Alert May 14, 2013

CFPB Files Complaint Against Debt Relief Service Providers

In coordination with the Department of Justice, the CFPB filed a complaint in the United States District Court for the Southern District of New York against two debt-relief service companies alleged to have violated the FTC's Telemarketing Sales Rule and engaged in deceptive and unfair practices in violation of the Consumer Financial Protection Act. According to the CFPB, the two debt-relief companies collected upfront fees for debt relief services, gave false statements about the fees and misled consumers. In particular, the CFPB alleged that many consumers received “zero or scant” benefit from the companies. The CFPB also alleged that the companies instructed consumers to cease communications with their creditors, when, in fact, the companies never contacted creditors on behalf of the consumers. More seriously, and the cause of referral to the DOJ, the CFPB alleged that the individuals engaged in criminal conduct by impersonating a government agency to induce a higher volume of sales calls from consumers who incorrectly believed that the company offered a government program. The CFPB is seeking to permanently enjoin the companies from continuing their operations and is asking the court to award restitution and civil money penalties and “order disgorgement of ill-gotten profits.”

This, along with the CFPB’s previous TROs and subsequent preliminary injunction of mortgage relief companies (see December 11, 2012 Alert), illustrates the range of measures available to the CPFB in its efforts to combat fraud in diverse aspects of the consumer financial services sector. Notably, in announcing the action, Director Richard Cordray stated that the Dodd Frank Act directed the CFPB to “root out unfair, deceptive, or abusive acts or practices in connection with consumer financial products and services.”