On March 18, 2016, the Consumer Financial Protection Bureau (CFPB) announced that a federal district court entered final judgment against a debt relief company over allegations the company charged illegal upfront fees and engaged in other deceptive business tactics. The CFPB filed suit against the company in 2013, alleging violations of the Telemarketing Sales Rule and the Dodd-Frank Consumer Protection Act. The Telemarketing Sales Rule prohibits companies from charging upfront fees for debt relief services – companies may only charge fees for debt relief services after the debt is settled, reduced, or the terms of the loan are otherwise altered. According to the CFPB, the company required consumers seeking debt relief to sign two contracts, one for debt relief services and the other for bankruptcy-related services. The company allegedly required consumers to sign the bankruptcy contract to disguise upfront fees for debt relief services. The CFPB alleged that the company performed little to no bankruptcy services for most consumers who signed the contracts, despite charging fees for such services. As the case progressed, the CFPB brought additional allegations that the company falsified numerous bankruptcy court documents, in an attempt to provide evidence that it performed the subject bankruptcy services. The CFPB requested a default judgment as a sanction for the alleged litigation misconduct, which the Court granted in 2015. As part of the default judgment, the Court issued a permanent injunction prohibiting the company from charging upfront fees for debt relief services. The Company declared bankruptcy shortly after the 2015 ruling.
After a variety of contempt proceedings related to alleged violations of the permanent injunction, the Court entered final judgment on March 16, 2016. Under the Court’s order, the company must pay $132,882,488 in restitution to affected consumers, a $40 million civil penalty, and stop charging upfront fees for debt relief services. Because the company has declared bankruptcy, the monetary payments will be administered through the bankruptcy court.