The Consumer Financial Protection Bureau filed suit in federal court against two service providers for deceptively suggesting that they were affiliated with the federal government as well as falsely promising to eliminate consumers’ debts and improve their credit scores. The CFPB also alleges that the companies’ so-called “debt validation” programs violated the law by falsely promising to eliminate consumers’ debts and improve their credit scores in exchange for thousands of dollars in advance fees.
According to the CFPB, the companies, Federal Debt Assistance Association, LLC and Financial Document Assistance Administration, Inc., both operating as FDAA, violated the Dodd-Frank Act and the Telemarketing Sales Rule. The CFPB’s lawsuit seeks to end the deceptive practices, obtain redress for harmed consumers, and impose civil penalties. The bureau complaint can be found here.
“FDAA and its owners lied to financially vulnerable consumers to line their pockets with cash,” said CFPB Director Richard Cordray. “Today’s lawsuit seeks to stop these deceptive practices, impose civil money penalties, and return to cheated consumers the fees they paid to these companies.”
Specifically, the bureau alleges that FDAA deceived consumers by suggesting that they were affiliated with the federal government. They marketed themselves through direct mailers that were designed to look like an official government notice. The mailers stated that they were a “regulatory notification” with a case number and “entitlement amount.” The mailers and envelopes included a seal similar to the Great Seal of the United States.
Also, the bureau alleges that FDAA lied about what results could be achieved by their products. The companies falsely advertised that they would eliminate or reduce consumers’ principal balances by at least 60 percent, that creditors would be unable to collect the debts, and that the programs would increase consumers’ credit scores.
Further, the bureau charges that FDAA failed to make proper disclosures to consumers. FDAA often instructed consumers to stop making payments on the debts enrolled in their program. However, they failed to disclose that not making payments might result in the consumer being sued by creditors or debt collectors and might increase the amount of money the consumer owes due to the accrual of fees and interest.
Finally, the CFPB alleges that FDAA took illegal advance fees for debt-relief and credit-repair services. Federal law prohibits the collection of fees before a credit-repair or debt-relief company achieves certain results. However, FDAA charged and received payment of fees for debt-relief services before altering the terms of consumers’ debts.