CFPB announces settlement of lawsuit against student loan debt relief company

by Ballard Spahr LLP
Contact

The CFPB announced the filing of a proposed stipulated final judgment and order in its December 2014 lawsuit against Student Loan Processing.US (a fictitious business name of Irvine Web Works, Inc.) and its individual owner. Filed in a California federal district court, the CFPB’s lawsuit alleged that the defendants violated the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) prohibition of unfair, deceptive or abusive acts or practices (UDAAP) by conduct that included falsely representing an affiliation with the U.S. Department of Education, charging unlawful advance fees, and misleading borrowers about the costs and terms of the company’s services.

Last month, the district court granted summary judgment to the CFPB on its claims that the defendants violated the TSR by accepting advance fees and failing to adequately disclose the total cost of its services before a consumer consented to pay for the company’s services. It also found that the TSR disclosure violation constituted a violation of the CFPA UDAAP prohibition. The court rejected the defendants’ argument that the services they provided in  assisting students to obtain Department of Education consolidated loans were not “debt relief services” as defined by the TSR. The defendants asserted that the FTC did not intend the TSR to cover a service that facilitates a consumer obtaining new credit via a consolidated loan. In making this argument, the defendants relied on a footnote in in the FTC’s comments on the 2010 amendments to the TSR which stated that the definition of “debt relief services” was not intended to cover “services or products that offer to refinance existing loans with a new loan as a way of eliminating the original debts, as such a process would result in a new extension of credit that replaces the existing debts rather than altering them.” The court concluded that the carve out for “new loans” only applies to persons who extend new credit.

The proposed judgment and order requires the company to shut down all operations within 45 days of the entry of the court’s judgment, rescinds all contracts with consumers, and directs the defendants to cease assessing fees. It also requires the defendants to pay $8,249,548.48 in consumer redress, with all except $326,000 suspended based on the defendants’ inability to pay.

Because of the defendants’ inability to pay, the judgment and order imposes a civil money penalty of $1 plus any remaining portion of funds set aside for expenses in ceasing operations. According to the CFPB’s press release, by imposing the penalty, “victims of the defendants’ illegal practices may be eligible for additional relief from the CFPB Civil Penalty Fund (CPF) in the future, although that determination has not yet been made.” (Section 1017 of Dodd-Frank established the CPF and requires the CFPB to deposit civil money penalties it collects into the CPF to compensate consumers who were harmed by the activities for which civil money penalties were imposed and as otherwise permitted by Section 1017.)

Under the terms of the judgment and order, the defendants are permanently barred from marketing or providing debt relief and student loan services and must send a prescribed notice to consumers who had entered into contracts that informs them of the settlement and advises them to contact their federal student loan servicers to ensure that their contact information is correct and recertify if enrolled in an income-driven repayment plan.

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.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.