Blog Enforcement Watch May 22, 2020

CFPB Settles with Lender and Student Loan Debt Relief Companies Over Alleged Misuse of Credit Reports

On May 14, 2020, the Consumer Financial Protection Bureau (CFPB) announced that it had entered into a proposed stipulated judgment and final order with a California-based mortgage lender and several affiliated individuals and companies (collectively, the “lender”) resolving allegations that the lender had obtained consumer credit reports for an improper purpose.  The CFPB’s complaint, filed in the U.S. District Court for the Central District of California, alleged that the lender’s president and its co-founder jointly created a scheme to use the mortgage lender’s account to obtain consumer reports for their associated student loan debt-relief companies.  If entered by the court, the proposed settlement will result in the lender paying $18 million in consumer redress, would ban the mortgage lender, its president, and its co-founder, from the debt-relief industry, and would impose $450,001 in civil money penalties.

In its complaint, the CFPB alleged that between 2015 and 2017, the mortgage lender unlawfully obtained consumer reports and provided the reports to other companies that used the reports to market debt-relief services to consumers with student loans.  From August 2017 to at least January 2019, an alleged “sham” entity also unlawfully obtained consumer reports and provided them to other companies, including companies that used the lists to market student-loan debt relief services.  The mortgage lender, its president, and its co-founder, allegedly created this entity to perpetuate the following enterprise: the sham entity purported to be a mortgage brokerage when it was only ever used to unlawfully obtain consumer reports.  In direct-mailings and in telemarketing-sales calls, the debt-relief companies that obtained the reports falsely represented to consumers that: (1) the consumers could obtain lower interest by consolidating their federal student loans; (2) the consumers would improve their credit scores by consolidating their loans; and (3) the United States Department of Education would become the “new servicer” on their loans.  Several of these companies unlawfully charged and collected their fees before consumers’ applications for loan consolidations, loan repayment plans, and loan forgiveness plans were approved and before consumers made payments under the altered terms of their student loans.

Based on these actions, the CFPB alleged that the mortgage lender violated the Fair Credit Reporting Act (FCRA) by unlawfully obtaining the consumer reports based on false representations, providing the reports to associated companies to use in marketing their services, and creating the sham entity to perpetuate the unlawful scheme.  The CFPB further alleged that the student loan debt-relief companies violated the Consumer Financial Protection Act and Telemarketing Sales Rule by making several deceptive representations about the companies’ services and unlawfully collecting advance fees for debt relief services.  The CFPB also alleged that two officers of the mortgage lender, who invested in the student-loan debt relief companies and allegedly helped create the sham entity, participated in the FCRA violations and received purported profits from the student-loan debt relief companies.

Under the proposed stipulated judgment, the mortgage lender would pay $18 million in redress.  Full payment will be suspended subject to the mortgage lender’s payment of $200,000 in consumer redress.  The settlement would also require the mortgage lender’s president and his company to disgorge $403,750 in profits to provide redress, and would impose a judgment for redress of $406,150 against the mortgage lender’s co-founder and his company, which would be suspended.  The mortgage lender would also pay a $1 civil penalty based on its documented inability to pay, the mortgage lender’s president a $350,000 penalty, and the mortgage lender’s co-founder a $100,000 penalty, which would all be paid to the CFPB.