CFPB Criminal Referral


In what he called "a harbinger of an especially potent partnership," Preet Bharara, U.S. Attorney for the Southern District of New York, announced Tuesday the filing of criminal charges against a New York debt settlement firm and associated individuals based on the first-ever referral from the Consumer Finance Protection Bureau (CFPB). Also unsealed were the guilty pleas of certain former employees of the defendant firm.

The criminal filings, which were the result of a CFPB investigation conducted with the assistance of the U.S. Postal Inspection Service, charge the firm and individuals with Mail Fraud (18 U.S.C. § 1341), Wire Fraud (18 U.S.C. § 1343) and Conspiracy (18 U.S.C. 1349) stemming from intentional misrepresentations made to customers about the company's fees, its affiliation with the federal government and a leading credit bureau, and the results the company could achieve for its customers.

This inter-agency collaboration marks the CFPB's first foray into criminal prosecution, and it bears implications for the consumer-finance industry at large. CFPB director Richard Cordray -- himself a former prosecutor -- and his enforcement staff have proven capable of investigating complex frauds, and they recognize when an investigation exceeds the civil mandate. This case apparently bears the indicia of criminal fraud, namely the intent to dupe customers. Mr. Cordray treated it accordingly by referring it to one of the nation's preeminent white-collar prosecutor's offices.

In a related action, the CFPB also filed a civil complaint in the Southern District of New York, alleging violations of the FTC's Telemarketing Sales Rule and the Consumer Financial Protection Act of 2010, and seeking restitution, disgorgement and civil penalties from the defendants.

Created in July 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB is empowered to regulate a broad array of consumer financial products and services, including banks, payday lenders, mortgage companies, private student lenders, debt collectors and consumer credit reporting firms. While the CFPB has successfully brought several enforcement actions against financial service providers, this is the first time that the Bureau's investigation resulted in an indictment and convictions. The CFPB has called this action part of its "comprehensive effort to prevent consumer harm in the debt-relief industry," and warned that it "is focusing not only on debt-relief service providers, but also on those who facilitate their unlawful conduct and who may also violate federal consumer financial laws."

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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