A debt settlement services provider asked a federal judge to dismiss a Consumer Financial Protection Bureau enforcement case, citing a recent memo that says the CFPB will take a new approach on such questions.
The Jan. 23 memo by budget director Mick Mulvaney, whose role as CFPB acting director is in dispute, said the agency will no longer “push the envelope” in its efforts to protect consumers. However, the memo also indicated that debt collection-related matters will continue to be an important focus.
Freedom Debt Relief, which the CFPB has sued, asked Magistrate Judge Elizabeth D. LaPorte of the U.S. District Court for the Northern District of California on Feb. 5 to dismiss the CFPB’s case, which alleges deceptive practices.
Mulvaney’s memo said the CFPB will focus on “quantifiable and unavoidable harm to the consumer,” but the agency’s complaint in this suit doesn’t meet that test, Freedom Debt Relief said. The CFPB’s complaint, it said, “contains no support for any quantifiable and unavoidable harm.”
Freedom Debt Relief, based in San Mateo, Calif., calls itself the nation’s largest debt settlement services firm, saying it has settled more than $8 billion of unsecured consumer debts. The CFPB sued the company in November 2017, saying it deceived clients by telling them it could negotiate settlements with their creditors. The agency also said Freedom Debt Relief charged deceptive fees, engaged in abuse by sometimes requiring customers to negotiate on their own, and failed to make certain required disclosures to clients.
The CFPB’s complaint “is riddled with factual errors and supported by a handful of cherry-picked and out-of-context statements, with no allegation whatsoever of consumer harm,” Freedom Debt Relief said in its brief to LaPorte, adding that Mulvaney’s memo supports its bid to throw out the case.
Although the CFPB alleged that Freedom Debt Relief charged deceptive fees, Freedom Debt Relief said the CFPB’s complaint “does not contain, among other things, any quantification of the number of customers purportedly impacted by the alleged misrepresentation or the number of debts that were unable to be resolved as a result of the purported policies.”
The CFPB’s lawsuit also alleged that Freedom Debt Relief engaged in an abusive practice by requiring some customers to negotiate with creditors on their own, based on instructions from Freedom Debt Relief. Mulvaney’s memo also forecloses that claim because the memo requires showing that a defendant “derived an advantage from its conduct” or somehow profited by it, Freedom Debt Relief said.
That’s not the case here, Freedom Debt Relief said. “Freedom collected fees only when its clients obtained positive results (as judged by the client), and as such the conduct alleged by the CFPB cannot, as a matter of law, be considered abusive,” it said.
The case is Cons. Fin. Protection Bureau v. Freedom Debt Relief LLC, N.D. Cal., No. 17-cv-06484, brief filed 2/5/18.
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