CFPB and FTC Each Issue Fines/Penalties Against Debt Settlement Companies

The CFPB and FTC continue to make clear that their number one mission is protecting consumers, including from entities that claim to offer consumers assistance. On May 17, 2021, both CFPB and FTC issued press releases announcing they are seeking fines and penalties against debt settlement companies for unlawfully charging fees to consumers.

The CFPB’s action against DMB Financial

The CFPB's May 17, 2021 press release announced that the CFPB requested a federal district court grant a final judgment and order, the terms of which have been agreed to by DMB Financial, LLC  (DMB). DMB is a Massachusetts-based debt settlement company that offers and provides services to settle or renegotiate unsecured debt on behalf of consumers in 24 states.

In December 2020, the CFPB filed a complaint against DMB in federal district court in Massachusetts, alleging that the company had charged unlawful upfront frees before it performed its promised services and before consumers began making payments under any debt settlement. The bureau further alleged that before enrolling consumers in its programs, DMB failed to disclose to consumers when it would make a settlement offer to creditors or debt collectors, and failed to disclose the amount of money or the percentage of each outstanding debt the consumer had to accumulate before DMB would make a settlement offer. If entered by the court, the judgment would require DMB to pay consumers at least $5.4 million and a civil penalty.

Here’s what Acting Director Uejio said about the action:

“DMB Financial preyed on consumers who were struggling financially, charging millions of dollars in illegal upfront fees and hiding the true cost of its services…Charging upfront fees for debt settlement is a violation of federal law, and the CFPB will continue to act decisively when we see companies taking advantage of consumers in this way.”

The FTC’s action against Student Advocates Team

Also on May 17, 2021, the FTC issued a press release announcing that it reached a settlement agreement with a debt relief company, Student Advocates Team (SAT), and other defendants (the complete list can be found in the press release). In its 2019 complaint, the FTC alleged that SAT and other defendants charged illegal upfront fees and led consumers to believe these fees went towards consumers’ student loans. Further, per the FTC, SAT falsely promised that their services would permanently lower or even eliminate consumers’ loan payments or balances, and signed customers up for high-interest loans to pay the fees without making required disclosures.

The settlement agreement bans SAT and the settling defendants from providing debt relief services, prohibits them from violating the Telemarketing Sales Rule, and includes a monetary judgment against certain defendants of more than $24.5 million, which is partially suspended due to an inability to pay. In addition, the defendants will be required to pay $11,500, which will be used for consumer redress, and are prohibited from collecting any further payments from the consumers who purchased their debt relief services.

insideARM Perspective:

The CFPB and FTC seem to be sticking to their objectives to protect consumers, regardless of the source of the harm. Accounts receivable entities have known for a long time that not every entity which claims to help consumers actually does so, and are often able to identify bad actors in the debt settlement/debt relief space before any regulatory body becomes aware of the issue. Perhaps we could all help protect consumers a bit better if the lines of communication were a bit more open and there were ways for debt collectors to report these bad actors when they discover them in their day-to-day business.