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CFPB Brings First Enforcement Action for ‘Abusive’ Acts or Practices

9 Jul, 2013 By: Linda A. Goldstein

Though the Federal Trade Commission (FTC) has historically been the primary agency targeting deceptive marketing practices in the debt relief space and has brought numerous enforcement actions against companies and their principals who have allegedly engaged in false and deceptive marketing of debt relief and debt consolidation programs, the Consumer Financial Protection Bureau (CFPB) is flexing its muscles with continued aggressive enforcement actions.

The CFPB has brought an enforcement action against American Debt Settlement Solutions Inc. (ADSS), a debt relief provider, and its individual owner and manager for alleged violation of the both the Dodd Frank Act and the Telemarketing Sales Rule (TSR). The case is significant because it is the first case that the CFPB has brought under its authority to prosecute “abusive” acts or practices.

Like the FTC, the CFPB has the authority to bring enforcement actions for unfair and deceptive acts or practices. The Dodd-Frank Act, however, expanded the CFPB’s authority even further by also vesting them with the authority to bring actions against acts or practices that the agency deems to be “abusive.” Since there is no existing precedent on what constitutes an “abusive” act or practice, industry has been cautiously waiting to see just how broadly the CFPB would interpret this prong of its enforcement authority.

In its complaint, the CFPB alleges that ADSS engaged in “abusive acts or practices” because it knowingly enrolled and collected draconian enrollment fees from consumers “whose financial conditions made it unlikely that they would be able to complete the program.” The CFPB claims that ADSS was aware of its customers’ precarious financial conditions because it required them to complete detailed worksheets disclosing their monthly income, expenses and debts.

In this particular case, the CFPB also determined that the advertising and marketing materials were misleading and deceptive. However, it appears from the practices that the CFPB determined were “abusive” that the CFPB may use its authority to challenge marketing plans or programs that it believes are unfairly taking advantage of vulnerable consumers or are inherently unfair even if there are no accompanying misrepresentations. Clearly this places an enormous amount of prosecutorial discretion in the hands of the agency.

The power and force of the CFPB became even more evident this past week when it announced a $ 6.5 million settlement against a major bank and its service provider for deceptive marketing of auto loans and other add-on services to active military members. This case is significant because of the magnitude of the settlement and the naming of the service provider.

The CFPB alleged that the bank failed to adequately disclose the financial terms of the loans in violation of Regulation Z and also failed to adequately disclose the terms and conditions of other add-on products, such as insurance and service warranties. This is the latest in a series of cases that the CFPB has brought against banks that have allowed the marketing of add-on products and services to their customer bases. The CFPB faulted the bank for not adequately monitoring the marketing materials prepared by its vendor, and the service provider was held jointly and severally liable as well.

These cases present yet another warning to marketers of financial products and services and to any vendors that are providing underlying services to the marketers of such products. The CFPB’s views regarding what constitutes an unfair and deceptive marketing practice is, in many respects, even more rigorous than the FTC’s – and with the exercise of its authority to prosecute “abusive” practices, the CFPB will undoubtedly remain an even greater force to reckon with in the future.

Linda Goldstein is chair of the Advertising, Marketing and Media division of Manatt, Phelps & Phillips LLP, based in the firm’s New York office. She can be reached at

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