On February 3, 2021, California’s Department of Financial Protection and Innovation (DFPI) announced that it has commenced its first formal enforcement action and launched a separate investigation into student loan debt relief companies. Goodwin previously provided an overview of three new California consumer finance laws that became effective in January 2021, including the California Consumer Financial Protection Law (CCFPL), which expanded the scope of the California Department of Business Oversight’s powers and renamed the Department of Business Oversight as the DFPI, and the Student Loan Borrower Bill of Rights, which gave the DFPI broader authority to regulate student loan servicers.
The investigation by the DFPI will consider whether student loan debt relief companies operating in California are engaging in illegal conduct under the CCFPL and the Student Loan Servicing Act (SLSA). In connection with the investigation, the DFPI issued subpoenas requesting emails and documents relating to services provided by four student loan debt relief companies. The DFPI is investigating whether these companies engage in or have engaged in any unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. The investigation will also consider whether the business activities of the subject companies require a license. In the DFPI’s press release, Commissioner Manuel P. Alvarez is quoted as saying that the investigation “is one of many steps the DFPI is taking to fulfill its mandate under the new [CCFPL] to protect our state’s most vulnerable populations, including current and former students with low to moderate incomes.”
In its formal action against one of the student loan debt relief companies subject to its investigation, the DFPI claims that the company convinced California residents to pay tens of thousands of dollars to “wipe away” their student loans by getting them dismissed or discharged. In its Citation with Order to Desist and Refrain and Assessment of Administrative Penalty (the Citation), the DFPI found that the company had misled customers as to the services it was providing and what effect those services would have on the customers’ credit.
The Citation also found that, because the student loan debt relief company had interacted with student-loan borrowers with the apparent goal of helping them avoid default on their loans, it was required to obtain a license from the DFPI under the SLSA before engaging with such consumers. The Citation states that the company violated the SLSA, Fin. Code Section 28102(a), by failing to obtain this license. The DFPI further found that the company: (1) violated the federal Telemarketing Sales Rule (TSR) by requesting and receiving advance fees from its customers for debt relief services; and (2) violated the CCFPL by engaging in unlawful and deceptive acts and practices, through purported violations of the SLSA and TSR and by making misleading promises regarding its debt relief services.
The DFPI directed the student loan debt relief company to provide refunds to eighteen California customers by March 15, 2021. The company must also pay the Commissioner of the DFPI a penalty of $45,000 by April 12, 2021.
The DFPI’s recent enforcement activity, coupled with its recent decision to execute memorandums of understanding with earned wage access fintech companies, evidences the DFPI’s commitment to exercising its broad authority in matters affecting California consumers.