Student Financial Aid Services, Inc.
Documents in this case
- Complaint · · 15 p.
- Stipulation · · 15 p.
Case summary
Bureau filed a complaint and proposed consent order in federal court against Student Financial Aid Services, Inc. for illegal sales and billing practices.
Complaint ()
PDF of this document (15 pages)
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- 1 - COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES Anthony Alexis (DC Bar #384545) David Rubenstein (DC Bar #458770) Frank Kulbaski (DC Bar #438917) Maureen Elin McOwen (DC Bar #976749) – Designated Counsel for Service Alan Kahn (Admitted in NY) Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-9553 Facsimile: (202) 435-7329 E-mail: [email protected]
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA SACRAMENTO DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
v.
STUDENT FINANCIAL AID SERVICES, INC.,
Defendant.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.:
COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES
The Consumer Financial Protection Bureau (“Bureau”) alleges the following against Student Financial Aid Services, Inc. (“SFAS” or “Company”): JURISDICTION AND ENFORCEMENT AUTHORITY 1.
The Bureau brings this action against SFAS for engaging in unfair and deceptive acts or practices in violation of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531 and 5536; engaging in deceptive telemarketing acts or practices under the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101 et seq., and its implementing rule, the Telemarketing Sales Rule (“TSR”), 16 Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 1 of 15
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- 2 - COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES C.F.R. part 310; and initiating recurring, preauthorized electronic fund transfers from consumers’ accounts without the required written authorization, in violation of the Electronic Fund Transfer Act (“EFTA”), 15 U.S.C. § 1693e(a), and Regulation E, 12 C.F.R. § 1005.10(b).
2.
The Bureau has authority to file suit to enforce the relevant provisions of the CFPA, EFTA, and TSR pursuant to sections 1053 and 1055 of the CFPA, 12 U.S.C. §§ 5563 and 5565; section 918 of the EFTA, 15 U.S.C. § 1693o; and section 6 of the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6102 and 6105. 3.
This Court has subject matter jurisdiction over this action because it concerns federal consumer financial law, 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345. 4.
Venue is proper in this district because the Defendant, SFAS, maintains its principal place of business in the Eastern District of California. 28 U.S.C. § 1391(b); 12 U.S.C. § 5564(f).
PARTIES 5.
Plaintiff, the Consumer Financial Protection Bureau, is an independent agency of the United States charged with regulating the offering and provision of consumer financial products and services under federal consumer financial laws. 12 U.S.C. § 5491(a). The Bureau has independent litigating authority. 12 U.S.C. §§ 5564(a) and (b). 6.
Defendant Student Financial Aid Services, Inc. is a Delaware corporation with its principal place of business at 9738 Lincoln Village Drive, Suite 130, Sacramento, California. 7.
SFAS is a covered person under the CFPA because it offers and provides “financial advisory services,” as that term is used in section 1002(15)(A)(viii) of the CFPA, 12 U.S.C. § 5481(15)(A)(viii).
8.
SFAS offers fee-based financial aid assistance and preparation services, including consultation, advice, and assistance preparing the federal government’s Free Application for Federal Student Aid (“FAFSA”). Defendant has characterized its services as involving financial aid assistance and preparation services that include application consultation and Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 2 of 15
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9.
From at least July 21, 2011 to the present (the “Relevant Period”), Defendant has operated websites, including FAFSA.com and SFAS.com, and related call centers, where it has offered FAFSA preparation services online or over the telephone, for a fee.1 10.
Throughout the Relevant Period, SFAS’s offer or provision of consultative and preparation services to consumers on their individual student financial aid applications constituted offering or providing financial advisory services. 11.
Throughout the Relevant Period, SFAS’s offer or provision of financial aid counseling to consumers about educational financing, including the source and availability of educational grants and loans, constituted providing financial advisory services. 12.
Throughout the Relevant Period, SFAS has engaged in offering and providing consultative and preparation services to consumers on their individual student financial aid applications.
13.
Throughout the Relevant Period, SFAS has engaged in offering or providing financial aid counseling to consumers about educational financing. 14.
SFAS is a “person” as that term is used in Regulation E, 12 C.F.R. § 1005.2(j), and the TSR, 16 C.F.R. § 310.2(w), because it is a corporation. 15.
SFAS is a “seller,” as defined by the TSR, 16 C.F.R. § 310.2(aa), because it is a person who, in connection with a telemarketing transaction, offers or provides goods or services in exchange for a fee.
16.
SFAS is a “telemarketer,” as defined by the TSR, 16 C.F.R. § 310.2(cc), because it is a person who, in connection with telemarketing, initiates or receives telephone calls to or from consumers.
17.
Throughout the Relevant Period, Defendant has engaged in telemarketing as a seller and as a telemarketer in connection with offering FAFSA consultation and preparation services to consumers.
1 Effective July 13, 2015, SFAS no longer offers financial aid assistance or preparation services at the web domain FAFSA.com.
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Throughout the Relevant Period, Defendant has marketed its services, including the Gold and Combo Services described in paragraph 29 below, through inbound and outbound calls with consumers.
FACTUAL ALLEGATIONS Overview of Free and Paid FAFSA Preparation Services 19.
The Free Application for Federal Student Aid, or FAFSA, is a free form available through the U.S. Department of Education. Students and prospective students must fill out the FAFSA to apply for federal student aid, including federal grants and loans. The FAFSA is also used by many states and colleges to determine students’ eligibility for financial aid from the state or the school.
20.
The FAFSA can be completed for free online at the official FAFSA website, FAFSA.ED.gov. That website is maintained by Federal Student Aid, the office of the U.S. Department of Education that administers the FAFSA. Federal Student Aid offers a telephone help line and an online chat function to assist consumers with filling out the FAFSA, for free.
21.
From at least July 21, 2011 until July 13, 2015, SFAS operated the website FAFSA.com, and related call centers, where it offered FAFSA preparation services online or over the telephone, for a fee.
22.
Throughout the Relevant Period, SFAS has operated the website SFAS.com, and related call centers, where it offers FAFSA preparation services online or over the telephone, for a fee.
23.
On its website, SFAS has offered that its paid FAFSA-preparation services included access to “an experienced Student Aid Advisor who can . . . [a]nswer any questions you may have regarding FAFSA or the financial aid process in general [and] [w]alk you through the difficult financial sections of the FAFSA, including tax forms and estimates.” 24.
SFAS has also offered, as stated on its website, that: “Our team of professional Student Aid Advisors have expertise in the very specific area of applying for federal student aid. Similar to hiring a tax accountant to advise you and prepare your tax returns, our Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 4 of 15
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- 5 - COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES Advisors will guide you through the steps needed to get you prepared to file the allimportant FAFSA — from beginning to end we will be your source for information and advice.”
25.
On its website, SFAS has offered: “[O]ur unique service provides expertise, advice, and guidance throughout the student aid process. Our team of Student Aid Advisors is available to you year-round, and we will keep you informed every step of the way.” 26.
SFAS has also offered, as stated on its website, that: “If the aid package is not enough to cover educational costs parents and students could consider applying for a private loan as a last resort. Our Loan Help™ service, included with the paid FAFSA service, can offer education and guidance regarding private student loans.” 27.
Throughout the Relevant Period, SFAS has charged consumers up to $79.99 for its online FAFSA preparation services.
28.
Throughout the Relevant Period, SFAS has charged consumers up to $99.99 for its telephonic FAFSA preparation services.
Automatic, Recurring Charges 29.
During the Relevant Period, the Company offered at least three FAFSA preparation plans subject to automatic, recurring charges: FAFSA Gold, FAFSA Gold Combo, and FAFSA + College Cost & Planning Report (“FAFSA CCPR Combo”), referred to herein as the “Gold and Combo services.”
30.
The Company offered the Gold and Combo services through at least the beginning of 2015.
31.
The Gold and Combo services operated like subscription plans, without a fixed end date.
32.
Under the Gold and Combo services, customers were placed on a “negative option” renewal plan, meaning that their accounts were charged again, for subsequent years’ FAFSA preparations, whether or not the customers made use of the Company’s services in future years, unless the customers took an affirmative action to avoid the charges or the charges were otherwise terminated by the Company.
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SFAS processed future charges against consumers’ accounts annually, for up to four years, unless: (1) the consumer affirmatively asked the Company to cancel the service; (2) the Company identified the consumer as having been charged for two consecutive years without filing the FAFSA through the Company; (3) the Company became aware that the consumer would not be attending school the following year; (4) the Company was unable to process the recurring charge; or (5) the consumer elected to opt-out of receiving future marketing communications from the Company.
34.
The Company characterized the Gold and Combo services as an upgrade from its “standard” service level at “no additional cost.” But in fact, there were additional costs: future annual fees of $67 to $85 attached to the Gold and Combo Services, which were charged automatically to the consumer’s card or bank account on file for up to four years. 35.
Recurring charges to the consumer’s account were not clearly explained or disclosed truthfully to the consumer at the time of the purchase. 36.
When consumers signed up for the FAFSA online through FAFSA.com or SFAS.com, the Gold service was the default selection on the payment page. 37.
On the payment webpage, the only reference to the fact that there were recurring, automatic fees associated with the Gold and Combo services was the statement that Gold clients received “worry-free annual billing.*”
38.
The asterisk on the payment page after the words “worry-free annual billing” referred to the document titled “Terms of Use.”
39.
The Terms of Use was approximately 6500 words long. 40.
The Terms of Use discussed automatic billing, briefly, in the middle of the text. 41.
The discussion of automatic billing in the Terms of Use did not mention the Gold or Combo services or indicate that there was a negative option feature — an obligation to cancel, or else be charged again — attached to the Gold and Combo services. 42.
The Terms of Use did not indicate that choosing the Gold or Combo services constituted an agreement to be charged a fee of $67 to $85 annually for an unspecified number of years.
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The Company accepted and received payments from consumers for its Gold and Combo services by credit card, debit card, and through ACH electronic check transactions. 44.
The Company accepted and received payments from consumers for its Gold and Combo services by means of the telephone and the Internet. 45.
The Company did not distinguish between credit card and debit card transactions on its payment webpage when receiving payment from consumers. 46.
The Company did not ask consumers to specify whether the card provided for payment was a debit card.
47.
The Company did not maintain procedures reasonably adapted to avoid errors in obtaining written authorization from consumers who paid by electronic funds transfer. 48.
In certain instances, consumers affirmatively indicated to SFAS that they were making payments with a debit card or means other than by credit card, including by electronic check.
49.
Consumers did not provide signed or electronically verified authorization to the Company authorizing recurring, annual electronic fund transfers from their accounts. 50.
The Company did not provide consumers a copy of the consumers’ authorization for electronic fund transfers in which the terms of the preauthorized transfers — including the automatic, recurring charges going forward — were clear and readily understandable. 51.
Immediately after purchasing a Gold or Combo service, the written payment notification consumers received from SFAS was a confirmation email, which contained a link to a receipt for the original payment transaction. 52.
The confirmation email SFAS sent to Gold and Combo purchasers did not indicate that the consumer was enrolled to pay SFAS on a recurring schedule in the future, nor did it include information about when the future charges would be processed, in what amounts, or for how long.
53.
The confirmation email SFAS sent to Gold and Combo purchasers did not indicate that SFAS would charge the consumer for subsequent years’ FAFSA preparation services regardless of whether the consumer elected to use the Company’s services again. Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 7 of 15
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The transaction receipt that consumers could access through the confirmation email contained the amount the consumer was being charged up front, the order number, and the consumer’s billing information, but contained no information about the consumer’s purported authorization for automatic, recurring charges. 55.
The transaction receipt that consumers could access through the confirmation email did not state the dollar amount of the future charges, the dates when the charges would be processed, or for how long.
56.
The transaction receipt that consumers could access through the confirmation email did not state that the consumer would be charged again in subsequent years regardless of whether the consumer elected to use the Company’s services again. Telemarketing and Upselling the Gold and Combo Services over the Telephone 57.
SFAS telemarketed the Gold and Combo services through inbound and outbound phone calls with consumers.
58.
While on the phone with consumers, SFAS instructed its telephone agents to try to sell or upsell consumers the Gold service. The Company incentivized its telephone agents to sell or upsell consumers to the Gold and Combo services by rewarding them for sales of those plans and penalizing them when they missed an opportunity for the sale. 59.
SFAS’s training materials, call scripts, and quality control checklists required its telephone agents to offer the Gold service to “standard” clients, as an upgrade. 60.
When offering the Gold service, however, the Company’s scripts only instructed the telephone agent to mention “worry-free annual billing,” using those words. 61.
When offering or closing a sale of the Gold or Combo services, the Company’s telephone agents did not clearly disclose that the consumer’s credit card or debit card would be charged each year regardless of whether the consumer was still attending school or making use of the Company’s FAFSA preparation service in the following application year. 62.
The Company’s scripts instructed its telephone agents to tell consumers that they would receive an “upgrade … at no additional cost to our Gold status.” 63.
The Company’s representations over the telephone did not include clear and Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 8 of 15
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64.
The Company did not provide customers with clear and understandable information about the dates of subsequent charges, the amount of the charges, or the specific steps customers must take to avoid those charges in future years. 65.
Consumer complaints and recorded phone calls confirm that consumers were misled by the Company’s failure to adequately disclose the recurring charges and negative option feature attached to its Gold and Combo services. 66.
At the time they signed up for the service, many consumers believed the fee to be a one-time charge, and did not authorize the Company to initiate subsequent charges, including electronic funds transfers, on an annual basis. 67.
During the Relevant Period, SFAS processed approximately 206,000 automatic charges against the accounts of consumers who did not file a FAFSA during that application year through the Company.
68.
The recurring annual charges ranged from approximately $67 to $85 per charge.
COUNT 1: SFAS DECEIVED CONSUMERS ABOUT AUTOMATIC FEES IT CHARGED FOR CERTAIN SERVICE PLANS IN VIOLATION OF THE CONSUMER FINANCIAL PROTECTION ACT 69.
The allegations in paragraphs 1 through 70 are incorporated here by reference. 70.
Section 1036(a)(1)(B) of the CFPA prohibits covered persons from committing “deceptive” acts or practices. 12 U.S.C. § 5536(a)(1)(B). 71.
Through the websites FAFSA.com and SFAS.com, and through telephone communications, SFAS’s representations and omissions created a misleading net impression regarding the total amount and recurring nature of the fees charged under its Gold and Combo services.
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Over the telephone and on the Company’s website, SFAS misleadingly characterized the Gold and Combo services as a free upgrade from its standard service, without accurately disclosing, in readily understandable terms, that Gold and Combo service participants are subject to automatic, recurring charges each year for an unspecified number of years, even if they do not elect to use the Company’s services in subsequent years. 73.
The Company’s representations, acts, and omissions affected or were likely to affect consumers’ decisions to purchase the Company’s services. 74.
The Company’s representations, acts, and omissions resulted in monetary harm to consumers, including unauthorized charges to consumer accounts and fees associated therewith.
75.
The Company’s representations, acts, and omissions were material. 76.
Therefore, the Company’s representations, acts, and omissions constituted “deceptive” acts or practices that violate sections 1031(a) and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).
COUNT 2: SFAS UNFAIRLY SUBJECTED CONSUMERS TO AUTOMATIC, RECURRING CHARGES IN VIOLATION OF THE CONSUMER FINANCIAL PROTECTION ACT 77.
The allegations in paragraphs 1 through 70 are incorporated here by reference. 78.
Sections 1031(a) and 1036(a)(1)(B) of the CFPA prohibit covered persons from committing “unfair” acts or practices. 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B). 79.
Under Section 1031(c)(1) of the CFPA, an act or practice is unfair if “(A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition.” 12 U.S.C. §§ 5531(c)(1)(A) and (B). 80.
Through the websites FAFSA.com and SFAS.com, and over the telephone, SFAS unfairly charged consumers under its Gold and Combo services on an automatic, recurring basis without their authorization for future charges. 81.
The Company’s acts and practices caused or were likely to cause substantial injury to Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 10 of 15
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82.
The injuries to consumers include charges that were not authorized by the consumers and third-party fees associated with those charges.
83.
The injuries to consumers also include being subject to billing practices for which they did not bargain.
84.
The injuries to consumers were not reasonably avoidable because the facts of the recurring charges and negative option feature were not clearly explained or disclosed to consumers at the time of the purchase. Many consumers did not understand that there were recurring charges attached to the Gold and Combo services and, as such, did not anticipate the recurring charge and affirmatively cancel the service prior to those charges. 85.
The injuries to consumers are not outweighed by any countervailing benefits to consumers or to competition.
86.
Therefore, the Company’s acts and practices constituted “unfair” acts or practices that violate sections 1031(a) and 1036(a)(1)(B) of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1)(B).
COUNT 3: SFAS DECEIVED CONSUMERS ABOUT MATERIAL ASPECTS OF ITS SERVICES, IN VIOLATION OF THE TELEMARKETING SALES RULE, 16 C.F.R. § 310.3(a)(1)(vii) 87.
The allegations in paragraphs 1 through 70 are incorporated here by reference. 88.
It is a deceptive telemarketing act or practice and a violation of the TSR, 16 C.F.R. § 310.3(a)(1)(vii), for any seller or telemarketer to fail to disclose truthfully, in a clear and conspicuous manner, before a customer consents to pay for goods or services, if the offer includes a negative option feature, all material terms and conditions of the negative option feature, including that a customer’s account will be charged unless the customer takes an affirmative action to avoid the charges, the dates the charges will be submitted for payment, and the specific steps the customer must take to avoid the charges. 89.
SFAS’s solicitation of Gold and Combo services to consumers through outbound telephone calls constituted “telemarketing,” as defined by the TSR, 16 C.F.R. § 310.2(dd). Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 11 of 15
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SFAS’s solicitation of Gold and Combo services to consumers over the telephone, including on inbound phone calls, constituted “upselling,” as defined by the TSR, 16 C.F.R. § 310.2(ee).
91.
The automatic, recurring charges attached to the Gold and Combo services constituted a “negative option feature,” as defined by the TSR, 16 C.F.R. § 310.2(u). 92.
In numerous instances during the relevant time period, in connection with soliciting the Gold and Combo services to consumers over the telephone, SFAS requested and received payments over the phone for its Gold and Combo services and, before the consumer consented to pay, failed to disclose truthfully, in a clear and conspicuous manner, all material terms and conditions of the negative option feature of its Gold and Combo services, including that a customer’s account will be charged unless the customer takes an affirmative action to avoid the charges (or unless the charges are otherwise cancelled), the dates the charges will be submitted for payment, and the specific steps the customer must take to avoid the charges. Therefore, SFAS engaged in deceptive telemarketing acts or practices in violation of the TSR, 16 C.F.R. § 310.3(a)(1)(vii).
93.
Because SFAS is a “covered person,” its conduct in violation of the TSR is also unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1).
COUNT 4: SFAS DECEIVED CONSUMERS ABOUT MATERIAL ASPECTS OF ITS SERVICES, IN VIOLATION OF THE TELEMARKETING SALES RULE, 16 C.F.R. § 310.3(a)(2)(ix) 94.
The allegations in paragraphs 1 through 70 and 91 through 93 are incorporated here by reference.
95.
It is a deceptive telemarketing act or practice and a violation of the TSR, 16 C.F.R. § 310.3(a)(2)(ix), for any seller or telemarketer to misrepresent, directly or by implication, in the sale of goods or services, any material aspect of a negative option feature including, but not limited to, the fact that the customer’s account will be charged unless the customer takes an affirmative action to avoid the charges, the dates the charges will be submitted for Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 12 of 15
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In numerous instances during the relevant time period, in connection with soliciting the Gold and Combo services to consumers over the telephone, SFAS misrepresented the material terms and conditions of the negative option feature of its Gold and Combo services, including that a customer’s account will be charged unless the customer takes an affirmative action to avoid the charges (or otherwise triggered a cancellation), the dates the charges will be submitted for payment, and the specific steps the customer must take to avoid the charges.
97.
Therefore, SFAS engaged in deceptive telemarketing acts or practices in violation of the TSR, 16 C.F.R. § 310.3(a)(2)(ix).
98.
Because SFAS is a “covered person,” its conduct in violation of the TSR is also unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1).
COUNT 5: SFAS VIOLATED THE ELECTRONIC FUND TRANSFER ACT AND REGULATION E 99.
The allegations in paragraphs 1 through 70 are incorporated here by reference. 100. The Electronic Fund Transfer Act (EFTA), 15 U.S.C. § 1693e(a), states that a “preauthorized electronic fund transfer from a consumer’s account may be authorized by the consumer only in writing, and a copy of such authorization shall be provided to the consumer when made.”
101.
Regulation E, 12 C.F.R. § 1005.10(b), which implements EFTA, states that “Preauthorized electronic fund transfers from a consumer’s account may be authorized only by a writing signed or similarly authenticated by the consumer. The person that obtains the authorization shall provide a copy to the consumer.” 102.
SFAS accepted and received payments from consumers by, among other means, debit card and ACH electronic check transactions from consumer accounts. 103.
Debit card and ACH electronic check transactions are electronic fund transfers Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 13 of 15
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The Company did not distinguish between credit card and debit card transactions on its payment webpage when receiving payment from consumers, did not ask consumers to specify whether the card to be used was a debit card, and did not maintain procedures reasonably adapted to avoid errors in obtaining written authorization from consumers who paid by electronic funds transfer.
105.
In certain instances, consumers affirmatively indicated to SFAS that they were making payments with a debit card or means other than by credit card, including by electronic check.
106.
For online and telephone transactions involving electronic fund transfers, SFAS failed to obtain the required written authorization from consumers authorizing the Company to make recurring, periodic electronic fund transfers from consumers’ accounts. 107.
SFAS initiated recurring electronic fund transfers from consumers’ accounts without the required authorization.
108.
The recurring electronic fund transfers initiated by SFAS were “preauthorized electronic fund transfers” under 12 C.F.R. § 1005.2(k). 109.
SFAS failed to provide copies of any written authorization to consumers involved in these recurring, preauthorized electronic fund transfers. 110.
SFAS, by these actions, violated the Electronic Fund Transfer Act, 15 U.S.C. § 1693e(a) and Regulation E, 12 C.F.R. § 1005.10(b). 111.
Because SFAS is a “covered person,” its conduct in violation of Regulation E is also unlawful under sections 1031(a) and 1036(a)(1) of the CFPA, 12 U.S.C. §§ 5531(a) and 5536(a)(1).
DEMAND FOR RELIEF 112.
The Bureau requests that the Court award the following relief against Student Financial Aid Services:
a. Redress to affected consumers;
b. Injunctive relief;
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d. Rescission;
e. Civil Money Penalties; f. Costs; and g. Additional relief the Court determines to be just and proper.
Dated: July 23, 2015
Respectfully submitted,
Anthony Alexis (DC Bar #384545) Enforcement Director
David Rubenstein (DC Bar #458770) Deputy Enforcement Director
Frank Kulbaski (DC Bar #438917) Assistant Deputy Director
/s/ Maureen Elin McOwen Maureen Elin McOwen (DC Bar #976749) Alan Kahn (Admitted in NY) Enforcement Attorneys Consumer Financial Protection Bureau 1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-9553 Facsimile: (202) 435-7329 E-mail: [email protected]
Attorneys for the Consumer Financial Protection Bureau
Case 2:15-at-00821 Document 1 Filed 07/23/15 Page 15 of 15
Stipulation ()
PDF of this document (15 pages)
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- 1 - STIPULATED FINAL JUDGMENT AND ORDER
UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA SACRAMENTO DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU,
Plaintiff,
v.
STUDENT FINANCIAL AID SERVICES, INC.,
Defendant.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No.: 2:15-cv-01581-GEB-KJN
STIPULATED FINAL JUDGMENT AND ORDER
The Consumer Financial Protection Bureau (Bureau) commenced this civil action on July 23, 2015, to obtain injunctive relief, damages, civil money penalties, and other relief from Student Financial Aid Services, Inc. (SFAS). In connection with SFAS’s marketing, sales, and billing practices, the Complaint alleges violations of sections 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531 and 5536; the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101 et seq., and its implementing rule, the Telemarketing Sales Rule (TSR), 16 C.F.R. Part 310; and the Electronic Fund Transfer Act (EFTA), 15 U.S.C. § 1693e(a), and Regulation E, 12 C.F.R. § 1005.10(b). The Bureau and SFAS, by and through counsel, request that the Court enter this Stipulated Final Judgment and Order (Order).
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FINDINGS 1.
This Court has jurisdiction over the parties and the subject matter of this action. 2.
All parties agree to entry of this Order, without adjudication of any issue of fact or law, to settle and resolve all matters in this dispute arising from the conduct alleged in the Complaint to the date this Order is entered.
3.
Defendant SFAS neither admits nor denies any allegation in the Complaint, except as stated in this Order. For purposes of this Order, SFAS admits the facts necessary to establish the Court’s jurisdiction over SFAS and the subject matter of this action. 4.
SFAS waives service under Rule 4(d) of the Federal Rules of Civil Procedure and waives all rights to seek judicial review or otherwise challenge or contest the validity of this Order. SFAS also waives any claim it may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the date of this Order. Each party will bear its own costs and expenses, including, without limitation, attorneys’ fees. 5.
Entry of this Order is in the public interest. DEFINITIONS 6.
The following definitions apply to this Order: a. “Affected Consumer” means any consumer who purchased Defendant’s Gold and Combo services and, during the Relevant Period, was charged for Defendant’s FAFSA preparation services in a year in which the consumer did not use Defendant’s service to submit a FAFSA to the U.S. Department of Education.
b. “Affiliate” means any subsidiary, parent, or sibling corporation of Defendant.
c. “Effective Date” means the date on which the Stipulated Final Judgment and Order is entered.
d. “Electronic Fund Transfer” has the same meaning as defined by 12 C.F.R. § 1005.3(b).
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e. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegee.
f. “Free Application for Federal Student Aid” or “FAFSA” means the free application used by the U.S. Department of Education to determine a student’s eligibility for federal, state, and institutional assistance programs. g. “Gold and Combo Services” means the FAFSA preparation services Defendant marketed and sold under the names “FAFSA Gold,” “FAFSA Gold Combo,” and the “FAFSA + College Cost & Planning Report” or “FAFSA CCPR Combo” package.
h. “Negative Option Feature” has the same meaning as defined by 16 C.F.R. § 310.2(u).
i. “Preauthorized Electronic Fund Transfer” has the same meaning as defined by 12 C.F.R. § 1005.2(k).
j. “Related Consumer Action” means a private action by or on behalf of one or more consumers or an enforcement action by another governmental agency brought against Defendant based on substantially the same facts as described in the Complaint.
k. “Relevant Period” means the period from July 21, 2011 to the Effective Date.
l. “Defendant” means Student Financial Aid Services, Inc., and its successors and assigns.
m. “Standard Service” means FAFSA preparation services offered by Defendant, online or by telephone, without a Negative Option Feature. This includes services marketed and sold under the names “FAFSA Live,” “Express FAFSA,” “College Cost & Planning Report,” and the “College Plan.”
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n. “Telemarketing” has the same meaning as defined by 16 C.F.R. § 310.2(dd).
o. “Upselling” has the same meaning as defined by 16 C.F.R. § 310.2(ee). ORDER I Conduct Provisions IT IS ORDERED that:
7.
Defendant and its officers, agents, servants, and employees who have actual notice of this Order, whether acting directly or indirectly, may not violate, including by failing to take reasonable measures to ensure that its service providers, Affiliates, or other agents do not violate: (a) sections 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531 and 5536; (b) the TSR, 16 C.F.R. Part 310, as authorized by the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101 et seq.; or (c) the EFTA, 15 U.S.C. § 1693e(a), and its implementing regulation, Regulation E, 12 C.F.R. § 1005.10(b). 8.
Defendant and its officers, agents, servants, and employees who have actual notice of this Order, whether acting directly or indirectly, in connection with the advertising, marketing, promotion, offering for sale, sale, or performance of any consumer financial product or service, are permanently restrained and enjoined from misrepresenting, or assisting others in misrepresenting, expressly or impliedly: a.
The cost or price of such product or service;
b.
Any recurring charges or Negative Option Features associated with such product or service;
c.
That any consumer has provided authorization for future, automatic charges; or d.
Any other fact material to consumers concerning any good or service, including, without limitation, its total cost; any material restrictions, Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 4 of 15
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limitations, or conditions; or any material aspect of its performance, efficacy, nature, or central characteristics.
9.
Defendant and its officers, agents, servants, and employees who have actual notice of this Order, whether acting directly or indirectly, in connection with the advertising, marketing, promotion, offering for sale, sale, or performance of any consumer financial product or service, are permanently restrained and enjoined from engaging in any of the following activities, directly or indirectly:
a.
Attaching a Negative Option Feature to any product or service that results in automatic charges to the consumer for future services; or b.
Initiating a Preauthorized Electronic Fund Transfer from a consumer account without a writing signed or similarly authenticated by the consumer, and without providing a copy to the consumer. An authorization is valid only if it is readily identifiable as such and the terms of the preauthorized transfer are clear and readily understandable.
10.
As of the Effective Date, Defendant has canceled and must not reinitiate recurring, automatic charges, except those for which the Company has a separate, express, written authorization from the consumer agreeing to the specific amounts and schedule of charges. 11.
Within 30 days of the Effective Date, Defendant will adopt reasonable procedures for distinguishing between payments made by Electronic Fund Transfer or by some other means.
II Compliance Plan IT IS FURTHER ORDERED that:
12.
Within 30 days of the Effective Date, Defendant must submit to the Enforcement Director for review and determination of non-objection a comprehensive compliance plan designed to ensure that Defendant’s sales and billing practices, in connection with FAFSA Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 5 of 15
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preparation services, comply with all applicable Federal consumer financial laws and the terms of this Order (Compliance Plan). The Compliance Plan must include, at a minimum: a.
Detailed steps for addressing each action required by this Order; and b.
Specific timeframes and deadlines for implementation of the steps described above.
13.
The Enforcement Director will have the discretion to make a determination of nonobjection to the Compliance Plan or direct the Defendant to revise it. If the Enforcement Director directs the Defendant to revise the Compliance Plan, the Defendant must make the revisions and resubmit the Compliance Plan to the Enforcement Director within 30 days. 14.
After receiving notification that the Enforcement Director has made a determination of non-objection to the Compliance Plan, the Defendant must implement and adhere to the steps, requirements, deadlines, and timeframes outlined in the Compliance Plan. III Order to Pay Redress IT IS FURTHER ORDERED that:
15.
A judgment for equitable monetary relief and damages is entered in favor of the Bureau and against Defendant, in the amount of $14,500,000, for the purpose of providing redress to Affected Consumers for the alleged violations of law described in the Complaint; however, full payment of this judgment will be suspended upon satisfaction of the obligations in paragraphs 16 and 25 of this Order, and subject to Section IV of this Order. 16.
Within 10 days of the Effective Date, Defendant must pay to the Bureau, by wire transfer to the Bureau or to the Bureau’s agent, and according to the Bureau’s wiring instructions, $5,200,000, towards the judgment referenced in paragraph 15 of this Order. 17.
With regard to any redress that Defendant pays under this Section, if Defendant receives, directly or indirectly, any reimbursement or indemnification from any source, including, but not limited to, payment made under any insurance policy, or if Defendant secures a tax deduction or tax credit with regard to any federal, state, or local tax, Defendant Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 6 of 15
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must: (a) immediately notify the Enforcement Director in writing, and (b) within 10 days of receiving the funds or monetary benefit, transfer to the Bureau the full amount of such funds or monetary benefit (Additional Payment) to the Bureau or to the Bureau’s agent according to the Bureau’s wiring instructions. After the Bureau receives the Additional Payment, that payment will be applied toward the judgment entered in paragraph 15 and the amount of the suspended judgment referenced in paragraph 15 will be reduced by the amount of the Additional Payment.
18.
Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or the Bureau’s agent according to applicable statutes and regulations to be used for redress for injured consumers, including, but not limited to, refund of moneys, restitution, damages, or other monetary relief, and for any attendant expenses for the administration of any such redress. 19.
If the Bureau determines, in its sole discretion, that redress to consumers is wholly or partially impracticable or if funds remain after redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury as disgorgement. Defendant will have no right to challenge any actions that the Bureau or its representatives may take under this Section. 20.
Payment of redress to any Affected Consumer under this Order may not be conditioned on that Affected Consumer waiving any right. IV Effect of Misrepresentation or Omission Regarding Financial Condition IT IS FURTHER ORDERED that:
21.
The Bureau’s agreement to entry of this Order was expressly premised on the truthfulness, accuracy, and completeness of Defendant’s financial statements and supporting documents submitted to the Bureau in June 2015, which Defendant asserts are truthful, accurate, and complete.
22.
If the Court determines that Defendant has failed to disclose any material asset or that any of its financial statements contain any material misrepresentation or omission, Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 7 of 15
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including materially misstating the value of any asset, then the suspension of the monetary judgment entered in Section III will be terminated, and the Bureau can seek to enforce in any Federal district court as immediately due and payable the full judgment entered in Section III of this Order, $14,500,000, less any amounts paid under Section III of the Order. 23.
After the reinstatement of the monetary judgment under this Section, the Bureau will be entitled to interest on the judgment, computed from the date of entry of this Order, at the rate prescribed by 28 U.S.C. § 1961, as amended, on any outstanding amounts not paid. V Order to Pay Civil Money Penalties IT IS FURTHER ORDERED that:
24.
Under section 1055(c) of the CFPA, 12 U.S.C. § 5565(c), by reason of the violations of law alleged in the Complaint, and taking into account the factors in 12 U.S.C. § 5565(c)(3), Defendant must pay a civil money penalty of $1.00 to the Bureau. 25.
Within 10 days of the Effective Date, Defendant must pay the civil money penalty by wire transfer to the Bureau or to the Bureau’s agent in compliance with the Bureau’s wiring instructions.
26.
The civil money penalty paid under this Order will be deposited in the Civil Penalty Fund of the Bureau as required by section 1017(d) of the CFPA, 12 U.S.C. § 5497(d). 27.
Defendant must treat the civil money penalty paid under this Order as a penalty paid to the government for all purposes. Regardless of how the Bureau ultimately uses those funds, Defendant may not:
a.
Claim, assert, or apply for a tax deduction, tax credit, or any other tax benefit for any civil money penalty paid under this Order; or b.
Seek or accept, directly or indirectly, reimbursement or indemnification from any source, including but not limited to payment made under any insurance policy, with regard to any civil money penalty paid under this Order.
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28.
To preserve the deterrent effect of the civil money penalty in any Related Consumer Action, Defendant may not argue that Defendant is entitled to, nor may Defendant benefit by, any offset or reduction of any compensatory monetary remedies imposed in any Related Consumer Action because of the civil money penalty paid in this action (Penalty Offset). If the court in any Related Consumer Action grants such a Penalty Offset, Defendant must, within 30 days after entry of a final order granting the Penalty Offset, notify the Bureau, and pay the amount of the Penalty Offset to the U.S. Treasury. Such a payment will not be considered an additional civil money penalty and will not change the amount of the civil money penalty imposed in this action.
VI Additional Monetary Provisions IT IS FURTHER ORDERED that:
29.
In the event of any default on Defendant’s obligations to make payment under this Order, interest, computed under 28 U.S.C. § 1961, as amended, will accrue on any outstanding amounts not paid from the date of default to the date of payment, and will immediately become due and payable.
30.
Defendant must relinquish all dominion, control, and title to the funds paid to the fullest extent permitted by law and no part of the funds may be returned to Defendant. 31.
Under 31 U.S.C. § 7701, Defendant, unless it already has done so, must furnish to the Bureau its taxpayer identifying numbers, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order. 32.
Within 30 days of the entry of a final judgment, consent order, or settlement in a Related Consumer Action, Defendant must notify the Enforcement Director of the final judgment, consent order, or settlement in writing. That notification must indicate the amount of redress, if any, that Defendant paid or is required to pay to consumers and describe the consumers or classes of consumers to whom that redress has been or will be paid.
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33.
Under section 604(a)(1) of the Fair Credit Reporting Act, 15 U.S.C.§ 1681b(a)(1), any consumer reporting agency may furnish a consumer report concerning Defendant to the Bureau, which may be used for purposes of collecting and reporting on any delinquent amount arising out of this Order.
VII Reporting Requirements IT IS FURTHER ORDERED that:
34.
Defendant must notify the Bureau of any development that may affect compliance obligations arising under this Order, including but not limited to, a dissolution, assignment, sale, merger, or other action that would result in the emergence of a successor company; the creation or dissolution of an Affiliate that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against Defendant; or a change in Defendant’s name or address. Defendant must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.
35.
Within 10 days of the Effective Date, Defendant must: a.
Designate at least one telephone number and email, physical, and postal address as points of contact, which the Bureau may use to communicate with Defendant;
b.
Identify all businesses for which Defendant is the majority owner, or that Defendant directly or indirectly controls, by all of their names, telephone numbers, and physical, postal, email, and Internet addresses; and c.
Describe the activities of each such business, including the products and services offered, and the means of advertising, marketing, and sales. Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 10 of 15
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36.
Defendant must report any change in the information required to be submitted under paragraph 35 at least 30 days before the change or as soon as practicable after the learning about the change, whichever is sooner.
37.
Within 90 days of the Effective Date, and again one year after the Effective Date, Defendant must submit to the Enforcement Director an accurate written compliance progress report (Compliance Report) which, at a minimum: a.
Describes in detail the manner and form in which Defendant has complied with this Order; and b.
Attaches a copy of each Order Acknowledgment obtained under Section VIII unless previously submitted to the Bureau.
VIII Order Distribution and Acknowledgment IT IS FURTHER ORDERED that:
38.
Within 30 days of the Effective Date, Defendant must deliver a copy of this Order to any managers, employees, service providers, or other agents and representatives who have responsibilities related to the subject matter of the Order. 39.
For 5 years from the Effective Date, Defendant must deliver a copy of this Order to any business entity resulting from any change in structure referred to in Section VII, any future board members and executive officers, and any managers, employees, service providers, or other agents and representatives who will have responsibilities related to the subject matter of the Order before they assume their responsibilities. 40.
Defendant must secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with the requirements of the E- Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons receiving a copy of this Order under this Section.
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IX Recordkeeping IT IS FURTHER ORDERED that:
41.
Defendant must create, for at least 5 years from the Effective Date, the following business records:
a.
All documents and records necessary to demonstrate full compliance with each provision of this Order, including all submissions to the Bureau.
b.
Copies of all sales scripts; training materials; advertisements; websites; and other marketing materials; and including any such materials used by a third party on behalf of Defendant.
c.
Copies of all written authorizations provided by consumers and proof of production to consumers of such written authorizations for payments made by Preauthorized Electronic Fund Transfers. d.
For all fee for service student aid preparation services that are paid for by consumers, accounting records showing the gross and net revenues generated by the services.
e.
All consumer complaints regarding billing and refund requests (whether received directly or indirectly, such as through a third party), and any responses to those complaints or requests. 42.
Defendant must retain the documents identified in paragraph 41 for at least 5 years. 43.
Defendant must make the documents identified in paragraph 41 available to the Bureau upon the Bureau’s request.
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X Notices IT IS FURTHER ORDERED that:
44.
Unless otherwise directed in writing by the Bureau, Defendant must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line, “In re Student Financial Aid Services, Inc., No. 2013-0839- 02,” and send them either:
a. By overnight courier (not the U.S. Postal Service), as follows:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1625 Eye Street, N.W.
Washington D.C. 20006; or
b. By first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Director for Enforcement Consumer Financial Protection Bureau ATTENTION: Office of Enforcement 1700 G Street, N.W.
Washington D.C. 20552
XI Cooperation with the Bureau IT IS FURTHER ORDERED that:
45.
Defendant must cooperate fully to help the Bureau determine the identity and location of each Affected Consumer, as well as the amount charged for which redress is ordered. Defendant must provide such information in its or its agents’ possession or control within 21 days of receiving a written request from the Bureau. Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 13 of 15
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XII Compliance Monitoring IT IS FURTHER ORDERED that:
46.
Within 21 days of receipt of a written request from the Bureau, Defendant must submit additional Compliance Reports or other requested information, which must be made under penalty of perjury; provide sworn testimony; or produce documents. 47.
Defendant must permit Bureau representatives to interview any employee or other person affiliated with Defendant who has agreed to such an interview. The person interviewed may have counsel present.
48.
Nothing in this Order will limit the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6 or other compulsory process. XIII Modifications to Non-Material Requirements IT IS FURTHER ORDERED that:
49.
Notwithstanding the provisions of paragraph 51, any time limits for performance fixed by this Order may be extended by mutual written agreement of the parties and without further Court approval. Additionally, details related to administration of Sections VII through XII of this Order may be modified by written agreement of the parties and without further Court approval. Any other modifications to this Order may be made only upon approval of the Court, upon motion by any party.
XIV Release 50.
The Bureau releases and discharges Defendant from all potential liability for law violations that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. The Bureau may use the practices described in this Order in future enforcement actions against Defendant and its Affiliates, including, Case 2:15-cv-01581-GEB-KJN Document 8 Filed 09/11/15 Page 14 of 15
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without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order. XV Retention of Jurisdiction 51.
The Court will retain jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
Dated: September 11, 2015
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