CFPB Goes After Advance Fee Debt Settlement Company in Nationwide Coordinated Enforcement

The Consumer Financial Protection Bureau has recently announced they have taken action against Payday Loan Debt Solution, Inc. (PLDS) and Sanjeet Parvani who routinely charged consumers upfront fees prior to settling the consumers’ debts.

The CFPBs position was that the practice of charging consumers advance fees for debt settlement violates the Federal Trade Commission’s Telemarketing Sales Rule, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and various state laws.

This is the first time I can remember the Dodd-Frank Wall Street Reform and Consumer Protection Act used as an enforcement tool against a debt settlement company.

A federal district court in Miami entered an order requiring the nationwide debt-relief services company to refund up to $100,000 to consumers who were unlawfully charged advance fees for debt-settlement services. State Attorneys General of New Mexico, North Carolina, North Dakota, and Wisconsin and the State of Hawaii Office of Consumer Protection all joined the Bureau’s lawsuit, making this the Bureau’s first joint-enforcement action with the states.

Refunds will be paid to consumers who were charged advance fees, but who received no debt-settlement services from PLDS by the time their accounts were closed. Additionally the order requires PLDS to pay a $5,000 penalty to the CFPB Civil Penalty Fund and prohibits PLDS from engaging in unlawful conduct in the future.

According to the suit filed by the CFPB and states, PLDS was incorporated in 2009. Since then, it has sold or offered to sell debt-relief services to consumers. PLDS exclusively settles payday-loan debt. In exchange for a fee, PLDS promises to renegotiate, settle, reduce, or otherwise alter the terms of at least one debt between a consumer and one or more unsecured creditors or debt collectors in accordance with a settlement agreement or other contractual agreement executed by the consumer. PLDS operates its business in North Dakota and Wisconsin without a license for debt adjusting.

PLDS markets its debt-relief services via the Internet at pdlds.com. PLDS receives telephone calls from consumers in response to its Internet marketing efforts.

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Since its inception through approximately May 15, 2012, PLDS’s practice had been to request or receive enrollment fees, processing fees, debt-relief service fees, or other types of fees in advance of settling at least one of a consumer’s payday-loan debts.

PLDS entered into a contract with a payment processor to receive services for the management, processing, and administration of payments. Under this contract, the payment processor manages the savings account (“dedicated account”) of each and every consumer who contracted for debt-relief services from PLDS. Since its inception, PLDS required and relied on assistance from the payment processor to collect and disburse monies through the consumer’s dedicated accounts.

When consumers enroll in PLDS’s program, PLDS directs them to stop paying their creditors and, instead, to start making payments into the dedicated account managed by the payment processor. PLDS also directs consumers who signs up for its debt-relief services to sign up for the dedicated account with the payment processor.

PLDS represents to consumers that, if and when a consumer’s dedicated account reaches a sufficient balance, PLDS would instruct the payment processor to transmit funds to a consumer’s creditors to help satisfy the consumer’s debts.

PLDS directed the payment processor to disburse payment amounts to and from a consumer’s dedicated account.

Consistent with PLDS’s direction, the payment processor: (1) withdrew funds from a consumer’s bank account through ACH transfer and deposited them into the dedicated account, and (2) transmitted funds from the dedicated account to itself and to PLDS to cover processing and servicing fees, including the fee PLDS charges to consumers for its debt-relief services. The transactions managed by the payment processor reflected when funds were routinely transferred out of a consumer’s account to pay PLDS’s debt-relief fees before payments went to any creditors. PLDS and the payment processor also directly communicated about PLDS’s fee structure.

Since PLDS’s inception, consumers deposited more than $1.6 million into their dedicated accounts and directed the payment processor to make payments totaling $288,393.62 to creditors in settlement of their debts. Several of PLDS’s consumers were charged fees, but closed their dedicated accounts before their paydayloan creditors received any payments in settlement of the consumers’ debts. With respect to dedicated accounts that were established on or after October 27, 2010, the effective date of the TSR, and that were closed before creditors received payments for settlements achieved through PLDS’s debt-relief program, PLDS collected fees totaling more than $87,243.96.

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You can read the full complaint here.


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