CFPB enters into proposed settlement of lawsuit filed against debt settlement company alleging abusive conduct in violation of CFPA

Ballard Spahr LLP

Ballard Spahr LLP

The CFPB announced earlier this week that it has entered into a proposed settlement  of its lawsuit filed in a California federal district court against SettleIt, Inc., a debt settlement company, alleging that the company engaged in abusive acts or practices in violation of the Consumer Financial Protection Act and also violated the Telemarketing Sales Rule.  The proposed order requires SettleIt to pay consumer redress of at least approximately $646,000 and a $750,000 civil money penalty.

In its complaint, the CFPB alleged that SettleIt is affiliated with CashCall and LoanMe, creditors with whom it purports to settle debts on behalf of consumers.  According to the complaint, SettleIt and CashCall are owned and controlled by the same individual and LoanMe has a financial relationship to that individual.

The CFPB claimed that SettleIt engaged in abusive acts or practices in violation of the CFPA by taking “unreasonable advantage of consumers’ reasonable reliance that SettleIt would protect their interests in negotiating their debts by engaging in a form of self-dealing that benefitted SettleIt, CashCall, and LoanMe at consumers’ expense.”  To support this claim, the CFPB also alleged:

  • Consumers did not know that SettleIt had financial connections to CashCall and LoanMe and SettleIt did not tell consumers about such financial connections
  • SettleIt told consumers that it would work in their interests only, and consumers reasonably relied on SettleIt to protect their interests in negotiating their debts
  • SettleIt prioritized the settlement of debts owed to CashCall and LoanMe over debts owed to unaffiliated creditors
  • Settling debts with CashCall and LoanMe allowed SettleIt to collect its fee for those settlements
  • SettleIt marketed new loans (called “Fresh Start loans”) from CashCall and LoanMe to consumers and used the proceeds of Fresh Start loans to pay SettleIt’s fees

The CFPB further alleged that SettleIt violated the TSR through conduct that included failing to clearly disclose the amount of its fee and collecting its fees based on consumers’ preauthorization of settlements and that SettleIt’s alleged TSR violations also constitute CFPA violations.

The consumer redress of not less than $646,769.43 which SettleIt must pay under the proposed order represents the amount of the fees collected by SettleIt for settling debts owed to CashCall and LoanMe.  The order also prohibits SettleIt from settling debts owed to CashCall, LoanMe, or any company with which it shares direct or indirect ownership and requires SettleIt, for all Fresh Start loans, to disclose its affiliation with the lenders to consumers.

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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