The CFPB further defined what it will consider to be abusive conduct under UDAAP with an April 13 settlement agreement with California-based debt-settlement company SettleIt, Inc. The settlement required SettleIt to refund approximately $646,000 in customer fees and pay a $750,000 fine. The CFPB complaint alleged that SettleIt engaged in abusive conduct when it represented to consumers that it would negotiate debt settlements on their behalf without disclosing that it was affiliated with CashCall and LoanMe, subprime lenders against which it purported to negotiate and favored at consumers’ expense. SettleIt trained its employees to refer to the affiliated lenders as “strategic partners” or companies that SettleIt “did business with.”
Although this alleged obfuscation was central to the abusiveness claim, the CFPB also described a pattern of problematic activity by SettleIt that included:
- Steering consumers into high-interest loans (called “Fresh Start” loans) from LoanMe and CashCall and deducting its debt settlement fees from loan proceeds;
- obscuring the amount of its fee, which was 25% of the enrolled debt; and
- requiring consumers to pre-authorize settlement amounts equaling up to 65% of the outstanding debt, which allowed SettleIt to enter into agreements with creditors, including LoanMe and Cashcall, without the consumer’s express consent.
According to the complaint, these practices prevented consumers from understanding what they were paying for SettleIt’s services, the actual amount required to pay off their debts, and the consequences of taking out a Fresh Start loan. The settlement requires SettleIt to:
- Stop settling debts owed to CashCall, LoanMe, or any other lender under common ownership with SettleIt; and
- disclose its lender affiliations to potential Fresh Start borrowers.
The SettleIt complaint and settlement are notable because, in them, the CFPB sets out the factual basis for the abusiveness claim independently of other included claims. This is approach is novel because, as we have previously noted, since its inception, the CFPB has generally appended abusiveness claims to claims of deception and unfairness without specifying what conduct was abusive.
The CFPB has recently made clear that it will not attempt to offer additional guidance on the criteria for an abusiveness determination. That means, absent a change in course by the CFPB, the standard will continue to develop through enforcement actions, like this one, in which the CFPB provides independent support for its abusiveness claim.
The SettleIt action is the second abusiveness case the CFPB has brought since the inauguration of President Biden. The first was the CFPB’s abusiveness complaint against Libre by Nexus, Inc. (Libre) in February. Libre allegedly represented to non-English speaking immigrants in detention centers that it had paid the immigrants’ bonds and then enrolled them in long-term, expensive repayment plans written entirely in English.
Together, the SettleIt and Libre cases suggest two takeaways. First, the CFPB intends to disentangle the abusiveness standard from the unfairness and deceptiveness standards and use it as an independent basis for enforcement. Second, the CFPB views taking advantage of vulnerable consumers’ trust as textbook abusive conduct. This formulation of the standard is consistent with the statutory definition of abusiveness, which covers conduct that takes advantage of a consumer’s “reasonable reliance” that the financial services provider will act in his or her interest. Vigorous application of the abusiveness standard to protect financially vulnerable and minority consumers also aligns with the CFPB’s policy goals of financial inclusion and anti-discrimination. We expect to see more such enforcement actions by the CFPB in the coming months.