It happened so fast that you just may have missed it. On Friday, December 14, 2012, the Consumer Financial Protection Bureau (CFPB or Bureau), along with five states, brought a seven count complaint against Payday Loan Debt Solution Inc., (PLDS) and its President, Sanjeet Parvani, (Parvani) in the U.S. District Court for the Southern District of Florida.1 By Monday, December 17, 2012 the CFPB had filed an Unopposed Motion Requesting Entry of the Stipulated Final Judgment and Order, advising that the parties to the proceeding had agreed to settle the case. By Friday, December 21, 2012, the eighteen page Stipulated Final Judgment and Order (Final Judgment) was entered and a press release was issued.2
In a nutshell, the CFPB brought two counts against PLDS and Parvani pursuant to the Unfair, Deceptive and Abusive Acts or Practices prohibition found in Sections 1031 and 1036 of the Dodd-Frank Consumer Financial Protection Act of 2010 (Dodd-Frank), e.g., 12 USC Sections 5531 and 5536, as well as the Telemarketing and Consumer Fraud and Abuse Prevention Act,3 and the Telemarketing Sales Rule found at 16 CFR Section 310.4(a)(5), for alleged violations in connection with PLDS and Parvani's marketing and sale of debt-relief services. The five states, e.g., Hawaii, New Mexico, North Carolina, North Dakota and Wisconsin, each brought a claim pursuant to each of their state’s respective unfair and deceptive practices statutes and/or adjustment services statutes.4 The participation by these states, marks the very first time the CFPB has participated in a joint enforcement action with the states.5
To be clear, this action arose from a very deliberate focus by the CFPB on the debt-relief industry. Specifically, the CFPB in a press release6 stated, “[T]his action is part of the CFPB’s comprehensive effort to prevent consumer harm in the debt-relief industry.” The claims against PLDS and Parvani primarily stem from PLDS' alleged request or receipt of fees from consumers for debt-relief services before "renegotiating, settling, reducing or otherwise altering the terms of at lease one of the consumer's debts."7 It is alleged that PLDS relied on a payment processor — not named in the complaint — to collect and disburse monies through the consumers’ dedicated accounts. With regards to its consumer base, it is alleged that PLDS was soliciting consumers from the internet.
As part of the Final Judgment, PLDS was ordered to provide a full refund to consumers who were charged these advance fees prior to any debt-relief services being provided before their accounts were closed, in total $100,000.8 PLDS also was charged a $5,000 monetary penalty.9 Why was this action resolved so swiftly? Well, according to the CFPB’s press release, upon notice of the joint investigation PLDS cooperated and immediately ceased from the conduct at issue. A few observations follow below.
First, this is only the second time that the CFPB has filed an action in a U.S. District court and the very first time the CFPB has brought a joint action with states. As we previously reported, the CFPB’s first court action was an action filed in the Central District of California in the matter of CFPB v. Chance Edward Gordon, et.al.,10 (Gordon Action) for alleged violations of Sections 1031, 1036 and Regulation O.11 Both matters, while very different, involve debt relief services and thus indicate a very clear intent and heightened interest by the CFPB concerning the debt relief industry.
Next, even though a rule implementing the Telemarketing and Consumer Fraud and Abuse Prevention Act is at issue, the CFPB did not pursue this action under the "abusive" standard found at Section 1031(d) of Title X, of Dodd-Frank. Rather, the CFPB pursued the claim as one of unfairness. Alas, those falling under the CFPB's authority, continue to wait and see how the CFPB will seek to define and shape the abusive standard in days ahead.
Further, the rule violation at issue, e.g., 16 CFR Section 310.4(a)(5), is not a "Federal consumer financial law," as defined by Section 1002(14). Rather, it is an FTC rule, that the CFPB has power to enforce pursuant to Section 1081(5)(B)(ii) of Dodd-Frank, e.g., 12 U.S.C. 5581. Perhaps an early indicator of the CFPB’s willingness and dexterity to not only enforce the Federal consumer financial laws but also FTC rules.
And possibly the most significant observation of all is that the CFPB was joined by five states, including Hawaii, New Mexico, North Carolina, North Dakota, and Wisconsin. The state claims were brought by the respective states’ Attorneys Generals, except for Hawaii, whose claim was brought by its Office of Consumer Protection. As a result, this action rehashes a host of questions concerning the possible sharing of information by the CFPB with state agencies or law enforcement. If the CFPB shares privileged information with state agencies that it receives during its exercise of its supervisory responsibilities, then clear questions concerning waiver of privilege and possible disclosure of confidential documents abound. We discuss these waiver and disclosure concerns in detail in the CFPB Alert, Senate Passes House Bill 4014, Clearing the Way for Privilege Protection in Documents Turned Over to the CFPB During Examination -- But Murky Waters Still Lie Ahead,12 and thus, refer you to that Alert for review.
At bottom, it is not clear where the parties were in negotiations prior to the filing of the action by the CFPB. Certainly, the CFPB suggests that upon notice of the joint investigation that the activity at issue immediately ceased. This begs the question, “Did the CFPB provide PLDS and Parvani any notice before filing the lawsuit?” As outside observers, one can only speculate.