The CFPB recently issued a stipulated judgment and order with a debt settlement company to resolve allegations that he illegally charged a fee and failed to provide proper disclosures in violation of the Telemarketing Selling Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA). Although a pecuniary damages judgment in the amount of $ 7,700,000 has been pronounced against the company, full payment will be suspended upon satisfaction of certain obligations in the final judgment and order.
Since at least 2012, the company had offered two debt settlement programs. The company said the first program’s settlement fee was based on the percentage of the consumer’s debt balance at the time of enrollment, and the second program’s settlement fee was based on a percentage of the consumer’s savings. on the debt balance as at the time of registration. Despite its claims regarding these fee schedules, the company charged a fee based on what it called “verified debt,” which was an amount determined after listing. In addition, the company charged consumers a fee before they had successfully settled their debts or before consumers made the first payment towards the settlement agreement. The company’s contracts with consumers for its services did not specify when it would make a good faith settlement offer to their creditors, or the amount of money or percentage of each unpaid debt that consumers would have to accumulate before making. such an offer.
Under TSR, debt settlement companies: 1) cannot request or receive payments for fees associated with debt relief services until a client has made at least one payment under the settlement agreement; 2) cannot claim or receive a fee before having settled, or otherwise changed the terms of at least one debt under a settlement agreement; 3) must charge a fee proportional to the debts settled, or a lump sum percentage based on a client’s savings resulting from the settlement; and 4) must disclose before registration in a clear and visible manner the time period within which it will make a good faith settlement offer to a customer’s creditor, as well as the amount of money or percentage of each unpaid debt it a customer must accumulate before him will make such an offer.
RST violations constitute violations under the CFPA. In addition, the CFPA prohibits misleading representations about when a business will charge or collect fees, and its fee schedule.
In partial satisfaction of the judgment, the company must pay $ 5,400,000 in three installments. The business is limited in the amount of insurance products it can use for the first payment. In addition, the business can offset its payments if, at least 10 days before the scheduled payment date, it can demonstrate that it has already reimbursed the affected consumers. The company is also subject to various compliance and reporting obligations as part of the judgment. For example, he must inform the CFPB of any development likely to affect compliance and submit periodic written reports on the progress of compliance.
The company neither admits nor denies the allegations under the stipulated order, except in matters of jurisdiction.