On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.
Recently, Representative Blaine Luetkemeyer (R-MO) introduced H.R. 5112, the Unfair or Deceptive Acts or Practices Uniformity Act, to make the authority of the CFPB and FTC more consistent and similar, and to encourage greater communication among regulators. Specifically, the Act would amend Section 1031 of the Dodd-Frank Act by removing the CFPB’s ability to regulate “abusive” conduct from its current authority to regulate “unfair, deceptive or abusive” acts or practices (UDAAP). In addition, the bill would insert the following language at the end of Section 1031: “[i]n prescribing any rule under this subsection, the Bureau shall comply with the requirements of section 18 of the Federal Trade Commission Act (15 U.S.C. 57a) applicable to the Federal Trade Commission when the Commission prescribes rules and general statements of policy under that section with respect to unfair or deceptive acts or practices in or affecting commerce.”
CFPB Orders Auto Finance Company to Pay Over Three Million for Alleged Unfair Debt Collection Practices
On October 28, the CFPB filed an administrative order against an Ohio-based auto lender specializing in extending credit to servicemembers. The CFPB alleged that the company violated the CFPA by engaging in unfair, abusive, and deceptive debt collection practices, including: (i) contacting and threatening to contact servicemembers’ commanding officers to inform them of delinquencies and alleged military violations requiring discipline; (ii) exaggerating the potential disciplinary actions, such as demotion, loss of promotion, and discharge, that servicemembers may face if they failed to make payments; (iii) representing that the company could commence an involuntary allotment or wage garnishment without obtaining a court judgment; and (iv) threatening legal action when the company did not intend to take legal action at the time. Among other things, the consent order requires that the company: (i) refund or credit over $2 million to consumers; and (ii) pay a $1 million civil money penalty.
On September 15, the CFPB announced a preliminary injunction obtained against World Law Group and its senior leaders for allegedly running a debt-relief scheme that charged consumers costly and illegal upfront fees. According to the CFPB, “the debt-relief scheme falsely promised consumers a team of attorneys to help negotiate debt settlements with creditors, failed to provide legal representation, and rarely settled consumers’ debts.” Specifically, the complaint alleges that defendants charged consumers upfront fees before providing debt-relief services in violation of the Telemarketing Sales Rule. The complaint also alleges that World Law Group falsely promised legal representation to consumers who did not receive the promised legal representation. The underlying lawsuit remains pending following the granting of the preliminary injunction.
On September 9, the CFPB ordered the two largest U.S. debt buyers and collectors to pay a combined total of nearly $80 million in civil penalties and consumer restitution related to their debt collection practices. The CFPB alleged that both companies, among other things, engaged in robo-signing, sued (or threatened to sue) on stale debt, made inaccurate statements to consumers, and engaged in other illegal collection practices. In particular, the CFPB criticized the practice of purchasing debts without obtaining important documentation or information about the debt, or verifying to ensure the debts were accurate and enforceable before commencing collection activities. Under the consent orders, one company agreed to provide up to $42 million in consumer refunds, pay a $10 million civil money penalty, and cease collecting on a portfolio of consumer debt with a face value of over $125 million. The other company agreed to provide $19 million in restitution, pay an $8 million civil money penalty, and cease collecting on a consumer debt portfolio with a face value of over $3 million. In addition, both companies are also generally prohibited from reselling consumer debt. In prepared remarks announcing the enforcement action, CFPB Director Richard Cordray noted, “the terms of the orders will help reform and improve the tactics and approaches” within the debt collection market. The CFPB’s action comes as the industry anticipates the CFPB’s issuance of new debt collection rules.