Last week, the CFPB filed a lawsuit in a California federal district court against Performance SLC LLC, Performance Settlement, and Daniel Crenshaw, the owner and CEO of the two companies.  Performance SLC is a debt-settlement company focused on federal student loan debt, and Performance Settlement is also a debt-settlement company.

The complaint alleges that Performance SLC and Crenshaw violated the Telemarketing Sales Rule (TSR) by charging illegal advance fees to student loan borrowers seeking to obtain loan consolidation, loan forgiveness, or income-driven repayment plans for their federal student loans.  Under the TSR, it is illegal to request or receive any fees for debt-relief services sold through telemarketing before the terms of the debt are altered or settled, and the consumer has made at least one payment under the newly altered debt. See 16 C.F.R. § 310.4(a)(5)(i).

The Bureau alleges that Performance SLC violated the TSR by charging fees to consumers at or just after enrollment, before the terms of the debts were altered.  It alleges that Crenshaw directly violated the TSR through his role in setting up the arrangements for the trust accounts used by Performance SLC to receive advance fees and also violated the TSR by providing substantial assistance to Performance SLC’s TSR violations.

The complaint further alleges that Performance SLC violated the TSR by failing to make required disclosures.  Under the TSR, it is a violation for any seller or telemarketer in connection with the sale of any debt-relief service to fail to disclose, in a clear and conspicuous manner, before customers consent to pay for those services, that customers own the funds held in the accounts, that customers may withdraw from the debt-relief service at any time without penalty, and that, if customers withdraw, they must receive all funds in the accounts other than funds earned by the debt-relief service. See 16 C.F.R. § 310.3(a)(1)(viii)(D).  The Bureau alleges that Performance SLC violated the TSR because it did not clearly and conspicuously disclose the following: (1) customers owned the funds in their trust accounts; (2) if customers withdrew from its program, the customer must receive all funds in the account, less fees earned by Performance SLC; and (3) customers owned the funds in their trust accounts and that those who cancelled their service contract would receive all funds in their trust accounts.

The complaint also alleges that Performance Settlement and Crenshaw violated the Consumer Financial Protection Act (CFPA) by engaging in deceptive acts or practices.  According to the Bureau, Performance Settlement represented to consumers that Performance Settlement, a company that does not make loans, had considered and rejected those consumers for personal loans in order to induce them to sign up for Performance Settlement’s debt-settlement services.  It also alleges that Crenshaw directly engaged in deceptive practices through his role in the development and approval of marketing materials containing the deceptive statements and that he also substantially assisted Performance Settlement’s CFPA violations.

Based on the above-mentioned allegations, among others, the complaint seeks redress to consumers, injunctive relief, and the imposition of civil money penalties against Performance SLC, Performance Settlement, and Crenshaw.