Last Friday, as expected, the FTC announced the launch of a coordinated federal-state law enforcement initiative targeting deceptive student loan debt relief companies.  According to the FTC, 11 states and the District of Columbia are participating in the initiative, which is being called “Operation Game of Loans.”  The participating states are Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, and Washington,

The initiative includes seven FTC actions, including an action filed by the FTC earlier this month in Florida federal court, and 29 actions by state AGs.

A recent flurry of FTC enforcement activity targeting companies offering student loan debt relief services suggests such companies could be the subject of the announcement scheduled for tomorrow “of a major coordinated consumer fraud enforcement initiative” between the FTC and state attorneys general.

The announcement was originally scheduled to be made on October 11 at a press conference in Chicago, Illinois featuring Thomas Pahl, Acting Director of the FTC’s Bureau of Consumer Protection, and Illinois Attorney General Lisa Madigan.  However, after postponing the press conference and rescheduling it for October 13, the FTC issued an update stating that the FTC “and attorneys general in 11 states and the District of Columbia will issue an announcement” on October 13 that “will be posted on”  The FTC also indicated that “[s]enior officials from the FTC and the offices of the state attorneys general will be available for telephone interviews upon request.”

Earlier this month, the FTC filed a complaint in a Florida federal court for a permanent injunction and other equitable relief against Student Debt Doctor LLC and its individual principal alleging that the defendants conducted a deceptive student loan debt relief operation.  At the FTC’s request, the court entered an ex parte order temporarily freezing the company’s assets and appointing a receiver.  The FTC filed at least two other actions in federal courts in September 2017 against companies and individuals also alleged to have conducted deceptive student loan debt relief operations.

An Assistant Illinois Attorney General, in a letter sent to Experian’s CEO on behalf of the Illinois AG and the AGs of 35 other states and the District of Columbia, has asked Experian not to charge any credit freeze-related fees.

In the letter, which references the recent Equifax data breach, the Assistant Illinois AG notes that seven states currently prohibit consumer reporting agencies from charging fees to place a credit freeze and at least two others have introduced legislation that would require CRAs to offer free credit freezes.

In addition to Illinois, the other states joining the letter were: Arkansas, Colorado, Delaware, Florida, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Virginia, Washington, Wisconsin, and Wyoming.


The cities of Chicago and San Francisco and the Massachusetts Attorney General have filed the first enforcement actions against Equifax following the announcement of a data breach affecting an estimated 143 million consumers.  Equifax announced the data breach on September 7, 2017, after hackers allegedly exploited a vulnerability in open-source software used by Equifax to create its online consumer dispute portal.

The first suits were filed on September 26th by the Massachusetts Attorney General and San Francisco.  Massachusetts’s complaint was filed in Superior Court in Suffolk County and alleges that Equifax knew or should have known about the vulnerability and that hackers were attempting to exploit it, but that Equifax failed to take known and available measures to prevent the breach.  Massachusetts asserts claims for violations of the Massachusetts data privacy statute and the Massachusetts Consumer Protection Act prohibiting unfair and deceptive practices based on Equifax’s alleged failure to give timely notice of the breach, failure to safeguard personal information, and failure to take other actions that Equifax was uniquely positioned to provide that would have mitigated damages to Massachusetts consumers.  The Massachusetts Attorney General is seeking unspecified civil penalties, disgorgement of profits, restitution, costs and attorney’s fees.

San Francisco’s complaint, filed in the Superior Court of San Francisco, asserts claims under the California Business and Professions Code for unlawful, unfair or fraudulent business practices, alleging that Equifax failed to maintain reasonable security practices and procedures, failed to provide timely notice of the security breach, and failed to provide complete, plain and clear information when notice was provided.  The lawsuit seeks restitution for all California consumers, civil penalties up to $2,500 per violation of law, restitution, costs, and a court order requiring Equifax to implement and maintain appropriate security procedures in the future.

Finally, the City of Chicago filed suit on September 28th in Cook County Circuit Court and asserts claims arising under both state law and city ordinance.  Specifically, Chicago alleges Equifax violated a local ordinance prohibiting fraudulent, unfair, and deceptive business practices, as well as the Illinois Consumer Fraud and Deceptive Business Practices Act.  Chicago’s claims are based on allegations that Equifax failed to give prompt notice of the breach, failed to safeguard personal information, and deceived consumers by requiring them to waive their legal rights in exchange for credit monitoring services and by misrepresenting that the offered credit monitoring was free.  Chicago seeks civil monetary penalties in the amount of $10,000 for each day a violation has existed that involves a Chicago resident, restitution, and injunctive relief requiring Equifax to maintain adequate security measures to prevent data breaches.

These are likely just the first of many lawsuits to be filed against Equifax by state and local officials.  Further action at both the federal and state level seems all but certain.  For example, the Federal Trade Commission and Department of Justice have confirmed they are investigating the breach, and the New York Department of Financial Services confirmed that it recently issued a subpoena to Equifax for more information about the breach.  This vigorous and immediate government enforcement effort further supports our position that private class action lawsuits are an unnecessary and inappropriate tool for vindicating any harm caused by the data breach.  We will continue to follow these significant cases and update you as events unfold.

In an unusual procedural move last week in the RD Legal Funding case about which we have previously blogged, SDNY Judge Loretta Preska (the judge presiding over the CFPB’s lawsuit against RD Legal Funding) has referred to EDPA Judge Anita Brody the question of whether the NFL Concussion Litigation settlement agreement forbids assignments of settlement benefits. Judge Brody has been presiding over the multidistrict litigation for over five years and is currently overseeing the implementation of the settlement. Within the Order, Judge Preska noted “[t]his case presents an unusual situation in which the Defendants’ underlying conduct is intertwined with an MDL class action settlement in another court,” and stated the referral “ensures uniformity of adjudication with a single ruling that will apply not only to the Defendants in this action but also to other potential lenders to class members who might assert the same defense[.]” The referral had been requested by the NFL Concussion Litigation Co-Lead Class Counsel, Christopher Seeger.

In related news, earlier this week Judge Brody granted a request from Seeger to compel several entities to produce (1) a list of all retired NFL players with whom the entities communicated, (2) a list of all retired NFL players with whom the entities entered into agreements related to the NFL Concussion Settlement, and (3) a copy of any agreement related to the settlement. However, Judge Brody denied Seeger’s request to compel production of similar information from RD Legal Funding.

The recent data breach disclosure by Equifax raised an outcry from consumer advocates trying to link the data breach to the Consumer Financial Protection Bureau’s (CFPB) final arbitration rule.  They are portraying this cybersecurity incident as a prime example of why class actions are needed to protect consumers, hoping to persuade the U.S. Senate not to repeal the rule under the Congressional Review Act.  The CFPB rule bars financial services companies from including class action waivers in consumer arbitration agreements beginning on March 19, 2018.

The Senate should disregard their arguments.  While the CFPB arbitration rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.  Therefore, the Equifax data breach has nothing to do with the CFPB arbitration rule.  In any event, the issue appears to be moot, since according to published reports Equifax has stated that it will not seek to apply its on-line arbitration clause and class action waiver to claims based on the data breach itself.

Consumer advocates have also criticized Equifax for purportedly requiring consumers who may have been affected by the data breach and who want to sign up for the company’s offer to provide free credit protection services to agree to arbitrate claims from those services (unless they exercise their right to opt out of the arbitration clause), but Equifax has made clear that its arbitration clause and class action waiver will not apply to this cybersecurity event.  But lost in the hubbub is the fact that claims of this nature would appear to be inherently individualized and not susceptible to class action treatment since the facts pertinent to each consumer’s account presumably will be unique.

Ultimately, this incident exemplifies why the Senate should vote to repeal the CFPB arbitration rule.  The CFPB, the Federal Trade Commission and state attorneys general (most notably Attorney General Schneiderman of New York) got involved almost immediately and will advocate on behalf of consumers more efficiently and effectively than class action lawsuits, without siphoning off a hefty attorneys’ fee if they prevail.

Earlier this week, our Firm announced that, effective January 1, 2018, our Firm would merge with the law firm of Lindquist & Vennum.  Although this merger will benefit many practice groups at our Firm, I am particularly excited about the fact that Lindquist & Vennum has several lawyers who focus on consumer financial services (most importantly, payment systems) and bank regulation.  Although the merger will not be effective until the beginning of next year, I have invited the Lindquist lawyers who practice in those areas to write guest blogs between now and the end of this year on important developments of interest to our readers.  To that end, I am very pleased that Amy Lauck has accepted my invitation and has written her first guest blog on a very important paper issued by the Federal Reserve earlier this week pertaining to payment system improvements.  Several of us have known Amy for many years and have greatly admired the work that she has done in the consumer financial services area, particularly with respect to prepaid cards, mobile banking and payment systems.

Senate Bill 1351, known as the Illinois Student Loan Bill of Rights, was vetoed at the end of last week by the state’s Republican Governor.  The bill would have created a student loan ombudsman and implemented new requirements for student loan servicers, including a licensing requirement.

The bill was drafted by the office of Lisa Madigan, the Democratic Illinois Attorney General, and had Democratic support in the state’s House and Senate.  Ms. Madigan denounced the veto in a press release, which included statements from two Democratic state legislators who sponsored the bill that they intended to seek an override of the veto.  An override would require a three-fifths majority in the Illinois House and Senate.

While Governor Bruce Rauner is reported to have called the bill’s intent “laudable,” he is also reported to have concluded that the bill encroached on federal government responsibilities and would have added confusion to the student loan process.

In a recent consent order with a legal collection law firm, the Massachusetts Attorney General imposed significant restrictions on legal collection that go beyond previous CFPB consent orders, which we covered here. We believe that the Massachusetts Attorney General is likely to view at least some of the injunctive provisions in this consent order as setting standards for legal collections in Massachusetts generally, although it is possible that some provisions are unique to this particular case. The substantive provisions of the consent order will likely necessitate creation of new policies, procedures, and compliance monitoring law firms, creditors, debt collectors, and debt buyers engaged in legal collection in Massachusetts.

In addition to the injunctive provisions found in prior CFPB consent orders, the Massachusetts Attorney General consent order imposes the following requirements:

  • The firm must provide a “protected income disclosure” in the first written statement to a consumer, all written statements demanding or soliciting payment, any written statement proposing or confirming settlement, and any written statement proposing or confirming a periodic payment arrangement or court order, which states:

You may not have to pay us while your only income is any of the following: wages up to $550 per week; Social Security benefits; pensions; veterans’ benefits; child support; unemployment benefits; or workers’ compensation benefits.

Please write or call us if you receive income from the above sources or any other government benefits, and we will send you a form for you to complete regarding your income. Although you may not be legally required to pay us from any of the above sources, you may voluntarily pay us using money from any of them. Even if you do not have to pay us at this time, we may still seek a judgment in court against you, if a judgment has not already entered, but you cannot be ordered to pay the judgment from the sources of income listed above. We also reserve the right to make future inquiry about any changes in your financial circumstances.

  • The firm must provide the following oral disclosure anytime it makes an “oral demand, proposal, or request for payment”:

You may not have to pay us at this time if you make less than $550 a week or receive only social security benefits, disability benefits, pension income, child support, or certain other government benefits. Even if you do not have to pay us at this time due to the amount of wages you receive or your receipt of certain government benefits you may make voluntary payments to us using funds from these sources. Do you make less than $550 per week or receive any of these types of benefits or any other government benefits?

  • If the consumer indicates that he or she only has exempt income, the law firm must cease collection attempts and send the consumer a financial form with a pre-addressed return envelope. The law firm is then prohibited from continued collection until one of the following occurs. The law firm may, however, accept voluntary payments from the consumer.
    • The consumer does not respond within 30 days after the law firm mailed the financial form; or
    • The consumer returns the financial form and the law firm “does not have reason to believe a consumer has only exempt income and exempt assets.”
  • If the consumer only has exempt income and is either handicapped or 70 years of age or older, the law firm must cease all collection attempts, and may not file suit against the consumer.
  • If the consumer only has exempt income but is not handicapped or 70 years of age or older, the law firm “may commence and litigate to judgment a collection suit,” subject to the following restrictions:
    • If the court enters a judgment against the consumer, the law firm may only seek an updated financial form from the consumer every 90 days. If it appears from the updated financial form or a “historically reliable source” that the consumer has non-exempt income or assets, the law firm may resume collection of the judgment.
    • If the consumer does not respond to a request for an updated financial form within 30 days, the law firm may resume collection of the judgment.
  • If the law firm “has reason to believe” that a consumer only has exempt income and assets and that the financial situation is unlikely to improve for the foreseeable future, the firm must cancel any pending payment hearings or examinations in small claims court.
  • If the law firm “has reason to believe” that a consumer only has exempt income and assets but that the consumer’s financial situation may improve, the firm must request a continuance of any pending payment hearings or examinations in small claims court. If the court denies the request for a continuance, the law firm is permitted to attend the hearing.
  • If a court determines that the consumer does not have a present ability to pay a debt:
    • The law firm is enjoined from collection unless a court subsequently “enters an order requiring the consumer to pay the debt or the consumer fails to appear for and participate in a subsequent examination,” or the law firm receives a new financial form or other information “reasonably establishing the consumer presently has non-exempt income or non-exempt assets.”
    • But, the law firm may not resume collection or schedule a payment hearing “if it has reason to believe the consumer is unlikely to have a future ability to pay the debt.”
  • The firm may not seek or serve a capias warrant, or other warrant for the consumer’s arrest, while it “has reason to believe a consumer has only exempt income and exempt assets.”
  • The law firm may only submit an affidavit signed by a creditor if the firm verifies the statements in the affidavit with original account-level documentation.
  • If a consumer disputes the validity of a debt verbally or in writing, the law firm must cease collection until it:
    • Obtains and reviews original account-level documentation; and
    • Provides copies of the account-level documentation to the consumer.
  • The law firm is prohibited from filing suit on debt “that would be time-barred but for an alleged post-origination payment unless [the firm] has obtained and reviewed documentation reasonably demonstrating the existence and date of that payment contained in the business records of the party that received the payment.” In essence, the firm must verify that the debt is not time barred.

RD Legal Funding, LLC is seeking to dismiss the lawsuit filed against it, two of its affiliates, and their individual principal in February 2017 by the CFPB and the New York Attorney General in a NY federal district court alleging that a litigation settlement advance product offered by the defendants is a disguised usurious loan that is deceptively marketed and abusive.  In particular, the complaint alleged that the transactions were falsely marketed as assignments rather than loans and violated New York usury laws. The complaint also alleged that the transactions could not be assignments because the underlying settlements expressly prohibited assignment of claimant recoveries.

In the complaint, both the CFPB and the NY AG asserted deception and abusiveness claims under Sections 1031 and 1042 of Dodd-Frank.  In addition to alleged violations of state civil and criminal usury laws (which were the predicate for one of the CFPB’s deception claims), the NY AG’s state law claims included alleged violations of NY’s UDAP statute.

In their motion to dismiss, the defendants argue that the court should strike down the CFPB as a whole (rather than make the Director removable without cause as the D.C. Circuit panel did in PHH) because its structure is unconstitutional.  The defendants’ other arguments for dismissal include: (1) the court does not have jurisdiction under the CFPA because the defendants’ transactions did not involve an extension of credit and therefore none of the defendants are “covered persons” under the CFPA, (2) the complaint’s deceptive conduct claims fail to meet the heightened pleading standard for claims based on allegations of fraud, (3) the complaint fails to allege abusive conduct because the defendants’ representations about the nature of the transactions were truthful and consumers were encouraged to seek professional advice before entering into a transaction, and (4) state usury laws do not apply because the transactions were sales.

In addition to defending the constitutionality of the CFPB’s structure in their opposition to the motion to dismiss , the CFPB and NY AG assert that the defendants are “covered persons” under the CFPA because they offered or extended credit through the transactions and that all counts in the complaint state valid claims for relief (for reasons that include the argument that heightened pleading standards for fraud claims do not apply to consumer protection claims under the CFPA or NY law.)

When the complaint was filed, the CFPB and the NY AG issued press releases and prepared remarks in which they referenced transactions entered into by the defendants with former NFL players who were entitled to payments from the settlement of the NFL concussion litigation.  Class counsel for the plaintiff settlement class in the concussion litigation filed a letter with the NY district court seeking permission to file a memorandum of law as amicus in support of the CFPB.  In their proposed memorandum, they assert that their participation is intended to address the defendants’ “erroneous” position that the settlement agreement in the concussion litigation permits the assignment of the settlement’s monetary awards.

A request to file a memorandum of law as amicus in support of the CFPB was also filed by the American Legal Finance Association (ALFA), which describes itself as a trade association that represents the country’s leading consumer legal funding companies.  In its memorandum, ALFA indicates that, due to the possibility that a holding in the case could impact the entire legal funding industry, its participation is intended to “assist the Court with expertise not otherwise represented by the parties” regarding the differences between the pre-settlement legal funding transactions offered by ALFA members and the defendants’ transactions.

The defendants opposed the requests of class counsel and ALFA to participate as amici and while the case docket indicates that the court granted permission to ALFA to file its amicus memorandum, it does not indicate the disposition of class counsel’s request.

On November 21, 2017, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar: Litigation Funding: Risks and Rewards.  Click here to register.