A California Federal District Court recently awarded the CFPB approximately $15 million in an action against a student financial aid company and its founder (collectively referred to as the defendants). The court awarded approximately $5 million in restitution and $10 million in civil money penalties, and it enjoined the defendants from committing any future fraud.
Between 2011 and 2016, the defendants sent solicitation packets to millions of students about financial aid. The packets sent between 2011 and 2015 represented that the company offered a program in which consumers or the company on behalf of the consumers could submit financial aid applications. The packets from 2011 to 2016 represented that consumers would receive targeted financial aid information and opportunities, and the packets specified a deadline by which consumers would have to register with the company and pay the processing fee to receive financial aid. The defendants received approximately $5 million in fees from approximately 76,000 consumers. The defendants did not provide clear and conspicuous privacy notices to those consumers. The only product consumers received was a booklet containing general information about financial aid.
The CFPB filed its complaint on October 29, 2015. It alleged that the defendants used deceptive statements to induce consumers into paying fees for financial services in violation of the Consumer Financial Protection Act (CFPA). It also alleged that the defendants failed to provide required privacy notices in violation of Regulation P, 12 C.F.R. §1016.4(a). The company defaulted on January 30, 2020, and the founder appeared pro se. On August 24, 2020, the CFPB filed a Motion for Partial Summary Judgment against the founder and a Motion for Default Judgment against the company. The founder filed his Response on September 24, 2020, and the CFPB filed its Reply on October 9, 2020.
The court granted in part the CFPB’s motion against the founder. It found that there was no genuine issue of material fact that the 2011-2015 solicitation packets misrepresented that the company offered a program in which to apply for financial aid. However, it found that a genuine issue of material fact existed for the 2016 packets. The court also found that there was no genuine issue of material fact that the defendants had misrepresented to consumers that they would receive targeted financial aid information and opportunities, and would be ineligible for financial aid if they did not apply by the deadline specified. The court rejected the founder’s various arguments, including that publications, like the booklets, were not included in the term “consumer financial service and product” under the CFPA.
The court granted the CFPB’s motion against the company, finding that six of the seven factors weighed in favor of default judgment, including possible prejudice to the CFPB, the merits of its claims, and the sufficiency of its complaint.