On September 17, the California Department of Financial Protection and Innovation (DFPI) announced enforcement actions against three student loan debt relief companies. The companies were ordered to cease unlawful practices, including charging upfront fees prior to providing services. They were also required to cancel all outstanding contracts with California consumers, issue refunds, and collectively pay $260,000 in penalties.
The DFPI alleges that the companies violated the California Consumer Financial Protection Law (CCFPL) as well as the Telemarketing Sales Rule (TSR). The CCFPL authorizes the DFPI to act against “unlawful, unfair, deceptive, or abusive practices,” with violations potentially leading to rescission or reformation of contracts, money refunds, and civil penalties of up to $2,500 per violation. The TSR prohibits the collection of advance fees for debt relief services before any relief is provided to the consumer. Specifically, it is illegal for any telemarketer or seller to request or receive payment for debt-relief services until they have successfully renegotiated, settled, or altered at least one debt based on a valid agreement, and the consumer has made at least one payment under such agreement.
The DFPI identified several violations committed by the companies, including:
- Collecting payments from consumers without renegotiating or reducing any debts;
- Failing to deliver actual debt relief or loan forgiveness as promised;
- Falsely representing services as government-affiliated; and
- Failing to ensure that consumers made payments under valid debt relief agreements.
Putting It Into Practice: The DFPI’s enforcement actions align with ongoing efforts by federal regulators to police the debt relief industry. While the TSR has long been a key enforcement tool, the Impersonation Rule, effective since April, has also become a powerful tool for regulators, and was cited in the DFPI actions (see our previous discussions here and here). Debt relief providers should evaluate their business practices and adjust their compliance protocols accordingly to ensure they are not charging any advance fees or falsely claiming affiliations with government entities.