Consumer Financial Protection Bureau and Department of Justice Collaborate in Actions Against Debt Settlement Company
In a first-of-its-kind collaboration, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Justice have taken coordinated action against a debt settlement company by filing both a criminal indictment and a civil complaint on the same day.
On May 7, 2013, the U.S. Attorney’s Office for the Southern District of New York filed fraud charges against Mission Settlement Agency (Mission), its owner, and three of its employees, alleging that the defendants deceived more than 1,200 consumers by lying about a purported relationship with the federal government and about the amount of fees to be collected for Mission’s services, charging over $6.6 million in fees from customers, and failing to deliver on the promised debt settlement services. That same day, the CFPB made identical allegations in a civil complaint filed in the U.S. District Court for the Southern District of New York against Mission, its owner, and another debt settlement company, Premier Consulting Group LLC (Premier).
The CFPB, which Congress created as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, does not have criminal enforcement authority. Title X of Dodd-Frank, which is titled the “Consumer Financial Protection Act of 2010,” specified that the CFPB, which exists as part of the Federal Reserve System, would be charged with the broad task of regulating “the offering and provision of consumer financial products under the Federal consumer financial laws.” 12 U.S.C. § 5491. Its statutory purpose is to “seek to implement and, where applicable, enforce Federal consumer financial law consistently for the purpose of ensuring that all consumers have access to markets for consumer financial products and services and that markets for consumer financial products are fair, transparent, and competitive.” 12 U.S.C. § 5511(a). Accordingly, Congress granted the CFPB authority to enforce 18 existing federal statues related to consumer financial products.
The CFPB began its investigation of Mission and Premier in July 2012, and when it discovered possible criminal violations, it referred evidence to the Department of Justice. In a joint press conference announcing the charges, CFPB Director Richard Cordray and U.S. Attorney for the Southern District of New York Preet Bharara both indicated that the agencies will continue to work together on future investigations involving consumer financial products. “Today’s case is a harbinger of an especially potent partnership between this office and the CFPB that will benefit hardworking Americans everywhere,” Bharara said in prepared remarks.
In its civil complaint, the CFPB alleged that the defendants violated the Consumer Financial Protection Act and the Telemarketing and Consumer Fraud and Abuse Prevention Act. According to the complaint, despite telling customers that it would settle their debts for approximately 55 percent of their outstanding credit card balances, Mission instead “often (i) concealed the fact that creditors will not be paid by the time that consumers expect, or might not be paid at all; (ii) charged exorbitant debt-relief services fees often without settling any debts; and (iii) left consumers in worse financial positions than before they enrolled in Mission’s program.” The CFPB alleged that a number of Mission’s customers received little or no debt relief while suffering net losses between $1,300 and $3,000 per person.
Although the CFPB has become increasingly active over recent months, Cordray’s authority as director remains in limbo. President Obama installed Cordray via a recess appointment on January 4, 2012, but that appointment has been challenged in court on the basis that the Senate was not in recess at the time. Instead, the Senate had been holding pro forma sessions in order to prevent any recess appointments. That litigation remains pending. In a similar case, however, the D.C. Circuit ruled that three members of the National Labor Relations Board (NLRB) were not validly appointed under the Recess Appointments Clause of the Constitution, because the Senate was not in recess when President Obama appointed them, and therefore the NLRB lacked a quorum and the authority to make rulings. Canning v. N.L.R.B., 705 F.3d 490 (D.C. Cir. 2013). The Obama administration has filed a petition for a writ of certiorari with the Supreme Court, seeking to have the decision reversed.
On January 24, 2013, President Obama re-nominated Cordray for a full term as director, but 43 Republican senators sent a letter to the president in February stating that they would not take any action on the Cordray nomination until certain structural changes were made to the CFPB. These proposed changes include establishing a bipartisan board of directors to oversee the bureau and subjecting the bureau to the congressional appropriations process. On April 23, Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, issued a statement in which he said that, in light of theCanning decision, the committee will not accept testimony from Cordray unless and until a court rules that his appointment is valid.
Should the Cordray recess appointment eventually be found to be illegitimate, any action undertaken during his tenur could potentially be challenged.