CFPB Takes Its First Aim at Abusive Practices Under Dodd-Frank

Yesterday, the CFPB took the first step in enforcing the “abusive” standard under the Dodd-Frank Act’s prohibition of unfair, deceptive and abusive acts and practices (“UDAAP”) by filing a federal action against a Florida debt-relief company. The CFPB’s action brings with it long-awaited guidance for the entire consumer financial services industry on one of the most-feared words in all of the Dodd-Frank Act — “abusive.”

The CFPB filed its lawsuit in West Palm Beach, Florida against American Debt Settlement Solutions, Inc. (“ADSS”) and its owner alleging, among other things, that ADSS committed deceptive and abusive acts in violation of the Federal Trade Commission’s (“FTC”) Telemarketing Sales Rule (“TSR”) and the Dodd-Frank Act by “routinely charg[ing] consumers illegal upfront fees for debt-relief services that rarely, if ever, materialized.” According to the CFPB, ADSS made misrepresentations to vulnerable consumers who were “deeply in debt and in dire circumstances” which caused the consumers to fall even further into debt.

Specifically, the CFPB alleges that ADSS misled consumers by falsely promising them it would settle their debt quickly and then fail to do anything, and by enrolling consumers, charging them upfront enrollment fees and monthly charges, all the while knowing the consumers would be unable to complete the debt relief program because of their income levels.   

This first “abusive” enforcement action by the CFPB finally brings some much anticipated – albeit modest – insight into how the CFPB intends to apply the “abusive” standard. As a caution, although the first “abusive” action involves a debt collector, the CFPB is unlikely to confine application of the “abusive” standard to the debt-collection industry. Rather, the entire industry should take heed and follow the action closely as it plays out.  One great way to keep informed is to join the UDAAP Council, the preeminent consumer financial services industry trade organization focused solely on the prevention of UDAAP.