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Student Lending CFPB Enforcement:
Alleging Impermissible Debt Relief Service Advance Fees

Director Kraninger has outlined in various settings, the Bureau’s focus on protecting those often most vulnerable, including the elderly, military personnel and veterans, as well as students, sometimes collectively referred to special populations. Recently, the Bureau took aim at several businesses, which according to the CFPB’s complaint were exploiting students by charging impermissible advance fees in connection with purported debt relief services.  We should expect further activity in 2021 with the change of administration, potential extension of certain COVID-19 pandemic-related student lending forbearance orders, and other potential student lending protection efforts. 

The complaint asserts five causes of action under the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6102(c), 6105(d) (“TCFAPA”); the Telemarketing Sales Rule (“TSR”), 16 C.F.R. pt. 310; and the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531, 5536(a), 5564, 5565, in connection with the marketing and sale of debt relief services. According to the complaint, “Defendants Performance SLC, LLC and Performance Settlement, LLC, along with their owner and manager Defendant Daniel Crenshaw, are engaging in debt relief activities that have harmed consumers nationwide by charging illegal advance fees, failing to make required disclosures, and engaging in deceptive sales practices.”

Penalties & Injunctive Relief Requested

In its filing announcement the CFPB stated that “Consumers would pay between $1,000 and $1,450 in fees to PSLC for it to file paperwork with [the U.S. Department of Education], even though student loan borrowers can do this themselves for free.” The Bureau claims “that PSLC had some consumers pay this prohibited upfront fee through high-interest financing from a third party.”  The complaint seeks injunctive relief to prevent the potential on-going violations of the TSR and the CFPA; consumer “monetary relief including but not limited to the refund of monies paid, restitution, disgorgement or compensation for unjust enrichment, and payment of damages;” imposition of civil money penalties against Defendants, and an award of costs to the Bureau. The complaint alleges that “[f]rom 2016 to 2019, PSLC enrolled more than 6,500 customers in multiple states” and that certain “Trust Plan Customers paid more than $4,300,000 in fees to PSLC” and other customers “paid more than $4,900,000 in loan principal and interest” on allegedly improper loans arising from Defendants’ activities.

Allegations of Impermissible & Deceptive Practices

The Bureau’s complaint alleges Defendants leveraged “lead generators to transfer consumer phone calls to PSLC’s sales staff.” Defendants’ sales staff allegedly utilized misleading scripts and tactics. According to the Bureau “some Loan Customers were confused about the loan payments…, believing that the money was going to pay their student debt and that at the end of the three-year term of the loan, their student debt would be forgiven.”  In addition, the fee charges and/or fee loans allegedly were made by Defendants prior to customers having made any payments on a settled or re-negotiated student debt. The Bureau contends these charges and loans are impermissible and violate the TSR.

The CFPB complaint focuses on specific definitions applicable to the TSR including telemarketing, debt-relief service and selling:

  • “[Defendant] is a telemarketer within the meaning of the TSR that engaged in telemarketing of debt-relief services to consumers.”
  • “[Defendant]’s marketing of its services was done via telephone by the company’s sales representatives.”
  • “The use of the telephone was part of a “plan, program, or campaign” to sell [Defendant]’s services, and involved more than one phone and more than one interstate phone call.”
  • “Consumers who spoke to sales representatives of [Defendant] were located in a number of different states outside of California, where [Defendant] is located.”
  • “[Defendant] is a seller under the TSR because, in connection with its telemarketing, it offered to provide, and did provide, services related to federal student loan debt in exchange for a fee.”
  • “Those services were debt-relief services under the TSR because [Defendant] represented it would settle, renegotiate, or alter the terms of repayment or other terms of consumers’ federal student-loan debt.”  

Effect of CFPB complaint under TCFAPA

For consumer harm exceeding $50,000 in actual damages, the TCFAPA provides a private right of action with a three year statute of limitations following discovery of the alleged violation. See § 6104. Interestingly, for defendant targets, § 6104(c) prohibits the filing of private suits against the defendants on the same subject claims during the pendency of the CFPB matter. That may be one small benefit of being sued under the TCFAPA by the Bureau. While private suits may be filed later, it is possible that the outcome of the CFPB action will reduce exposure, for example if offsets for consumer restitution already paid may be applicable.

Claims under the CFPA

In the suit, the Bureau also is seeking to prove that the Defendants’ actions constitute violation of the CFPA. In particular, 12 U.S.C. §§ 5536(a), 5564, 5565 provide that actions which are in violation of any “Federal consumer financial law” can constitute deceptive practices and be subject to imposition of civil penalties and civil actions seeking restitution and damages among other relief. Under the CFPA, the complaint alleges: “An act or practice is deceptive if it involves a material representation that is likely to mislead consumers acting reasonably under the circumstances. A representation is considered material if it involves information that is important to consumers and therefore is likely to affect their choice of, or conduct regarding, a product.”  

In particular, the Bureau alleges that among other things Defendants’ “telemarketing campaign of debt-resolution services to consumers … represented, expressly or by implication, to consumers that:

  1. ... [Defendant] may be able to help the consumer obtain a loan;
  2. [Defendant] is ‘underwriting’ or ‘qualifying’ the consumer for a loan;
  3. [Defendant] is collecting the consumer’s personal and financial information to help the consumer obtain a loan; and
  4. the consumer was turned down for a loan (i) after Defendant’s ‘underwriter’ took the consumer’s personal and financial information and determined the consumer did not qualify for a loan…”

The Complaint contends that each of these representations was “material” and “likely to mislead consumers acting reasonably under the circumstances.”  Defendants, of course, may deny the allegations and may challenge the Bureau’s complaint legally and factually. Only time will tell the outcome of the litigation.

Heightened Scrutiny & Focus on Consumer Harm

Whatever the result of this suit, it signals that the Bureau and likely other governmental agencies, both state and federal, are watching for activities that may mislead consumers, especially those at elevated risk. As the COVID-19 pandemic continues through yearend, the economy and consumer jobs and finances will continue to be impacted.  The CARES Act and related orders created numerous protections for consumers adversely impacted by the pandemic. Some of those have sunseted in recent months, but most have been extended through yearend. With the new administration and the current pandemic surge, it will be interesting to see whether protections will be extended into the first and second quarters of 2021. A variety of customers may be experiencing heightened impact, certainly the CFPB has historically considered elderly customers, military members and veterans, students at great risk. Consumer financial services institutions and related companies may wish to focus extra attention on ensuring that process, procedures and customer communications are clear and compliant. Loss mitigation, workout and forebearance, and customer contact functions are likely to be scrutinized heavily as we move forward into 2021.