CFPB Takes Its First Aim At Abusive Practices Under Dodd-Frank

Yesterday, the CFPB took the first step in enforcing the "abusive" standard under the Dodd-Frank Act's prohibition of unfair, deceptive and abusive acts and practices ("UDAAP") by filing a federal action against a Florida debt-relief company. The CFPB's action brings with it long-awaited guidance for the entire consumer financial services industry on one of the most-feared words in all of the Dodd-Frank Act — "abusive."

The CFPB filed its lawsuit in West Palm Beach, Florida against American Debt Settlement Solutions, Inc. ("ADSS") and its owner alleging, among other things, that ADSS committed deceptive and abusive acts in violation of the Federal Trade Commission's ("FTC") Telemarketing Sales Rule ("TSR") and the Dodd-Frank Act by "routinely charg[ing] consumers illegal upfront fees for debt-relief services that rarely, if ever, materialized." According to the CFPB, ADSS made misrepresentations to vulnerable consumers who were "deeply in debt and in dire circumstances" which caused the consumers to fall even further into debt.

Specifically, the CFPB alleges that ADSS misled consumers by falsely promising them it would settle their debt quickly and then fail to do anything, and by enrolling...