The CFPB settled with a debt-relief company for violations of the FTC’s Telemarketing Sales Rule and the Consumer Financial Protection Act on the grounds that the company engaged in unfair, deceptive and abusive practices or acts. Both the TSR and the CFPA generally prohibit unfair and deceptive practices or acts; the CFPA also prohibits abusive practices or acts.
The settlement comes after the CFPB filed a complaint in federal court in Florida alleging that the debt-relief company violated the TSR and the CFPA by charging up-front "enrollment" fees in advance of providing the debt-relief service and misled consumers about its services by promising to begin settling consumers’ debts within three to six months of enrollment, but failed to do so. Of particular import to the CFPB was the debt-relief company’s practice of collecting detailed worksheets from consumers describing their monthly income, expenses and debts. This practice, according to the CFPB, meant that the debt-relief company should have known that it enrolled consumers with inadequate income to complete the debt-relief program. In announcing the filing of the complaint, Director Richard Cordray stated that the CFPB "will continue to crack down on this type of harmful behavior."
Pursuant to the consent order, the debt-relief company is permanently enjoined from advertising, marketing, promoting, and offering for sale or selling any debt-relief product or service. The company must also pay $15,000 in civil money penalties and damages of almost $500,000—the amount the CFPB claims the debt collection company collected in fees—and is subject to compliance monitoring by the CFPB for two years. The CFPB also noted that the action against the debt-relief company was part of its "comprehensive effort to prevent consumer harm in the debt-relief industry" and it is "focusing not only on debt-relief companies, but also on those who facilitate their unlawful conduct." Both the CFPB and the FTC have recently targeted the activities of debt-relief companies (see May 14, 2013 Alert and February 5, 2013 Alert respectively).