The CFPB recently filed suit in the Central District of California against Texas-based GST Factoring Inc. and two of its owners, along with Champion Marketing Solutions, LLC (“CMS”), its owner, and four separate attorneys.

In its complaint, the CFPB alleged that defendants violated the Telemarketing Sales Rule (TSR) prohibition on receiving advance fees for debt-relief services sold via telemarketing. According to the allegations, beginning in 2015 “lead generators,” working for GST and trained by CMS, engaged in telemarketing for the attorneys named as defendants. Despite assuring customers that they were engaging solely with an attorney, the complaint states that fees (some as large as 40% of a customer’s outstanding loan amount) were “charged right away by arrang[ed] monthly payments” and went directly to GST Factoring, which then distributed the fees among the defendants. The scheme purportedly resulted in defendants collecting prohibited fees from some 2,600 clients, totaling $11.8 million in a little less than five years.

Concurrently with the filing of the complaint, the CFPB filed proposed stipulated final judgements against four individuals named as defendants – three attorneys and one of GST Factoring’s owners. If entered the judgments will require those defendants to pay a total of approximately $81,600 in restitution to the impacted consumers as well as a $1 civil penalty to the CFPB Civil Penalty Fund. The settlement terms continue a trend of the CFPB agreeing to settlements in which the amount to be paid by the defendant is significantly less than the amount alleged to be wrongfully collected by the defendant. CFPB v. Tinemark Solutions Inc., et al. (Case No. 9:20-cv-81057) (S.D. Fla.) (petitioning the court to reduce a $3.8 million judgment to $22,000); CFPB v. Chou Team Realty LLC et al., (Case No. 8:20-cv-00043) (C.D. Cal.) (parties jointly seeking the court’s approval on reducing the previously entered $7 million settlement agreement to $25,000).

Assuming the court accepts these proposed settlements, the CFPB’s lawsuit would continue against the two entities, as well as the remaining GST Factoring owner, Rick Graff, the CMS owner, Scott Freda, and California-based attorney Amanda Johnson. The complaint seeks consumer redress, injunctive relief, and civil penalties.