This past Thursday, the CFPB announced that it filed a complaint against a Florida debt-relief company that misled consumers across the country. Following an investigation into American Debt Settlement Solutions, Inc. (ADSS) and its owner, Michael DiPanni, the CFPB found that ADSS was charging its consumers upfront fees for debt-relief services without actually settling most of the consumers’ debts.
According to the complaint, the defendants engaged in abusive practices by knowingly enrolling vulnerable consumers who had inadequate incomes to complete debt-relief programs. Even worse, the complaint alleges that ADSS and DiPanni charged such exorbitant upfront fees for the programs that many of the company’s clients spent their last bit of savings on these fees for supposed debt-relief programs that ultimately did not settle their debts.
Significantly, the CFPB also plans to submit a proposed stipulated consent order on behalf of itself and the defendants that, if entered by the Florida Court, would stop ADSS’s operations indefinitely, and would prohibit DiPanni or the company from ever providing debt-relief services in the future. The consent order also would fine the defendants in the amount of $15,000 and award judgment against the defendants in the amount of approximately $500,000 (but would be suspended based on the inability of the defendants to pay the CFPB, so long as, among other conditions, defendants paid the civil penalty to the CFPB within ten days of the order’s entry).
Although the CFPB has previously brought enforcement actions against debt-relief and mortgage modification service providers, and has made a criminal referral in connection with its investigations into debt-relief companies, which we have previously blogged about here, here, and here, this is the first time that it is identifying such debt-relief conduct as “abusive acts or practices” that the CFPB can prohibit through its enforcement powers under Dodd-Frank. Director Cordray stated that the CFPB was “taking action to halt a debt-relief company we believe has been preying on financially vulnerable consumers.” He promised that the CFPB would continue to “crack down” on this type of behavior.
The CFPB should be applauded for taking this very important step to put a stop to these predatory practices that have cropped up throughout the country causing significant harm both to consumers and creditors alike. We are handling litigation in several jurisdictions against similar debt-relief entities that were operating out of Florida and New York. Similar to the allegations in the CFPB’s complaint, these debt-relief entities charged exorbitant upfront fees, directed their clients to stop paying their creditors, yet never settled most of the debts. Furthermore, many of these consumers were placed into bankruptcy or financial ruin as a result of this abusive conduct. The CFPB has taken a step in the right direction by exercising its enforcement powers to shut down at least another one of these companies. We hope this is the first of many more enforcement actions to put such debt-relief companies out of business.