April 17, 2015

CFPB Targets Misleading Advertisements and Communications in Multiple Enforcement Actions and Other Updates

6 min

CFPB and the Navajo Nation File Complaint against Operators of Alleged Tax Refund Scheme

On April 14, 2015, the Consumer Financial Protection Bureau (CFPB) and the Navajo Nation filed a civil complaint and a proposed consent order against companies and individuals who offered tax refund loans to clients using their tax preparation services. The complaint alleges that S/W Loans, Inc., J Thomas Development, and two principals offered consumers loans at high interest rates in anticipation of the tax refund that the client would receive, and that these products violate consumer financial laws. Specifically, the CFPB and the Navajo Nation have alleged the following violations:

  • Steering: The CFPB and the Navajo Nation allege that the companies and individuals did not disclose their financial interest in the products toward which they directed consumers. The complaint alleges that these practices constitute "abusive acts or practices" under the Consumer Financial Protection Act (CFPA).
  • Misrepresenting the loans' interest rates: The CFPB and the Navajo Nation allege that the defendants failed to disclose, and in some cases misrepresented, the interest rates that would apply to the tax refund loans. The complaint states that this failure violates the CFPA's prohibitions against unfair, deceptive, and abusive acts or practices as well as Regulation Z (implementing the Truth in Lending Act) requirements.
  • Failing to disclose that a consumer's tax refund was available: The CFPB and the Navajo Nation allege that the companies and individuals did not inform consumers when their refunds were available, and instead encouraged consumers to take out additional loans. The complaint alleges that these acts are unfair under the CFPA.

The proposed consent order would prohibit for five years the named individuals from offering financial products associated with tax refunds and from investing, financing, or working for any entity that offers tax refund products. The named company defendants would be permanently enjoined from these activities, and would be ordered to turn over all consumer- identifying documents in their possession. The companies would also be enjoined from using or benefitting from any consumer information in their possession. In addition to injunctive relief, the CFPB and the Navajo Nation are seeking $254,267 in restitution and $438,000 in civil penalties.

CFPB Consent Order Against Mortgage Lender Alleges Deceptive Advertising

On April 9, 2015, the CFPB issued a consent order against a mortgage lender, alleging CFPA violations. Specifically, the CFPB alleged that the lender used names, logos, seals, and other design elements relating to the U.S. Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) in "such a matter that the net impression of the advertisements was misleading...." The CFPB also alleged violations of lending disclosure requirements. The CFPB ordered the lender to pay a $250,000 civil penalty, in addition to standard injunctive relief.

The CFPB identified the following elements as falsely implying a connection to the VA or FHA:

  • Instructing consumers to call the "VA Interest Rate Reduction Department" or "FHA Streamline Department" at a number belonging to the lender;
  • Labeling mailed advertisements as "FHA Benefits" and including an image of the Statue of Liberty on the outside; and
  • Sending advertisements in a pressure-sealed mailer format with warnings citing the U.S. Code and threatening fines and imprisonment for tampering with the letter.

The CFPB also alleged that the lender's advertisements would have mislead a reasonable consumer regarding the variability of the advertised rates. Misrepresentation regarding "any term of a mortgage credit product" may violate Regulation N. Failing to adequately and correctly disclose details of interest rates may also violated the TILA and Regulation Z.

In the consent order, the CFPB alleged the following violations of Regulation Z:

  • Variability of the Advertised Rates: The CFPB alleged that the lender advertised mortgages for which the annual percentage rate could be increased after consummation, but did not disclose that fact clearly or conspicuously.
  • Advertised Interest Rates: The CFPB alleged that the lender did not disclose, or did not disclose clearly, the interest rates that could apply over the life of the loan. For example, the CFPB stated that for some advertisements "disclosure of how the adjustable interest rates would vary over time was located far from the advertised interest rate."
  • Advertised Payment Amounts: The CFPB alleged that the lender did not disclose, or did not disclose clearly, payment amounts that could apply over the life of the loan.
  • Taxes and Insurance Premiums: The CFPB alleged that the lender advertised an "Estimated New Monthly Payment," but that the estimate included only principal and interest, omitting any taxes or insurance that would apply.

CFPB Files Complaint Against Debt Collector for Alleged Misrepresentations Made in Dishonored Check Diversion Program

On March 30, 2015, the CFPB issued a complaint and proposed consent order against a debt collection company and its chief executive officer for allegedly misleading consumers and using deceptive threats of criminal prosecution and jail time in order to intimidate consumers into paying debts for bounced checks. The debt collection company engaged in these activities through "bad check diversion programs" and misrepresented to consumers that it was acting in conjunction with state and federal law enforcement. These programs allow merchants to file dishonored check reports directly with the company. The company screens the reports for violations of state law, and seeks to collect the amount of the dishonored check and administrative fee from eligible consumers. If a consumer does not pay, the company could forward the file for criminal prosecution.

In its civil complaint, the CFPB seeks an injunction, as well as monetary relief including disgorgement, restitution, civil penalties, and legal fees. Under the proposed consent order, the company would pay a civil penalty of $50,000, in addition to standard injunctive relief.

The alleged violations fall under the CFPA and Fair Debt Collection Practices Act (FDCPA). Specifically, the CFPB alleges that the company:

  • Misrepresented its affiliation with state or district attorneys;
  • Falsely represented that communications were from an attorney;
  • Misled or deceived consumers about the identity of the sender;
  • Misled or deceived consumers regarding the potential for criminal prosecution, arrest, or imprisonment;
  • Mislead or deceived consumers regarding financial education classes; and
  • Failed to disclose that the communications were an attempt to collect a debt.

CFPB Finalizes Rule Suspending Credit Card Agreement Submission Process Under the CARD Act

On April 14, 2015, the CFPB finalized a rule that temporarily suspends a requirement under the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act and TILA that each quarter certain credit card issuers send their agreements to the Bureau, which publishes them in a public database on its website. The CFPB is suspending this requirement for one year as it develops an automated electronic submission system. However, other requirements will not change, such as card issuers' obligations to post agreements on their own publicly available websites.

Credit card issuers will not be required to submit agreements that would otherwise have been due to the Bureau by the first business day on or after April 30, July 31, and October 31 of 2015, and January 31, 2016. The CFPB will collect and post agreements from "certain large card issuers' website" around September 2015. Credit card issuers must resume submitting credit card agreements on a quarterly basis to the Bureau starting on April 30, 2016.

The final rule became effective on April 17, 2015, through publication in the Federal Register.

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For more information, please contact Venable's CFPB Task Force.