In settling its first “abusive practices” enforcement action, the CFPB has forced American Debt Settlement Solutions Inc. (ADSS) and its president to agree to pay over one-half million dollars in damages and fines (most of which will be waived due to inability to pay). The settlement also prohibits ADSS from further selling any debt-relief products or services. The CFPB’s complaint against ADSS is remarkable in that it is the first to address “abusive acts or practices” under Sections 1031 and 1036 of Dodd-Frank, but the lessons here are few.
The CFPB alleges that ADSS promised to assist consumers in renegotiating outstanding, unsecured debt. According to the CFPB’s complaint, however, 89 percent of the consumers who enrolled in ADSS’s programs did not receive the promised assistance. ADSS and its president allegedly violated the FTC’s Telemarketing Sales Rule (TSR) and the Dodd-Frank Act by charging illegal upfront fees and making misrepresentations to consumers about their debt-relief services. The CFPB also claimed that ADSS and its president “engaged in abusive acts or practices by signing up and charging fees to vulnerable consumers who the defendants knew had inadequate incomes to complete the debt-relief programs in which they were enrolled.” CFPB followed up the complaint with the following guidance: “If someone – a person or a company – takes unreasonable advantage of a consumer in certain ways or interferes with a consumer’s ability to understand a term or condition of a financial product or service, the Bureau may take enforcement action.” Interesting, but this statement largely tracks the statutory definition in Dodd-Frank for “abusive” practices. Moreover, prior to filing this action, Director Cordray testified that he’ll know an abusive practice when he sees one: “the term abusive in the statute is … a little bit of a puzzle because it is a new term.” He added that it is not “useful to try to define a term like that in the abstract; we are going to have to see what kind of situations may arise.” Not very helpful.
Now, however, the CFPB has a good target: debt relief products and services. How this term will be applied, if at all, to traditional consumer financial products and services remains a matter of intense speculation.
With this action and settlement, however, CFPB offers some—albeit minor—insight into what type of conduct the CFPB deems to be “abusive,” including misrepresentations and omissions to consumers. Director Cordray also warned that this is not likely the last time the CFPB will be issuing enforcement actions for abusive conduct: “Consumers struggling to pay off a debt are among the most at risk and deserve better. We will continue to crack down on this type of harmful behavior.”