By Katalina M. Bianco, J.D.
This week brought two new enforcement actions by the Consumer Financial Protection Bureau, both based on UDAAP violations. After four years in operation, the bureau has not offered a definitive ruling on what actions are in violation of UDAAP but has publicly stated that the key to getting a handle on the slippery definition lies in the CFPB's enforcement actions. Use them as teaching tools because that's what we intend, says the bureau. So here are a couple additional tools for the week. The bureau brought actions against a provider of health care services and a company that deals in pension advances.
Springstone Financial, LLC, a provider of consumer loan products for financing health-care services through partner banks, was ordered by the CFPB to compensate the victims of credit enrollment tactics found to be deceptive by the bureau. In its investigation of Springstone’s business practices, the bureau found that many consumers who signed up for Springstone’s deferred-interest loan product at dental offices to pay for dental work were led to believe that the product was interest free.
Specifically, the CFPB found that that providers who were trained and monitored by Springstone to market the deferred-interest loan product misled consumers about the terms and conditions of the product during the application process. In some cases, dental office staff told consumers that the deferred-interest product was a “no-interest” loan and failed to mention they would have to pay 22.98 percent interest on the loan if they did not pay it off in full by the end of the promotional period. More than 3,200 consumers may have been affected by these deceptive practices.
Redress. To ensure that harmed consumers are appropriately compensated, and that consumers will no longer be subject to these illegal practices, a consent order between the CFPB and Springstone requires Springstone to refund $700,000 to more than 3,200 consumers and establish a “Redress Plan” whereby Springstone will notify affected consumers and issue a credit or send a reimbursement check to those consumers with an open Springstone account. For those consumers with a closed or inactive account, Springstone will mail a reimbursement check;
In addition to compensating any consumers affected by its deceptive practices, the consent order also requires Springstone to, among other things: seek a “determination of non-objection” from the CFPB if it intends to market or sell any product substantially similar to the terms and conditions of its Deferred-Interest Loan Product, including retroactive interest, in the future; and submit a Compliance Plan designed to ensure that the sales and marketing of the deferred-interest product comply with applicable federal consumer financial laws and the terms of the consent order;
Adding insult to injury. Commenting on the consent order, CFPB Director Richard Cordray stated, “Deceiving patients in need of medical care into paying for services with risky credit adds insult to injury. The Bureau will not tolerate financial companies or their providers taking advantage of distressed patients and their loved ones with misleading sales pitches.”
One day later. The CFPB announces that the bureau and the New York Department of Financial Services brought suit against Pension Funding, LLC, and Pension Income, LLC for inducing pensioners to borrow against their future benefits through deceptive advertising and not fully disclosing the costs involved. The agencies are charging that the companies misrepresented loans as sales of future benefits and failed to disclose the resulting high interest rates and fees.
Transactions described. According to the agencies’ joint complaint, the two companies and three controlling individuals targeted pensions recipients, including military veterans, with advertisements claiming to offer pension buyouts, meaning that no interest would be paid. The companies would receive eight years of a consumer’s pension income in exchange for a single advance. However, when the various fees paid by borrowers were considered, the money advanced actually carried interest rates that averaged more than 28 percent, the complaint alleges.
The companies also told consumers that no life insurance was needed because the transactions were not loans, while in fact life insurance premiums were funded by the companies’ receipts and paid by the companies. This increased the fees paid by the borrowers.
Collections. While the companies purported not to be making loans, the contracts left consumers with the legal ability to redirect their ongoing pension payments to an account other than the account established by the companies. The companies “aggressively pursued” consumers who did so, and the contracts provided that in such a case all remaining payments would be immediately due.
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