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A Survey of Activities Identified as Unfair, Deceptive, or Abusive
Under the Dodd-Frank Act by
Adam D. Maarec, Davis Wright Tremaine LLP
John C. Morton, Gordon Feinblatt LLC
American Bar Association Consumer Financial Services Committee
Compliance Management and Federal and State Trade Practices Subcommittees
September 17, 2015
I. Introduction
This is our latest article in a series that surveys activities identified as unfair, deceptive or
abusive (UDAAP) by the CFPB, and state attorneys general and consumer financial services
regulators, using federal UDAAP powers created by the Dodd-Frank Act.1 This article covers
relevant UDAAP activity that occurred between January 1, 2015 and June 30, 2015, including
enforcement actions and other statements by the CFPB in reports that discuss UDAAP
violations.2 These activities provide insight into the specific types of practices that could be
considered UDAAP violations in the future.
We intend to publish periodic updates to this article cataloging new CFPB UDAAP activity and
related state enforcement actions using federal UDAAP powers.
II. Overview: Identification of Unfair, Deceptive, and Abusive Practices by the CFPB
and by the States
Between January 1, 2015 and June 30, 2015, the CFPB engaged in 16 new public enforcement
actions based on alleged UDAAP violations. These UDAAP actions can provide a road map for
industry participants to identify and better understand acts and practices that are considered
problematic by law enforcement authorities. UDAAP enforcement actions during the period of
this summary involved marketing, debt collection, debt settlement, and the servicing of
mortgages, other loans, deposit accounts, and payment accounts. The CFPB highlighted other
UDAAP issues in its Supervisory Highlights reports involving ACH payment cancellation terms,
deposit account servicing, overdrafts, student loan servicing, “general waiver provisions” in
home equity loan agreements, and mortgage servicing loss mitigation practices.
1 Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. §§ 5301 et seq. (the “Dodd-Frank Act”);
see, e.g., 12 U.S.C. § 5552 (2014). 2 We have attempted to make this survey as comprehensive as possible, however, it is not exhaustive and there may
be other relevant actions that are not discussed in this paper. Also, it must be noted that this area of law is rapidly
evolving and new actions arise frequently.
2
The summaries of each UDAAP action below appear in chronological order and are intended to
provide a straightforward identification of the specific acts or practices that were alleged to be
unfair, deceptive, or abusive by the CFPB, state attorneys general and/or state regulators.
III. CFPB Enforcement Actions
a. Continental Finance Company, LLC3 - February 2015 (Marketing)
Continental Finance Company originated, marketed and serviced subprime, secured credit cards
on behalf of an unnamed state-chartered credit union. In a consent order, the CFPB claimed
jurisdiction over the company as both a “covered person” because of its loan servicing activities
and a “service provider” because it provided material services to a state-chartered credit union in
connection with the offering and provisioning of consumer financial products and services. The
CFPB alleged that the following acts were deceptive:
Stating that consumers could elect to receive paper statements for a monthly fee of $4.95,
but automatically enrolling consumers in paper statements and imposing the related
monthly fee; and
Stating that the cash security deposit paid by consumers to the company to open the
account was “FDIC Insured” when the deposited funds were not actually FDIC insured.
In addition, the CFPB alleged that when the $4.95 monthly paper statement fee was combined
with the credit card’s $75 annual fee, the total amount of fees per year exceeded Regulation Z’s
first-year fee cap of 25%, based on a typical consumer’s $300 credit limit. The company agreed
to pay $2.7 million in consumer redress and a $250,000 civil money penalty.
b. Newday Financial, LLC4 – February 2015 (Marketing)
NewDay Financial, LLC is a Maryland-based mortgage lender that is primarily engaged in the
business of originating home loan refinancings for veterans, servicemembers, and their surviving
spouses. NewDay entered into a consent order with the CFPB to settle allegations that NewDay
engaged in deceptive mortgage advertising and took kickbacks in violation of the Real Estate
Settlement Procedures Act.
Specifically, the CFPB alleged that NewDay participated in a marketing scheme, which was
facilitated by a third-party broker, where NewDay would be listed as the “Exclusive Lender” for
a certain veterans’ organization in exchange for “lead generation fees” that were paid by
NewDay to the veterans’ organization and the broker. This practice was considered deceptive by
the CFPB because NewDay failed to disclose to consumers that it had a material financial
relationship with the veterans’ organization.
Additionally, the CFPB alleged that the “lead generation fees” charged by NewDay violated the
Real Estate Settlement Procedures Act, as a prohibited “kickback” (defined as the giving or
receiving of “a thing of value” in exchange for the referral of settlement services).
3 In re: Continental Finance Company, LLC , File No. 2015-CFPB-0003 (Feb 4, 2015)
4 In re: NewDay Financial, LLC, File No. 2015-CFPB-0004 (Feb. 10, 2015).
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NewDay was ordered to pay a $2 million civil money penalty and to cease all deceptive
marketing practices and all kickback arrangements.
c. All Financial Services, LLC5 – February 2015 (Marketing)
All Financial Services, LLC is a Maryland-based mortgage broker and lender. The CFPB
alleged that the company engaged in deceptive marketing and advertisement practices in
connection with the advertisement of reverse mortgage products.
The CFPB alleged that the following practices were deceptive:
Misrepresenting that the source of All Financial’s advertisements was, or was
affiliated with, a governmental entity by using the image of an eagle on envelopes
closely resembling that used in the Great Seal of the United States, imprinting on the
envelope “IMPORTANT DOCUMENT ENCLOSED” (followed by a citation to the
United States Code regarding tampering with the mail), reading “OPEN
IMMEDIATELY”, and including the text “Home Saver—HECM Program Eligibility
Notice”;
Representing that no monthly payments would be required “whatsoever” under a
reverse mortgage, provided that the homeowner or spouse lives in the home, when (1)
homeowners who take out a reverse mortgage are still required to pay taxes and
insurance; and (2) at the time the ads were disseminated, the reverse mortgages
advertised by All Financial could be due upon the death of the last borrower,
regardless of whether a non-borrowing spouse still lived in the home; and
Misrepresenting that the Federal Housing Act-insured reverse mortgage program was
time-limited or had a deadline when there is no scheduled expiration date or deadline
for the FHA HECM insurance program.
On June 11, 2015, a settlement order was entered dismissing the action without prejudice and
requiring each party to bear its own costs.6 No additional information about the settlement terms
appears to have been made public.
d. Flagship Financial Group, LLC7 – February 2015 (Marketing)
Flagship Financial Group, LLC, a Utah-based mortgage lender and broker, entered into an
administrative proceeding consent order with the CFPB on February 12, 2015, in connection
with certain alleged deceptive marketing practices. The CFPB alleged that Flagship
disseminated advertisements that were designed to look like a government notice and implied
that the Federal Housing Administration was responsible for the advertisement. Additionally,
Flagship disseminated advertisements that promoted Veterans Administration guaranteed loans.
5 Consumer Financial Protection Bureau v. All Financial Services, LLC, No. 1:15-cv-00420-JFM, Dkt. No. 1 (D.
Md. February 12, 2015). 6 Id. Dkt. No. 16 (June 11, 2015).
7 In re: Flagship Financial Group, LLC, File No. 2015-CFPB-0006 (Feb. 12, 2015).
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According to the CFPB, these advertisements were designed to imply that Flagship had a special
or unique relationship with the Veterans Administration, when it did not.
These advertising practices were deemed deceptive because Flagship misrepresented, expressly
or impliedly, that: (1) Flagship was, or was affiliated with, the United States government; and (2)
the nature of the advertised mortgage credit products’ affiliation with a government program.
Flagship was ordered to pay a $225,000 civil money penalty.
e. American Preferred Lending, Inc.8 – February 2015 (Marketing)
American Preferred Lending, Inc., a California-based mortgage lender and broker, entered into a
consent order with the CFPB stemming from allegedly deceptive marketing practices. American
Preferred Lending disseminated over 100,000 direct mail advertisements that allegedly suggested
that the mortgage lender was affiliated with a governmental agency and obscured that the
mailings were really from American Preferred Lending. The direct mail pieces referenced the
Federal Housing Administration web address and included the Federal Housing Administration
Approved Lending Institution logo. However, the mailing pieces did not emphasize the
mortgage lender’s name and only included it in small print.
The advertisements were considered deceptive because they improperly suggested that American
Preferred Lending was affiliated with a governmental entity and because the advertisements
suggested that the mortgage lending products were endorsed or sponsored by a United States
government program.
American Preferred Lending was ordered to pay a civil money penalty of $85,000 to the CFPB.
f. Universal Debt & Payments Solutions, LLC et al.9 – March 2015 (Debt
Collection)
The CFPB filed a complaint for allegedly unfair, deceptive, and abusive debt collection practices
and violations of the Fair Debt Collection Practices Act against Universal Debt & Payment
Solutions, along with a series of related companies and individuals, including the debt collector’s
payment processors and telemarketer. The CFPB alleged that the following representations by
the debt collectors, made directly or indirectly, were deceptive:
That consumers had committed a crime (apparently by failing to repay), that the
companies were authorized to prosecute the crime by way of legal action and arrest, and
that the companies intended to take those actions;
That consumers owed a debt that the companies had authority to collect; and
That consumers had a legal obligation to pay the companies.
In addition, the CFPB alleged that the debt collectors engaged in the following unfair practices:
8 In re: American Preferred Lending, Inc., File No. 2015-CFPB-0005 (Feb. 12, 2015)
9 In re: Universal Debt & Payments Solutions, LLC et al., File No.: 1:15-cv-00859-RWS (N.D. Ga. March 26,
2015).
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Debiting consumers’ bank accounts without their consent; and
Using threats and harassment to obtain consumers’ purported consent.
The CFPB also alleged that the debt collector’s individual officers (control persons), payment
processors, and telemarketers were responsible for “knowingly or recklessly” providing
“substantial assistance” to the debt collector’s scheme to defraud consumers. The individuals’
substantial assistance to the debt collector, which formed the basis of its allegedly unfair or
deceptive acts, included: “purchasing debt and leads, providing skip tracing services, providing
telephone lines and broadcasting services, leasing office space, providing access to payment
processing services, and hiring and paying collectors.”
The payment processor’s substantial assistance came in the form of credit and debit card
processing, which the CFPB believes made the debt collector’s improper actions possible. The
CFPB alleged that the payment processor engaged in unfair acts or practices by:
Approving applications to process payments for debt collectors that were “replete with
indicia of fraud” and despite fraud warnings from consumers and industry; and
Failing to conduct reasonable due diligence to detect the debt collectors’ allegedly
unlawful conduct.
Finally, the telemarketer’s substantial assistance included broadcasting debt collection messages
on behalf of the debt collectors that it knew, or should have known, were unfair or deceptive and
contributed to the unlawful debt collection. The CFPB alleged that the telemarketers engaged in
unfair acts by “broadcasting millions of threatening collection messages to consumers” on behalf
of the debt collectors, which directly caused harm to consumers that was not reasonably
avoidable.
This case was not resolved at the time of publication.
g. National Corrective Group, Inc.10
– March 2015 (Debt Collection/Settlement)
The CFPB entered into a consent order with the National Corrective Group and its Chief
Executive Officer for allegedly deceptive practices in connection with bad check diversion
programs operated on behalf of state and local prosecutors’ offices. Bad check diversion
programs typically require consumers to repay a merchant receiving a bad check in full;
complete a financial accountability class; and pay a fee. Operators of bad check diversion
programs are exempt from being considered “debt collectors” under the Fair Debt Collection
Practices Act if certain conditions are met. The CFPB alleged that those conditions were not met
and that the company improperly used its relationship with state and local prosecutors in its
communications with consumers.
The CFPB alleged that the following representations, made directly or indirectly, were deceptive:
That communications were from an attorney;
10
In re: National Corrective Group, Inc., File No.: 1:15-cv-00899-RDB (D. Md. March 30, 2015).
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That nonpayment of the debt would result in arrest or imprisonment;
That legal action would be taken against the consumer; and
That written communications were from an official or agency of a state (and failing to
disclose that the letter was actually from a third party).
Violations of the Fair Debt Collection Practices Act also were alleged. The company agreed to
pay a $50,000 civil money penalty and to change its practices.
h. RMK Financial Corporation – April 2015 (Marketing)
RMK Financial Corporation, a California-based mortgage lender, entered into a consent order
with the CFPB in connection with the marketing of its mortgage origination activities.11
According to the CFPB, RMK’s advertisements included the following alleged deceptive acts or
practices:
Using the names, logos, and seals of the United States Department of Veteran Affairs and
Federal Housing Administration in such a way that the advertisements implied that
RMK’s mortgage products were sent by the VA or FHA, or that the products were
endorsed by the VA or FHA;
The advertisements contained a phone number below the advertisement, which referred
the borrower to the “VA Interest Rate Reduction Department,” notwithstanding the fact
that RMK never had a “VA Interest Rate Reduction Department”; and
The advertisements contained the words “Federal Housing Administration” at the top of
the page, along with a prominent FHA Approved Lending Institution logo.
The CFPB alleged that “[t]he net impressions created by the advertisements were also likely to
mislead reasonable consumers about whether [RMK] was or was [not] affiliated with the FHA or
VA.”12
Additionally, according to the CFPB’s allegations, RMK employees falsely stated or
implied that the company was part of or endorsed by the FHA or VA when potential borrowers
would respond to the mailing pieces.
RMK also was alleged to have violated the Truth in Lending Act (TILA) by failing to disclose
certain items in its mortgage advertisements.
RMK was ordered to pay a $250,000 civil money penalty as a result of its allegedly deceptive
practices and TILA violations.
i. S/W Tax Loans, Inc. et al.13
– April 2015 (Marketing)
The CFPB, in a joint consent order with the Navajo Nation Department of Justice, alleged that
S/W Tax Loans, its owner, and its president engaged in unfair, deceptive, and abusive acts and
practices in connection with tax refund anticipation loans (RALs) that carried a 240% APR. The
company’s owner also owned H&R Block tax preparation franchises, which offered a competing
11
In re: RMK Financial Corporation d/b/a Majestic Home Loans, File No. 2015-CFPB-0007 (Apr. 9, 2015). 12
Id. 13
In re: S/W Tax Loans, Inc. et al., File No. 1:15-cv-00299-JB-WPL (D.N.M. Apr. 16, 2015).
7
line of credit product at a lower interest rate of 36% APR. The agencies alleged that a number of
undisclosed facts contributed to UDAAP violations, including incentive compensation paid to
H&R Block tax preparers for steering consumers to the RALs, the undisclosed common
ownership of the companies, and the receipt of tax proceeds by S/W Tax Loans before
consumers entered a second RAL, which would have been unnecessary had consumers known
that the tax proceeds were available.
The agencies alleged that the company took unreasonable advantage of consumers’ inability to
protect themselves, and thus engaged in abusive acts, by:
Steering vulnerable consumers to a more expensive product and not disclosing incentive
compensation paid to sales personnel and affiliated companies; and
Issuing subsequent RALs to consumers whose tax refunds had already been received by
the company without disclosing that the refund had been received and would be available
within a few days.
The company’s failure to disclose that the refund had been received and would be available
within a few days also produced allegations of unfairness and deception. The act was allegedly
unfair since it caused unavoidable injury in the form of a high APR, and because consumers had
to rely on the company to learn whether their refund was received. In addition, the agencies
alleged that the company deceptively urged consumers to take out subsequent RALs when
consumers made inquiries about the status of a refund and the company created a false
impression that the consumer’s refund proceeds had not yet been received.
Finally, the agencies alleged that the company deceptively disclosed the RAL’s APR by failing
to indicate the APR was an estimate, and understating the APR by basing the estimate on a 45-
day repayment term when most refunds were received in 12 days. The company, its owner, and
its president were ordered to pay $438,000 in consumer redress and a $438,000 civil money
penalty.
j. Fort Knox National Company, et al.14
– April 2015 (Loan Servicing)
Fort Knox National Company and its subsidiary, Military Assistance Company, managed a
military allotment program that processed payroll deductions and forwarded certain amounts to
creditors on behalf of servicemembers. After a creditor’s obligation was terminated, excess
funds (“residual balances”) would exist and trigger monthly residual balance fees. The CFPB
alleged in a consent order that the companies failed to adequately disclose that residual account
fees would be charged and failed to notify consumers that those fees had been charged. The
CFPB alleged that these disclosure failures were unfair since they prevented consumers from
avoiding the residual balance fees. The CFPB also alleged that the companies’ disclosure
failures resulted in materially incomplete, misleading, and thus deceptive statements. Finally,
the CFPB alleged the disclosure failures were abusive because:
14
In re: Fort Knox National Company, et al., File No. 2015-CFPB-0008 (Apr. 20, 2015).
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They limited the servicemembers’ ability to understand the product’s material risks,
costs, or conditions and, by charging the residual balance fees, the company took
unreasonable advantage of the servicemembers’ lack of understanding of the product
costs; and
They prevented servicemembers from protecting their interests in selecting or using the
allotment product (e.g. by taking steps to limit the residual balance fees) and the
company took unreasonable advantage of this handicap.
The companies agreed to pay approximately $3.1 million in equitable monetary relief to the
CFPB for consumer redress.
k. Green Tree Servicing LLC15
– April 2015 (Mortgage Servicing)
Green Tree Servicing LLC is a national mortgage servicer. The CFPB and FTC filed a joint
complaint against the company alleging a number of illegal actions in connection with Green
Tree’s mortgage servicing activities. The following practices were allegedly deceptive and
abusive:
Misrepresenting to consumers that the consumers’ mortgage loans have certain unpaid
balances, payment due dates, interest rates, monthly payment amounts, delinquency
statuses, and unpaid fees or other amounts due;
Demanding payment prior to providing loss mitigation options;
Failing to timely respond to consumers’ short sale applications and failing to complete or
evaluate short sale applications;
Representing that nonpayment of a mortgage loan will result in the arrest or
imprisonment of consumers or the seizure, garnishment, attachment, or sale of the
consumers’ property or wages;
Deceiving consumers into using the company’s pay-by-phone service, Speedpay, without
disclosing that there would be a convenience fee to use the service and that there were
other payment methods available that did not require a convenience fee;
Causing consumers’ bank accounts to be debited without the consumers’ consent;
Failing to honor in-process loan modifications when borrowers had modification
agreements with a prior loan servicer; and
Harassing and threatening overdue borrowers with repeated and continuous phone calls.
The company entered into a stipulated order for permanent injunction and monetary judgment
with the CFPB and the Federal Trade Commission and was ordered to pay $48 million in
restitution to borrowers and a $15 million civil money penalty.16
15
FTC and Consumer Financial Protection Bureau v. Green Tree Servicing, LLC, No. 15-cv-02064 (SRN-JSM)
Dkt. No. 1 (D. Mn. April 23, 2015). 16
Id. at Dkt. No. 5 (April 23, 2015).
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l. Regions Bank17
– April 2015 (Deposit Account Servicing)
The CFPB entered into an administrative consent order with Regions Bank to resolve allegations
that it unlawfully charged overdraft fees to consumers who had not elected to opt-in for overdraft
coverage. The “opt-in rule” under Regulation E requires that depository institutions obtain
consumers’ affirmative consent before charging overdraft fees when a consumer’s transaction
would otherwise be denied due to insufficient funds. When executives at Regions Bank learned
of the ongoing overdraft practices, the bank self-reported to the CFPB and agreed to reimburse
overdraft fees to hundreds of thousands of consumers, totaling over $48 million. The CFPB
alleged that the following practices were deceptive:
Misrepresenting that it would not assess overdraft fees in connection with ATM or one-
time debit card transactions unless the consumer opted-in; and
Charging consumers both a NSF fee and an overdraft charge due to a programming error,
notwithstanding language contained in a “frequently asked question” that the consumer
would not be charged overdraft fees.
In addition to $48 million in reimbursements already provided to consumers, Regions Bank
agreed to pay the CFPB an additional civil money penalty of $7.5 million.
m. Nationwide Biweekly Administration, Inc.18
– May 2015 (Marketing)
Nationwide Biweekly Administration, Inc. provided a biweekly mortgage payment program,
whereby it would transmit funds from consumers to their mortgage servicers in bi-weekly, rather
than monthly, payments (e.g. 26 bi-weekly payments in a year versus 12 monthly payments).
The CFPB filed a lawsuit against the company and its owner for allegedly deceptive and abusive
acts and practices in connection with the sale of the mortgage payment program.
The following practices were considered deceptive:
Misrepresenting, directly and indirectly:
o that consumers would save money and when they would achieve those results;
o that savings would be achieved without increasing the amount the consumer pays
each month;
o that the savings could not be achieved without the program;
o the amount and existence of a $995 program setup fee;
o that the company was affiliated with mortgage servicers; and
Violating the Telemarketing Sales Rule by failing to disclose the total cost of the service,
the central characteristics of the service, affiliations with mortgage servicers, and making
misrepresentations to induce a person to pay for the services.
The CFPB alleged that the company took unreasonable advantage of consumers’ lack of
understanding of the material risks, costs, or conditions of the program, and thus engaged in
abusive conduct, by guaranteeing consumers they would save money by enrolling in the
17
In re: Regions Bank, File No. 2015-CFPB-0009 (Apr. 28, 2015). 18
In re: Nationwide Biweekly Administration, Inc., File No. 3:15-cv-02106-RS (N.D. Cal. May 11, 2015)
10
program, when, in fact, consumers would pay more in undisclosed fees during the first several
years than they would save. In addition, the company allegedly knew that “a substantial number
of consumers [would] leave the program prior to saving any money” and that consumers were
unlikely to know that they would pay more in fees than they would save (because the fees
weren’t disclosed).
This case was not resolved at the time of publication.
n. Verizon Wireless19
- May 2015 (Payment Account Servicing)
Verizon Wireless entered a settlement agreement with the CFPB for “cramming”, which
involved placing unauthorized third party charges onto wireless telephone bills. In the CFPB’s
complaint, it alleged that merchants offered coupons or free giveaways to trick customers into
providing their telephone numbers, and then enrolled consumers in unrelated monthly
subscriptions for premium text messaging services, such as ring tones and jokes. In some cases,
the third parties allegedly didn’t provide any services at all.
In its complaint, the CFPB alleged that the following practices, together, were unfair:
Automatically enrolling consumers in third-party billing without consent, thereby
reducing consumers’ ability to identify unauthorized charges;
Permitting third-party merchants to access customer billing systems without: (1)
requiring merchants to have customer authorization for purchases or comply with
industry guidelines; and (2) adequately overseeing these activities;
Failing to adequately resolve customer disputes by refusing to provide complete refunds
for unauthorized charges and only offering to stop future charges or referring consumers
to the offending merchants;
Ignoring or consciously avoiding red flags identifying flaws in its third-party billing
system, including tracking of customer complaints, and continuing to outsource billing
activities to companies that were subject to settlements for improper billing activities; and
Failing to differentiate first-party and third-party charges on its bills, the non-payment of
which would result in late fees, service termination, collections, and adverse credit
reporting, all of which was exacerbated by the company’s refusal to provide full refunds.
The company reached a settlement with the CFPB and related parties (which included the 50
state attorneys general and the District of Columbia) for $70 million in restitution.
19
In re: Verizon Wireless, File No. 3:15-cv-03268-PGS-LHG (D.N.J. May 12, 2015).
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o. PayPal, Inc. and Bill Me Later, Inc.20
– May 2015 (Marketing and Loan
Servicing)
PayPal, Inc. and Bill Me Later, Inc. offered consumers an online credit product, PayPal Credit.
The CFPB filed a complaint against the companies in connection with their activities in
establishing PayPal Credit as the default payment method when consumers were attempting to
enroll in a regular PayPal account and were thereby enrolled in PayPal Credit without their
consent. The companies allegedly engaged in the following unfair practices:
Enrolling consumers in PayPal credit without the consumers’ consent or authorization;
Processing payments through PayPal Credit without the consumers’ consent or
authorization;
Failing to accept, process, or timely post consumers’ payments made toward their PayPal
Credit account, including: (1) failing to take reasonable steps necessary to maintain the
online platform provided for consumers to make payments; and (2) failing to take
necessary steps to assure that the companies could process and post, or timely process
and post, consumer payments; and
Failing to adequately or timely address billing disputes, including disputes about
crediting payments, processing refunds, honoring advertised promotions, unauthorized
charges, and double billing.
Additionally, the companies allegedly engaged in deceptive advertising by representing that
consumers would receive promotional offers, such as $5 or $10 back on a purchase, or no
interest for six to twelve months, when in fact no such benefits were provided.
Finally, the CFPB alleged that the companies engaged in abusive practices by failing to provide
sufficient information to consumers about how payments were allocated to and among standard
and multiple deferred-interest balances. The companies allegedly failed to explain that PayPal
Credit’s practice was to apply amounts in excess of the minimum payment proportionally to
most, or all, promotional balances. These activities were considered abusive because consumers
were unable to control the allocation of their payments and incurred additional fees as a result,
notwithstanding the companies’ representations that consumers could control the allocation of
their payments.
The companies entered into a stipulated final judgment and order with the CFPB.21
PayPal was
ordered to pay $15 million in redress to its victims and the CFPB imposed a $10 million civil
money penalty.
20
Consumer Financial Protection Bureau v. PayPal, Inc., et al., Civ. No. 1:15-cv-01426-RDB , Dkt. No. 1 (D.
Md.). 21
Id. at Dkt. No. 8 (May 21, 2015); refiled to correct filing error at Dkt. No. 9 (August 3, 2015).
12
p. Security National Automotive Acceptance Company, LLC22
– June 2015 (Debt
Collection)
Security National Automotive Acceptance Company, LLC (SNAAC) is an auto-finance
company primarily serving members of the United States military. The CFPB filed a complaint
against the company alleging various unfair, deceptive and abusive acts and practices in
connection with its collection activities.
In its complaint, the CFPB alleged that that the following practices were unfair:
Threatening to:
o contact servicemembers’ commanders concerning debts and delinquencies, and
o notify commanders that the servicemember is in violation of various military
regulations and subject to potential action under the Uniform Code of Military
Justice (UCMJ);
Representing to a servicemember that he or she could suffer damage to his or her military
career for failing to pay a debt; and
Disclosing details of servicemembers’ debts to their commanders.
The CFPB alleged that it was deceptive to represent, directly or indirectly:
An intention to take legal action against a servicemember when the company had no such
intention;
That a servicemembers’ failure to pay a debt could result in action by the UCMJ and
potentially impact ones military career when such an outcome was extremely unlikely;
That the company could commence an involuntary allotment or wage garnishment for
repayment of a debt without first obtaining a judgment; and
That a servicemember’ s failure to pay a deficiency judgment could result in the
servicemember being held in contempt of court or the imposition of other penalties,
including the taxability of the debt.
Finally, the CFPB alleged that the company engaged in abusive acts or practices by taking
unreasonable advantage of servicemembers’ “inability to protect their interests in connection
with [1] their selection of SNAAC to finance vehicle purchases and [2] SNAAC’s collection of
debt arising from such financing.”23
Specifically, the CFPB alleged that the following acts
together resulted in abusive conduct:
At the time servicemembers obtained the loans, the servicemembers did not know that
upon default the company would threaten to or actually contact the servicemember’s
commander, nor could a servicemember have anticipated the nature and frequency of
threatened and actual contacts;
22
Consumer Financial Protection Bureau v. Security National Automotive Acceptance Company, LLC, Civ. No.
1:15-cv-00401-WOB, Dkt. No. 1 (D. Md. Feb. 11, 2015, 2015). 23
Id.
13
Servicemembers were not aware of contractual language in the loan agreement
purporting to authorize that contact and, in any case, would not have been in a position to
negotiate the agreement;
The company continued to contact the commanders of servicemembers even after
servicemembers had requested that such contact stop; and
The company exaggerated claims concerning the potential impact of delinquent debt on a
servicemember’s military career, threats to inform commanders about such debts, and
claims of potential action under the UCMJ that resulted in additional pressures on
servicemembers (that civilian borrowers would not face) in the context of debt collection
activities.
This action was not resolved at the time of publication.
IV. Updates on past cases
a. Union Workers Credit Services, Inc. – Settlement – February 2015
24
The CFPB filed a complaint against Union Workers Credit Services, Inc. in December 2014
alleging that the company falsely advertised its cards as general use credit cards, when, in fact,
the cards could only be used to access closed-end, purchase-specific credit from the company. In
February 2015, the company entered into a settlement agreement with the CFPB whereby it
agreed to cease engaging in any activities relating to providing credit or to receive any
consideration in connection with the provision of credit and to pay a civil money penalty of
$70,000.
b. ITT Educational Services – Order on Motion to Dismiss – March 201525
The CFPB filed a civil complaint against ITT Educational Services, Inc.26
in 2014 alleging unfair
and abusive acts and practices in connection with its offering and provision of private student
loans. In April 2014, ITT filed a motion to dismiss based on several theories, which, in March
2015, was denied in part (with respect to the counts involving alleged “unfair” and “abusive”
acts or practices) and granted in part (with respect to the dismissal of the CFPB’s claim of a
violation of the TILA and Regulation Z). The court’s ruling on the motion to dismiss - while not
ultimately dispositive at this stage as to whether the alleged acts and practices are indeed
“abusive” - provides several interesting insights into how courts are dealing with claims of
abusive acts or practices in the context of pleading such claims.
First, ITT challenged the Consumer Financial Protection Act’s (CFPA) prohibition on “abusive”
acts or practices as being “unconstitutionally vague” alleging that the statutory language fails to
give fair notice of the standard required and therefore violates the Due Process clause of the Fifth
Amendment of the U.S. Constitution. The court denied this challenge, holding that:
24
Consumer Financial Protection Bureau v. Union Workers Credit Services Inc, Civ. No. 3:14-cv-04410-L, Dkt.
No. 11 (D. N. Tex. Feb. 10, 2015). 25
Order on Defendant’s Motion to Dismiss, Consumer Financial Protection Bureau v. ITT Educational Services,
Inc., Case No. 1:14-cv-00292-SEB-TAB (S.D. Ind., March 6, 2015) (“Order”). 26
Consumer Financial Protection Bureau v. ITT Educational Services, Inc., Case No. 1:14-cv-00292 Dkt. No. 1
(S.D. Ind., February 26, 2014).
14
The CFPA itself provides significant guidance for defining “abusive” conduct (see 12
U.S.C. § 5531(d)); and
Agencies and courts have successfully interpreted and applied the term in other closely
related matters.
Similar challenges based on claims of vagueness also have been denied.27
Second, ITT challenged the CFPB’s claims that ITT took unreasonable advantage of (i) “the
inability of consumers to protect their own interests” and (ii) “the reasonable reliance by
consumers on ITT to act in the consumers’ interests.” The court ruled against ITT’s motion to
dismiss on both counts, noting the following pertinent points:
Unreasonable advantage – ITT alleged as a threshold matter that the CFPB did not state
a claim that ITT took “unreasonable advantage” of its students. The court disagreed,
construing the meaning of the statute according to its plain language, referencing the
ordinary meaning of “to take advantage of” as “to make use of for one’s own benefit,” to
“use to advantage,” or to profit by.”28
Based on that definition, the court held that the
CFPB’s claims that ITT received a benefit by removing “doubtful assets” from its
balance sheet by having students sign up for private loans in connection with the CFPB’s
allegations about the “unfair nature of the students’ predicament” were sufficient to plead
that ITT derived an “unreasonable advantage” from its conduct.29
Consumers’ inability to protect their interests – ITT argued that the CFPB failed to assert
facts sufficient to support a claim that “students had an inability to protect their interests.”
In denying this argument the court noted that “[r]egardless of who caused the students’
vulnerability, the [CFPB’s] burden here is to show that they were, in fact, unable to
protect their own interests.”30
The court held that ITT’s argument was based on a too
“formalistic reading of the statutory requirement” and that while “students [may have]
never lost the theoretical power to defend their interests” (e.g., a student could
theoretically walk away from ITT and refuse to take out new debt), that a more
reasonable reading of the relevant statutory language “is that it refers to oppressive
circumstances—when a consumer is unable to protect herself not in absolute terms, but
relative to the excessively stronger position of the defendant.”31
Consumers’ reasonable reliance on ITT – Referring to general concepts of tort law, the
court held that “reasonable reliance” is a question of fact that is not generally appropriate
for resolution on a motion to dismiss.32
The court noted that the CFPB “alleged both that
ITT students relied upon staff members’ representations as to the private loans, and that
27
See, e.g., Illinois v. Alta Colleges, Inc., No. 14-C-3786, 2014 WL 4377579 at *3–4 (Sept. 4, 2014) (rejecting
defendant’s claim that UDAAP standard is unconstitutionally vague). 28
Id. at 57 (quoting Webster’s Third New Int’l Dictionary 2331 (3d ed. 1993). 29
Id. at 57. 30
Id. at 59. 31
Id. at 59 (citing Ting v. AT&T, 319 F.3d 1126, 1148–1149 (9th Cir. 2003) (noting that, under the doctrine of
procedural unconscionability, a literal, physical lack of consumer choice is not necessary to show oppressiveness);
Carey Alexander, Abusive: Dodd-Frank Section 1031 and the Continuing Struggle to Protect Consumers, 85 St.
John’s L. Rev. 1105, 1114–1119 (2011) (discussing the legislative history of the “abusive” standard as consistent
with the understanding that it is a statutory codification of the common-law doctrine of unconscionability)). 32
Id. at 60.
15
students acted in reasonable reliance on the school’s misrepresentations as to the nature
and role of the financial aid staff.”33
The court held that these allegations by the CFPB
were sufficient to plead a claim that ITT took unreasonable advantage of “the reasonable
reliance by the consumer on a covered person to act in the interests of the consumer.”34
c. Sprint Corporation – Settlement – May 201535
The CFPB filed a complaint against the Sprint Corporation in December 2014, in conjunction
with the Federal Communications Commission (FCC) and 50 state attorneys general, alleging
that the company outsourced certain compliance and billing practices to a third-party billing
aggregator that allowed fees for premium text messaging services to be unfairly placed on
customers’ wireless telephone service bills. In May 2015, Sprint entered into settlement
agreement with the CFPB under which it was ordered to pay $50 million in consumer redress (in
addition to fines paid to the FCC and states, and to reform its third-party billing practices.
V. Joint Enforcement Actions
The following enforcement actions summarized above were filed by the CFPB in conjunction
with other government actors:
a. S/W Tax Loans – A joint action with the Navajo Nation.
b. Green Tree Servicing – A joint action with the Federal Trade Commission.
c. Verizon Wireless – An action conducted in coordination with 50 state Attorneys
General and the Federal Communications Commission.
VI. CFPB Supervisory Highlights
The CFPB periodically issues Supervisory Highlights reports that summarize its supervisory
activity over a period of time. Its latest reports identified UDAAPs that were resolved through
supervisory actions that did not always result in a public enforcement action.
a. Winter 201536
The CFPB identified the following UDAAPs:
A risk of deception was created by statements that a recurring ACH payment option
could be adjusted or canceled with 24 hour’ notice, when later monthly periodic
statements provided that a minimum 72 hours’ notice was required.
33
Id. at 60-61. 34
Id. at 60 (citing 12 U.S.C. § 5531(d)(2)(C). 35
Consumer Financial Protection Bureau v. Sprint Corporation, Civ. No. 1:14-cv-09931-WHP, Dkt. No. 25 (D. S.
N.Y. June 30, 2015). 36
See Supervisory Highlights, Consumer Financial Protection Bureau (Winter 2015), available at
http://files.consumerfinance.gov/f/201503_cfpb_supervisory-highlights-winter-2015.pdf (last visited August 28,
2015).
16
Deception may occur if, without notifying customers, deposit account management is
switched from a ledger-balance method to an available-balance method for purposes of
deciding: (1) whether to authorize signature-based debit transactions and other electronic
transactions; and (2) whether to post or return checks and ACH transactions, when such
change could result in an overdraft (and the imposition of related fees).
Unfairness may occur when a series of transactions pushes an account into overdraft
status and fees are charged for each subsequent overdraft.
Deception occurred in connection with the disclosure of overdraft processing logic for
electronic transactions. Specifically, the disclosures created a misrepresentation that the
institution would not charge an overdraft fee with respect to an electronic transaction if
authorization of the transaction did not push the customer’s available balance into
overdraft status. However, the institutions assessed overdraft fees for electronic
transactions in a manner inconsistent with the overall net impression created by the
disclosures. The disclosures were also deemed unfair because customers were injured or
likely to be injured by the overdraft fees.
b. Summer 201537
The CFPB identified the following UDAAPs:
Student loan servicers engaged in deception by inaccurately suggesting on statements that
borrowers could not deduct student loan interest unless they paid more than $600 in
interest when no such limitation exists.
Home equity loan agreements with “general waiver provisions” were considered
deceptive because they implied that the borrower agreed to a waiver that was actually
unenforceable with respect to claims based on federal law.
Mortgage servicers were found to have:
o Engaged in unfair practices by failing to acknowledge loss mitigation applications
where the failure “caused delays in converting trial modifications to permanent
modifications, resulting in harm to borrowers…;”
o Deceptively described how deferred interest under a mortgage repayment plan
would be repaid, “suggesting that deferred interest would be repayable at the end
of the loan term when, in fact, it would be collected from the consumer
immediately after the deferment ended;”
o Engaged in unfair practices by not honoring the terms of trial modifications and
causing injury in the form of accrued interest;
o Unfairly and deceptively sent foreclosure notices to consumers that were
approved for trial modifications but before the first payment was due, which
discouraged consumers from carrying out the modification; and
o Deceptively sent foreclosure notices to borrowers that were current on their loans.
37
See Supervisory Highlights, Consumer Financial Protection Bureau (Summer 2015), available at
http://files.consumerfinance.gov/f/201506_cfpb_supervisory-highlights.pdf (last visited September 15, 2015).
17
About the Authors
Adam Maarec
Davis Wright Tremaine LLP
Washington, District of Columbia
[email protected] | 202-973-4217
Adam Maarec concentrates his practice on
consumer financial services, primarily advising
financial institutions on regulatory compliance
matters regarding credit product structures,
marketing, and servicing. Adam has experience
with a broad range of financial services laws,
including the Dodd-Frank Act, the Truth in
Lending Act, the CARD Act, the Gramm-
Leach-Bliley Act, the Fair Credit Reporting
Act, and the Real Estate Settlement Procedures
Act, as well as state-based lending and
insurance regulations.
Adam’s regulatory practice involves helping
companies comply with various laws and
regulations, drafting rulemaking comment
letters, meeting with government agencies, and
responding to regulatory investigations. Adam
is active in the American Bar Association’s
Consumer Financial Services Committee.
John Morton
Gordon Feinblatt LLC
Baltimore, Maryland
[email protected] | 410-576-4176
John Morton is a Member of Gordon
Feinblatt’s Financial Services Practice Group.
He provides legal advice to an extensive range
of financial institutions, including: nationwide,
regional and community banks; credit unions;
consumer lending companies; sales finance
companies; mortgage lenders and brokers;
investment advisers; and other regulated
businesses.
John provides counsel regarding multi-
jurisdictional compliance issues, including
advising clients on federal and state credit
statutes and regulations; UDAAP and the
CFPB; interaction with state and federal
regulators; licensing and registration matters;
due diligence and transactional matters; and
general corporate governance issues.