The CFPB recently entered a stipulated judgment and order with a debt settlement company to resolve allegations that it unlawfully charged fees and failed to provide proper disclosures in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA). While a judgment for monetary relief in the amount of $7,700,000 was entered against the company, full payment will be suspended upon satisfaction of certain obligations in the final judgment and order.
Since at least 2012, the company offered two debt-settlement programs. The company represented that the settlement fees of the first program was based on the percentage of the consumer’s debt balance at the time of enrollment, and that the settlement fees for the second program were based on a percentage of the consumer’s savings off the debt balance as of the time of enrollment. Despite its representations concerning these fee schedules, the company charged fees based on what it called “Verified Debt,” which was an amount determined after enrollment. Additionally, the company charged consumers fees before it had successfully settled their debts, or before consumers had made the first payment toward the settlement agreement. The company’s contracts with consumers for its services were silent as to when it would make a bona fide settlement offer to their creditors, or the amount of money or the percentage of each outstanding debt consumers would have to accumulate before it would make such an offer.
Under the TSR debt settlement companies: 1) cannot request or receive payments for fees associated with debt relief services before a customer has made at least one payment under the settlement agreement; 2) cannot request or receive fees before it has settled, or otherwise altered the terms of at least one debt under a settlement agreement; 3) must charge fees that are proportional to the debts settled, or a flat percentage based on a customer’s savings as a result of the settlement; and 4) must disclose before enrollment in a clear and conspicuous manner the time by which it will make a bona fide settlement offer to a customer’s creditor, as well as the amount of money or the percentage of each outstanding debt a customer must accumulate before it will make such an offer.
Violations of the TSR constitute violations under the CFPA. Additionally, the CFPA prohibits deceptive representations regarding the timing of when a company will charge or collect fees, and its fee schedule.
As partial satisfaction of the judgment, the company must pay $5,400,000 in three installment payments. The company is limited in the amount of insurance proceeds it can use toward the first payment. Additionally, the company can offset its payments, if, at least 10 days before the scheduled payment date, it can demonstrate that it previously made refunds to affected consumers. The company is also subject to various compliance and reporting requirements as part of the judgment. For instance, it must notify the CFPB of any developments that may affect compliance and submit periodic written compliance progress reports.
The company neither admits nor denies the allegations under the stipulated order, except as to jurisdiction.