On February 3, 2021, the California Department of Financial Protection and Innovation (DFPI) ad that it began its first formal enforcement action and launched a separate investigation into student debt relief companies. Goodwin previously gave a preview of three California news consumer credit laws which came into effect in January 2021, including the California Consumer Financial Protection Act (CCFPL), which expanded the powers of the California Department of Business Supervision and renamed the Department of Business Supervision to DFPI, and the Student Loan Borrowers Bill of Rights, which has given DFPI greater authority to regulate student loan services.
The DFPI investigation will examine whether student loan debt relief companies operating in California engage in illegal behavior under the CCFPL and the Student Loan Servicing Act (SLSA). As part of the investigation, the DFPI issued subpoenas requesting emails and documents relating to the services provided by four student debt relief companies. The DFPI is investigating whether these companies are engaged or have engaged in illegal, unfair, deceptive or abusive acts or practices in relation to financial products or services intended for consumers. The investigation will also examine whether the business activities of the companies concerned require a license. In the DFPI press release, Commissioner Manuel P. Alvarez reportedly said that the investigation “is one of the many measures taken by the DFPI to fulfill its mandate under the new law. [CCFPL] to protect our state’s most vulnerable populations, including current and former low to moderate income students.
In formal action against one of the student debt relief companies under investigation, DFPI says the company has convinced California residents to pay tens of thousands of dollars to “write off” their loans students by making them dismiss or acquit. In his citation with order of discontinuance and abstention and assessment of the administrative penalty (the Quote), the DFPI found that the company had misled customers about the services it was providing and about the effect those services would have on customers’ credit.
The Citation also found that because the student loan debt relief company interacted with student loan borrowers with the apparent aim of helping them avoid defaulting on their loans, it was obligated to ” Obtain a license from DFPI under the SLSA before engaging with such consumers. The quote indicates that the company violated the SLSA, Fin. Code Section 28102 (a), by not obtaining this license. The DFPI further found that the company: (1) violated the Federal Telemarketing Selling (TSR) rule by requesting and receiving advances from its customers for debt relief services; and (2) violated the CCFPL by engaging in illegal and deceptive acts and practices, through alleged violations of the SLSA and TSR, and by making deceptive promises regarding its debt relief services.
The DFPI ordered the student loan debt relief company to repay eighteen California clients by March 15, 2021. The company must also pay the DFPI commissioner a penalty of $ 45,000 by March 15, 2021. April 12, 2021.
DFPI’s recent enforcement activity, coupled with its recent decision to execute memoranda of understanding with paid access FinTech companies, demonstrates DFPI’s commitment to exercising its broad power over issues affecting California consumers.