On July 9, 2019, the United States District Court for the Northern District of California entered a stipulated final judgment and order in case number 17-cv-06484, Consumer Financial Protection Bureau v. Freedom Debt Relief, LLC, et al. Under the stipulated judgment, Freedom Debt Relief, LLC (Freedom Debt Relief is not related to Freedom Mortgage Company) is enjoined from engaging in deceptive conduct and charging fees for non-settlement resolutions with consumers regarding debts that the company agreed to negotiate. Freedom Debt Relief is also required to provide certain disclosures regarding negotiations with creditors and consumers’ entitlement to settlement funds upon withdrawing from the debt-relief program. The company is required to pay $20 million to the Consumer Financial Protection Bureau (CFPB) for restitution and submit a comprehensive redress and compliance plan to the CFPB identifying affected consumers and otherwise complying with the stipulated judgment. Finally, Freedom Debt Relief is required to pay a $5 million civil money penalty, of which $439,500 is to be paid to the FDIC according to a different consent order.

On November 8, 2017, the CFPB filed an action against Freedom Debt Relief and Andrew Housser, the company’s co-founder and co-CEO. The CFPB filed its first amended complaint on June 1, 2018. According to the complaint, Freedom Debt Relief provided consumer debt relief through a debt settlement program in which consumers deposited funds into an FDIC-insured bank, and the company negotiated with consumers’ creditors to settle their debts. The CFPB alleged that Freedom Debt Relief failed to provide consumers with notice that, if consumers withdrew from the debt settlement programs, they would receive their deposits back, less any fees incurred. Notably, Freedom Debt Relief purportedly misrepresented those fees charged to consumers. Additionally, although the corporation allegedly knew certain creditors would not negotiate consumers’ debts, it nonetheless represented to consumers that all creditors would negotiate. Further, Freedom Debt Relief purportedly encouraged consumers to misrepresent its involvement in their accounts when consumers negotiated directly with creditors.

In the first amended complaint, the CFPB pled five counts for relief for alleged violations of the Consumer Financial Protection Act of 2010 (CFPA) and the Telemarketing Sales Rule (TSR). Specifically, the CFPB alleged counts sounding in violations of the CFPA for (i) deceiving consumers regarding creditors’ willingness to negotiate with freedom; (ii) deceiving consumers regarding charges; (iii) abusively requiring consumers to negotiate on their own; as well as violations of the CFPA and TSR for (iv) failure to clearly and conspicuously disclose consumers’ rights to funds; and (v) charging fees in the absence of a settlement. Without admitting or denying the CFPB’s allegations, other than those facts necessary to establish the court’s jurisdiction, Freedom Debt Relief and Andrew Housser agreed to a stipulated final judgment on July 9, 2019.

Take Away:

Settlements with the CFPB have historically tended to include injunctions against defendants’ continued wrongful activity and monitoring or reporting to ensure compliance. While Freedom Debt Relief’s stipulated judgment provides for similar relief, it also includes a hefty $20 million fine for restitution, as well as a $5 million civil penalty. Looking forward, we can likely expect future settlements under Director Kathy Kraninger to include similar provisions.