Financial Services/CFPB

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On November 30, 2020, the Federal Trade Commission (FTC) announced that it had taken action against a debt collection company, Midwest Recovery Systems (“Midwest”), alleging that an alleged “debt parking” scheme caused more than $24 million in harm to consumers. While the complaint and settlement themselves are not that remarkable, the dissent filed by Commissioner Chopra is. Commissioner Chopra challenges the FTC’s approach to debt collection, suggesting the FTC refer such cases to the Consumer Financial Protection Bureau (CFPB) and that the FTC focus on other things. We have written previously about Commissioner Chopra’s other ideas for reshaping FTC approaches and priorities, and if Commissioner Chopra were to become the next Chair under President-elect Biden, things could get interesting at the agency.

First, a few words about the case. Also known as “passive debt collection,” debt parking is the practice of placing fake or questionable debts onto consumers’ credit reports to coerce them to pay. The “parked” bogus debt is often not discovered by a consumer until his or her credit report is accessed in connection with buying a car or home, opening a credit card, or seeking employment. Thus, although the debts may not be valid, consumers often feel pressured to pay them off—hence the millions of dollars allegedly hauled in by Midwest.

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Continue Reading FTC Commissioner Encourages Partnership with CFPB and “Systemic” Change Following FTC Action against Debt Collection Scheme

Following a warning from earlier this year, the FTC recently filed a complaint against a group of corporate and individual defendants for allegedly misleading and deceiving small business “merchant cash advance” (MCA) customers. Structured properly, an MCA product offers an alternative to standard commercial credit under which the MCA provider purchases the right to receive a fixed amount of the customer’s receivables to be paid based on a percentage of the customer’s daily receipts.

Specifically, the FTC alleged that the defendants misrepresented the amount of financing small business customers would receive relative to their requests, misrepresented the necessity of collateral and personal guarantees, and engaged in unauthorized withdrawals from customers’ bank accounts even after receiving the agreed upon amount of the customers’ receivables. The complaint calls for permanent injunctive relief, rescission or reformation of the MCA contracts, restitution, refund and disgorgement.

The FTC’s enforcement action is just one of its recent efforts to police alleged unfair and deceptive practices targeting small businesses. Given the current economic disruptions caused by COVID-19, we can expect that the FTC will continue to attack both deception and improper debt collection aimed at small businesses.

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Continue Reading FTC Follows up on Enforcement Priorities with Complaint Against Merchant Cash Advance Provider

The FTC continues policing business-to-business deception and its focus on small-business financing. On June 10, 2020, the FTC filed a Complaint in the Southern District of New York against two New York-based companies and several of their owners and officers for allegedly violating the FTC Act in connection with their business financing activities.

According to the Complaint, the defendants targeted small businesses, medical offices, non-profit organizations, and religious organizations. Since 2015, defendants allegedly deceived these consumers by misrepresenting terms of the merchant cash advances (MCAs) defendants provided, and subsequently used unfair collection practices to compel these entities to pay.

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Continue Reading New York-Based Business Financing Companies Allegedly Deceive and Threaten Business Consumers

Financial services advertising and marketing occurs in an increasingly regulated and evolving legal landscape.  This quick hit with attorneys from Venable LLP explored the latest legal trends and developments in financial services advertising and marketing. Topics included:

  • COVID-19 impact on consumer and business lending advertising;
  • lead generation, influencer, and other emerging marketing methods;
  • regulatory outlook

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This week, a group of financial services stakeholders submitted a joint petition to the Federal Communications Commission (FCC) for an expedited declaratory ruling, clarification, or waiver so that phone calls and text messages placed to consumers using autodialers and prerecorded voice messages about matters related to the COVID-19 pandemic would not be subject to onerous consent requirements under the Telephone Consumer Protection Act (TCPA).

According to the petitioners, class action litigation risks under the TCPA limit banks and other financial services organizations in the communications they send to consumers, and without confirmation by the FCC that certain COVID-19 calls and texts are subject to the “emergency purposes” exception under the TCPA, financial institutions may not be able to effectively distribute messages about fee waivers, payment deferrals, mortgages, loan modifications, low-rate and zero-rate loans, and other accommodations made in light of the COVID-19 crisis.

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Continue Reading Financial Services Stakeholders Request TCPA “Emergency Purposes” Exception for COVID-19 Calls

The staff of the Federal Trade Commission’s (FTC) Bureau of Consumer Protection released a much-anticipated paper on small business financing that highlights enforcement dangers on February 26, 2020. The staff are sounding the alarm on FTC enforcement and its investigations of small business financing providers and their marketers, servicers, and collectors.

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Continue Reading FTC Staff Perspectives on Small Business Financing Enforcement Dangers

Originally posted on Venable.com

Household and credit card debt is at an all-time high. So it should come as no surprise that debt-relief legal and regulatory issues are back in the spotlight. The Consumer Financial Protection Bureau (“CFPB”) will host “Evolutions in Consumer Debt Relief” on March 10, 2020. The CFPB says the event will explore options for consumers facing unmanageable unsecured debt and limited credit options.

Generally speaking, debt relief services are any program or service that offers to change the terms of a debt between a person and one or more creditors or debt collectors, including a reduction of the loan balance, interest rate, or fees owed. Different kinds of companies may promote or offer to assist consumers in obtaining relief from different kinds of debt, including credit card debts, home mortgages (referred to by the CFPB and Federal Trade Commission (“FTC”) as Mortgage Assistance Relief Services or “MARS”), student loans, payday loans, car loans, or tax debts. There are also different kinds of debt relief services, including credit counseling, debt management plans, debt settlement, debt negotiation, foreclosure prevention, or loan modification.

Debt relief services have long been one of the most highly regulated sectors in the United States, based on the role that the providers play in assisting consumers who by definition are in financial distress. Debt relief services are also provided against a backdrop of contractual obligations of consumers to their creditors to repay amounts owed, and laws and regulations that govern creditors and their collection activities.

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Continue Reading Debt Relief Services Back in the Spotlight

Last week, the FTC entered into a settlement with LendEDU, a lead generation website that compares and ranks student loan and other financial products, and three of its officers. According to the FTC, LendEDU heavily promoted its website to consumers as offering “objective,” “accurate,” and “unbiased” product information, when, instead, it offered higher rankings and ratings to companies that paid for placement — a practice known as “pay-to-play.” The FTC uncovered multiple emails between LendEDU’s employees and advertisers demonstrating the advertiser’s ranking was clearly based on the amount it paid LendEDU per click.

The FTC also alleged that company employees, family members, friends, associates or others affiliated with LendEDU posted fake positive reviews of the company’s website on third-party platforms. The FTC described the extent of the fake reviews, noting that 90% of the company’s reviews on the website, trustpilot.com, were created by a person affiliated with the company.

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Continue Reading Loan Comparison Lead Gen Site Settles with FTC over Deceptive Pay-to-Play Practices

Last week, companies engaged in debt collection were not-so-gently reminded that making calls using an automated dialer to any number other than the one provided by the consumer is incredibly risky—and in Rash Curtis & Associates’ case, a $267 million risk.

Calls made to phone numbers with the consumer’s prior express consent are not prohibited…

On April 22, the Maryland Court of Special Appeals told us that a class action settlement can’t buy you peace from the CFPB. That court ruled that a class settlement that purports to interfere with a state agency’s or the CFPB’s enforcement authority was unenforceable. The underlying dispute stems from two cases. The first is a class action brought by lead poisoning victims with cognitive impairments. And the second is a suit bought by government agencies for mishandling the rewards of the first case.

According to the CFPB’s Amended Complaint, class members in the first case were provided a structured settlement where they had the opportunity to transfer a portion of their future payment streams in exchange for a discounted immediate lump sum. Under Maryland’s Structured Settlement Protection Act (SSPA), structured settlement companies, such as the Access Funding Defendant, have to obtain the court’s approval before purchasing a payment stream. And most importantly, the SSPA requires that class settlement members consult with an independent professional advisor.

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Continue Reading You Can’t Block the Ability of the CFPB to Challenge Conduct Through a Release in a Class Action