The California Department of Financial Protection and Innovation (DFPI) announced last week that it has launched an investigation into whether student-loan debt-relief companies operating in California are engaging in illegal conduct under the California Consumer Financial Protection Law (CCFPL) and Student Loan Servicing Act (SLSA).
Since the CCFPL became effective on January 1, the DFPI has moved quickly to exercise its new jurisdiction and authority. The CCFPL gives the DFPI new rulemaking and enforcement authority over “covered persons” relating to unlawful, unfair, deceptive, or abusive acts and practices and defines the term “covered persons” expansively to include many entities that previously were not subject to DBO oversight or oversight by a primary regulator. After announcing on January 19 that is had launched an investigation into multiple debt collectors, the DFPI announced on January 27 that it had signed memorandums of understanding with five earned wage access companies. Those announcements were followed on February 4 by the DFPI’s issuance of an invitation for stakeholders to provide input on rulemaking to implement the CCFPL.
In the press release announcing its investigation of student loan debt relief companies, the DFPI indicated that it has issued subpoenas to four student-loan debt-relief companies, requesting emails and documents relating to their services. The DFPI indicated that it is investigating whether the companies engage in or have engaged in any unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services and looking into whether the companies’ business activity requires a license.
The press release also reported the DFPI’s filing of a formal action against Optima Advocates, Inc., a California-based student debt relief company. In its Citation with Order to Desist and Refrain and Assessment of Administrative Penalty (Citation), the DFPI found that Optima engaged in unlawful and deceptive acts and practices in violation of the CCFPL by misleading consumers about the services it was providing and what the effect of those services would have on their student loans. The DFPI also found that Optima (1) was engaged in “servicing” student loans without a license as required by the SSLA; and (2) violated the federal Telemarketing Sales Rule by requiring consumers to pay advance fees in the form of servicing fees paid at the time they signed an enrollment agreement.
Under the SSLA, “servicing” includes “[i]nteracting with a borrower related to that borrower’s student loan, with the goal of helping the borrower avoid default on his or her student loan.” In the press release, the DFPI cautions “[o]ther debt-relief companies operating in a similar manner as intermediaries between student-loan borrowers and their lenders or servicers” that they “should seek licensure under the SLSA.” The DFPI’s interpretation of the term “servicing” to reach student debt relief companies appears to be a novel reading of this term by a state regulator.
The Citation orders Optima to pay $47,500 in penalties, consisting of 18 violations of the CCFPL and one violation of the SSLA, with a $2,500 penalty assessed for each violation. The Citation also includes ancillary relief that requires Optima to refund all fees it collected from 18 consumers in violation of the CCFPL.