court or that they will comply with the law unless the Permanent Injunction Order is enforced,” the Bureau stated in its motion.
CFPB bans payment processor for alleged fraud
On January 18, the CFPB filed a proposed stipulated judgment and order to resolve a complaint filed last year against an Illinois-based third-party payment processor and its founder and former CEO (collectively, “defendants”) for allegedly engaging in unfair practices in violation of the CFPA and deceptive telemarketing practices in violation of the Telemarketing Act and its implementing rule, the Telemarketing Sales Rule. As previously covered by InfoBytes, the CFPB alleged that the defendants knowingly processed remotely created check (RCC) payments totaling millions of dollars for over 100 merchant-clients claiming to offer technical-support services and products, but that actually deceived consumers—mostly older Americans—into purchasing expensive and unnecessary antivirus software or services. The tech-support clients allegedly used telemarketing to sell their products and services and received payment through RCCs, the Bureau claimed, stating that the defendants continued to process the clients’ RCC payments despite being “aware of nearly a thousand consumer complaints” about the tech-support clients. According to the Bureau, roughly 25 percent of the complaints specifically alleged that the transactions were fraudulent or unauthorized.
If approved by the court, the defendants would be required to pay a $500,000 civil penalty, and would be permanently banned from participating in or assisting others engaging in payment processing, consumer lending, deposit-taking, debt collection, telemarketing, and financial-advisory services. The proposed order also imposes $54 million in redress (representing the total amount of payments processed by the defendants that have not yet been refunded). However, full payment of this amount is suspended due to the defendants’ inability to pay.
CFPB sues debt collectors
On January 10, the CFPB filed a complaint against three debt collection companies and their owners (collectively, “defendants”) for allegedly engaging in illegal debt-collection practices. According to the Bureau, the defendants purchase debt portfolios and place them with other collection companies or sell them. The complaint states that from September 2017 through April 2020, the defendants placed debts valued at more than $8 billion and asserts that the defendants knew or should have known that these third-party collection companies were engaging in unlawful and deceptive debt collection measures. The Bureau alleges the defendants were aware of the companies’ false statements to consumers because they received hundreds of complaints from consumers claiming the companies were threating to arrest or file lawsuits if the consumers’ debts were not paid imminently, and the defendants received recorded phone calls alerting them to the companies’ threats and false statements regarding credit reporting. Further, the Bureau claims that the defendants continued to place debts with and sold debts to these companies even after an internal review found major violations of federal law. The Bureau’s complaint, which alleges violations of the CFPA and the FDCPA, seeks consumer restitution, disgorgement, injunctive relief, and civil money penalties.
CFPB reaches settlement with online lender
On December 30, the U.S. District Court for the Northern District of California approved the stipulated final judgment and order against a California-based online lender (defendant) for alleged violations of fair lending regulations and a 2016 consent order. As previously covered by InfoBytes, the CFPB filed a complaint against the defendant (the third action taken against the defendant by the CFPB) for allegedly violating the terms of a 2016 consent order related to false claims about its lending program. The 2016 consent order alleged that the defendant engaged in deceptive practices by misrepresenting, among other things, the fees it charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies, in violation of the CFPA, TILA, and Regulation Z (covered by InfoBytes here). According to the September 8 complaint, the defendants continued with much of the same illegal and deceptive marketing that was prohibited by the 2016 consent order. Among other things, the complaint alleged that the defendants violated the terms of the 2016 consent order and various laws by: (i) deceiving consumers about the benefits of repeat borrowing; and (ii) failing to provide timely and accurate adverse-action notices, which is in violation of ECOA and Regulation B.
The settlement prohibits the defendant from: (i) making new loans; (ii) collecting on outstanding loans to harmed consumers; (iii) selling consumer information; and (iv) making misrepresentations when providing loans or collecting debt or helping others that are doing so. The order also imposes a $100,000 civil money penalty based on the defendant’s inability to pay.
CFPB enters proposed final judgment in 2016 structured settlement action
On December 17, the CFPB filed a proposed stipulated final judgment and order in an action accusing defendants of allegedly employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. As previously covered by InfoBytes, the CFPB filed a complaint in 2016 claiming the defendants (including the company and executive leadership) 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.” The Bureau also alleged that the defendants “steered consumers to receive ‘independent advice’” from an outside attorney who was paid by the company and “provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants].” After a series of motions were filed by the parties, including an amended complaint in 2017, the U.S. District Court for the District of Maryland eventually determined that the Bureau could pursue its enforcement action (covered by InfoBytes here).
Last month, the court entered a stipulated final judgment and order against the attorney, which required that the attorney pay $40,000 in disgorgement and a $10,000 civil money penalty (covered by InfoBytes here). Under the terms of the proposed settlement, the remainder of the defendants would be required to pay $40,000 in disgorgement and a civil penalty of $10,000, and are permanently barred from referring “consumers to a specific individual or for-profit entity for advice concerning any structured-settlement transactions, including for individual professional advice.”
CFPB’s debt-collection suit can proceed
On December 13, the U.S. District Court for the District of Delaware ruled that the CFPB can proceed with its 2017 enforcement action against a collection of Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. (Covered by InfoBytes here.) According to the court’s opinion, the U.S. Supreme Court’s decision in Seila Law v. CFPB (which determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau—covered by a Buckley Special Alert) upended its previous dismissal of the case, which had held that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. The court also previously ruled that the Bureau’s claims were barred by the statute of limitations and that former Director Kathy Kraninger’s subsequent ratification of the action came after the limitations period had expired. (Covered by InfoBytes here.)
In now finding that the CFPB can proceed with the 2017 enforcement action, the court rejected the statute of limitations argument because, under the Supreme Court’s ruling that unconstitutional removal protections do not automatically void agency actions, the Bureau’s action in 2017 was valid and it stopped the three-year clock when it sued. While the court recognized the defendants’ argument that the Bureau first discovered the alleged violations on September 4, 2014, when it issued a civil investigative demand and then sued on September 18, 2017 (allegedly exceeding the three-year limit by two weeks), the court noted that at this stage it could not find a time bar because nothing on the “face of the complaint” supports the defendants’ argument that the allegations are untimely.
The court also held that the Bureau did not need to ratify the suit. Pointing to the majority opinion in the Supreme Court’s decision in Collins v. Yellen (covered by InfoBytes here), the court stated that “‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[,]’” and therefore the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” The court wrote: “This suit would have been filed even if the director had been under presidential control. It has been litigated by five directors of the CFPB, four of whom were removable at-will by the President. . . . And the CFPB did not change its litigation strategy once the removal protection was eliminated. This is strong evidence that this suit would have been brought regardless.”
The court also disagreed with the defendants’ argument that, as trusts, they are not “covered persons” under the Consumer Financial Protection Act (CFPA). While the defendants argued that they used subservicers to collect debt and therefore did not “engage in” providing services listed in the CFPA, the court stated that the trusts were still “engaged” in their business and the alleged misconduct even though they contracted it out. “[I]f Congress wanted to allow enforcement against only those who directly engage in offering or providing consumer financial services, it could have said so,” the court said.
Chopra wants states to enforce federal consumer protection laws
On December 7, in a speech before the National Association of Attorneys General (NAAG) meeting, CFPB Director Rohit Chopra discussed the importance state partnerships play in enforcing consumer financial protection laws. In addressing the dangers of federal preemption over state consumer protection measures, Chopra highlighted data covering the 2007-2009 mortgage crisis, in which a 2010 study from the University of North Carolina claimed that “the OCC’s 2004 preemption in markets directly contributed to the sub-prime mortgage crises” and “resulted in deterioration in the quality of, and increase in the default risk for, mortgages originated by OCC lenders in states with strong anti-predatory lending laws.” Chopra warned that while Congress has limited the OCC’s ability to impact state consumer protection enforcement, actions that attempt to preempt stronger state consumer protection laws are “fundamentally wrong.”
To combat this, Chopra said he is considering changes that would expand state attorney general authority to enforce many federal consumer protection laws, including the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive, and abusive practices, particularly in situations where “federal protections are stronger than state statutes.” These changes would allow states to pursue action, provided notice is given to the Bureau before filing a complaint. Chopra said he is also exploring ways to provide states more access to remedies available under the CFPA, such as civil money penalties that states could “use to bolster deterrence” in addition to access of the Bureau’s victim relief fund to provide compensation to affected consumers in state enforcement actions (the fund is currently only available in actions involving the Bureau). In the meantime, Chopra stated the Bureau is reviewing notifications from states so the agency can join actions as appropriate.
Chopra also repeated his warning about reining in repeat offenders and reiterated the need for “exploring all possible remedies,” including those directed at senior management and executive levels, to address recidivism and reshape behavior and incentives. Chopra cautioned that companies cannot be allowed “to weave in and out of state and federal regulatory oversight” and that the Bureau and the states need to “look after one another’s orders.” He stated that the Bureau intends to alert states when it “find[s] their orders are being flouted.”
District Court enters final judgment in 2016 CFPB structured settlement action
On November 18, the U.S. District Court for the District of Maryland entered a stipulated final judgment and order against one of the individual defendants in an action concerning allegedly unfair, abusive, and deceptive structured settlement practices. As previously covered by InfoBytes, the Bureau claimed the defendants violated the CFPA by employing abusive practices when purchasing structured settlements from consumers in exchange for lump-sum payments. According to the Bureau, the defendants encouraged consumers to take advances on their structured settlements and falsely represented that the consumers were obligated to complete the structured settlement sale, “even if they [later] realized it was not in their best interest.” In July 2021, the court considered the defendants’ motion to dismiss the Bureau’s amended complaint, as well as the defendants’ motion for judgment on the pleadings on the grounds that the enforcement action was barred by the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB, which held that that the director’s for-cause removal provision was unconstitutional (covered by a Buckley Special Alert), and that the ratification of the enforcement action “came too late” because the statute of limitations on the CFPA claims had already expired (covered by InfoBytes here). The court’s opinion allowed the Bureau to pursue its amended 2016 enforcement action, which alleged unfair, deceptive, and abusive acts and practices and sought a permanent injunction, damages, disgorgement, redress, civil penalties, and costs.
Under the terms of the settlement, the individual defendant—“an attorney who provided purportedly independent professional advice for almost all Maryland consumers who made structured-settlement transfers with [the defendants]” and who has neither admitted nor denied the allegations—is prohibited from, among other things, (i) participating or assisting others in participating in any structured-settlement transactions; (ii) owning, being employed by, or serving as an agent of any structured-settlement-factoring company; or (iii) providing independent professional advice concerning any structured-settlement transactions. The individual defendant is also prohibited from disclosing, using, or benefiting from affected consumers’ information, and must pay $40,000 in disgorgement and a $10,000 civil money penalty.
CFPB resolves UDAAP allegations with debt collection company
On November 1, the U.S. District Court for the Western District of Missouri ordered a Missouri-based company to pay a $30,000 civil money penalty to resolve allegations that it used district-attorney letterhead to threaten consumers with criminal prosecution. As previously covered by InfoBytes, the CFPB filed a complaint against the company claiming it allegedly engaged in deceptive and otherwise unlawful debt collection acts and practices in the course of operating “bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States.” The complaint claimed that the company not only failed to include required FDCPA disclosures in the letters it sent to consumers, it also failed to identify itself in the letters and did not inform consumers that it was a debt collector and not a district attorney. Moreover, in most cases the company did not refer cases for prosecution, even if the check writer failed to respond to the collection letter, did not pay the alleged outstanding debt and fees, or failed to complete the financial-education course. Under the terms of the settlement, the company is, among other things, permanently banned from engaging in debt collection activities and is prohibited from disclosing, using, or benefiting from customer information obtained before the order’s effective date in connection with a Pre-Trial Bad Check Diversion Program. Additionally, the company may not “attempt to collect, sell, assign, or otherwise transfer any right to collect payment from any consumer who purchased or agreed to purchase services or products in connection” with the company’s program. The company is ordered to pay more than $1.4 million in redress to harmed consumers; however, full payment of this amount is suspended upon satisfaction of certain obligations due to the company’s financial condition. The $30,000 penalty also reflects the company’s limited ability to pay.
Chopra testifies on CFPB direction
On October 27, newly sworn in CFPB Director Rohit Chopra appeared for the first time before the House Financial Services Committee to offer some of the first insights into his priorities at the Bureau. Chopra’s opening remarks focused on concerns regarding “Big Tech” and its control over the flow of money in the economy (these comments followed the issuance of information requests to six technology companies, covered by InfoBytes here). Chopra also focused on a need to ensure robust competition in financial markets and listen to local financial institutions and nascent players about obstacles they face when seeking to challenge dominant incumbents. Chopra also stressed the importance of holding “repeat offenders” accountable, highlighted an intent to coordinate efforts with federal and state regulators, and indicated a preference for scrutinizing larger market participants over smaller entities. He noted, however, potential leniency for companies that self-identify their own issues and violations. Additional highlights of the hearing include the following:
Enforcement. Chopra noted that “markets work well when rules are easy to follow and easy to enforce.” He also expressed his view that the CFPB should focus its resources on larger industry participants and “repeat offenders” rather than “strong-arming” small businesses into settlements to create law. Chopra also expressed a preference for setting regulatory guidelines through enforcement, indicating that “markets work well when rules are easy to follow, and easy to enforce.”
Section 1033 of Dodd-Frank. With respect to implementing this set of requirements, which deals with consumers’ rights to access information about their financial accounts, Chopra indicated a desire to “unlock more competition,” but warned that there also needs to be assurance that “banks and nonbanks are operating under the same set of rules” and that there is “not regulatory arbitrage.” While Chopra did not specify a timeline for promulgating the final rule implementing this section, he noted that the process is underway and that the Bureau is consulting with various experts. (Issuance of the ANPR was covered by InfoBytes here.)
Abusive acts and practices. Chopra said that he agreed with former acting Director Dave Uejio’s decision to rescind a policy statement on “abusive” conduct issued by former Director Kathy Kraninger. Chopra stated he has “huge aspirations to create durable jurisprudence” regarding the definition of “abusive” in Dodd-Frank. He noted that “it could be a mix” of judicial decisions and “how the CFPB may use rules and guidance to help articulate those standards.”
Cryptocurrency and stablecoins. Chopra expressed concerns about the potential for big payment platforms to process stablecoins—cryptocurrencies pegged to stable commodities or currencies like the dollar. However, Chopra clarified that it is not his intention to use his regulatory authority to ban or limit the use of cryptocurrency or blockchain technology. Regarding the CFPB’s role in cryptocurrency, Chopra claimed that depending on the laws implicated, there is a “fact-based determination as to any sort of law that cryptocurrencies or digital currencies have to comply with.” He further described that this is “something that the CFPB is working with the other regulators on,” and emphasized that “where digital payments [are] involved, the Electronic Fund Transfer Act is a key law with key consumer protections.”
QM Rule. When asked about the postponement of the mandatory compliance date of the General Qualified Mortgage final rule to October 2022 (covered by InfoBytes here), Chopra said he is eager “to hear of places where it needs to be changed” but emphasized that the postponement was before his time and that the rule has gone into effect. He also stated that “QM is a key part of the mortgage market and the mortgage regulatory guidelines.” Therefore, he wants to ensure that the CFPB is always looking at it to make sure the objectives that Congress laid forward in Dodd-Frank are being carried out. When asked about his support of the proposed change in the QM rule, Chopra said he did not know but wants “to make sure he understands the full basis of it.”
Chopra echoed such sentiments in his October 28 testimony before the Senate Banking Committee.