CFPB shuts down Florida debt-relief company using enforcement powers

Last week, the Consumer Financial Protection Bureau (“CFPB”) announced it had filed a Complaint against a Florida debt-relief company that misled consumers across the country and charged illegal fees for their services. The CFPB investigated American Debt Settlement Solutions, Inc. (“ADSS”) and its owner, and found that that ADSS routinely charged illegal upfront fees for services that rarely, if ever, materialized. The CFPB investigation found that ADSS charged approximately $500,000 in fees to hundreds of consumers in many states. The Complaint alleges that ADSS charged many customers fees that used their last bit of savings and provided no relief.

The CFPB also announced it plans to submit proposed consent order that, if approved by the court, would halt the operation of ADSS, prevent it from providing debt-relief services in the future, and impose a $15,000 civil penalty fine. The consent order also would enter judgment against ADSS in the amount of $500,000 (the amount of fees charged to consumers) that would be suspended based on the company’s inability to pay.

Importantly, this action provides some insight into the “abusive” acts or practices standard that Dodd-Frank enacted. Previously, institutions had to deal with unfair or deceptive practices under state statutes, but the additional “abusive” standard is new under Dodd-Frank. The CFPB press release explains the abusive standard as occurring where “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.”

Although the conduct in which ADSS engaged is an extreme example, it is important for institutions to ensure that their consumer products do not run afoul of the “abusive” definition provided by the CFPB in this action. If a practice interferes with his or her ability to understand a term or condition through improperly drafted disclosures or procedures, an institution may risk conduct that could be deemed “abusive.”

Contact Spilman or regulatory counsel for a review of your institution’s practices and acts that could potentially violate this standard.

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by R. Scott Adams

R. Scott Adams

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