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Monday, December 8, 2014

CFPB Takes Action Against Debt-Settlement Firms

By ABIA Outside Counsel, Chrys D. Lemon, McIntyre & Lemon, PLLC

The CFPB filed a court-approved consent order against two debt-settlement firms, alleging the firms took upfront debt-settlement services fees from consumers for services never performed.

“The CFPB alleged that the companies routinely charged consumers upfront fees before settling consumers’ debts. The illegal fees and the companies’ failures to provide effective services often caused consumers to fall further into debt and harm their credit history in the process. These practices violate the Federal Trade Commission’s Telemarketing Sales Rule, which the CFPB has the authority to enforce.”

The consent order was approved by a New York federal court, and it requires the debt-settlement firms to “pay a civil penalty of $69,075. That sum represents the amount of advance fees the companies took from consumers who did not have any debt settled.”

The CFPB alleged in its complaint filed in federal court that the firms violated the Federal Trade Commission’s Telemarketing Sales Rule (TSR) in two ways:

1.  The firms allegedly violated the TSR's prohibition on a company engaged in telemarketing from requesting or receiving payment of a fee for any debt relief service before there has been any settlement or reduction in the debt and before the customer has made at least one payment pursuant to a debt settlement.
2.  The firms allegedly violated the TSR’s requirement that certain disclosures be given before a customer consents to pay for a debt-relief service, and they allegedly mislead individuals about material aspects of the debt relief service.
Although the alleged violations of the TSR focus on debt settlement services, the action highlights important provisions in the TSR that apply to any company engaged in telemarketing any product or service to a consumer:  namely, that the individual being marketed to understands all material benefits, exclusions and limitations of what is being offered, the total cost of the product or service, and when he will be charged.  The company also must not mislead the individual regarding any aspect of the product or service being marketed. 

These requirements are in the TSR at 16 CFR 310.3 and 310.4.  Additionally, the main TSR requirements are covered in Section V of the 2014 ABIA Handbook of Bank-Insurance Compliance.  Finally, we will cover these issues as a hot topic during next week’s webinar.
Read the CFPB Press Release.

Read the Consent Order.