Attorney: Even $1 penalty can help compensate consumers in CFPB cases

By Sharon Brooks Hodge | Apr 5, 2016

PHILADELPHIA - Even a fine of $1 issued by a federal consumer protection agency against a financially troubled company is significant, a Philadelphia attorney says.

Barbara Mishkin, of counsel at Ballard Spahr in Philadelphia, says a fine of any amount enables consumers to participate in a multimillion-dollar fund overseen by the financial Consumer Financial Protection Bureau.

This could help with those eligible for compensation from Student Loan Processing, a California company recently fined $8.2 million by a California federal court for allegedly representing affiliation with the U.S. Department of Education.

The company also allegedly charged borrowers millions of dollars in illegal upfront fees for federal student loan services. Because it has no ability to pay the full judgment, all but $326,000 was suspended.

“Typically, the CFPB seeks judgment when it has been determined that a company does not have the assets to pay the fines and penalties that have been assessed,” said Mishkin, who represents companies defending complaints filed by the CFPB.

The CFPB manages a fund that is used to compensate victims in cases like this.

According to court documents, CFPB will be contacting current and former customers of Student Loan Prossessing.US. The letter to victims states:

“You will likely receive a refund of at least some of the fees you paid to SLP, unless you have already received a full refund. The Bureau will contact you when there is further information to share regarding the availability, status, and amount of refunds. In addition, any contract you entered with SLP is now cancelled, and SLP will no longer be charging you a monthly fee.”

The company’s customers may not necessarily get the full amount that they lost during their transactions with the business because CFPB’s funds must be shared among all of the victims of all cases, Mishkin said.

The CFPB regularly reports on how much money is in the fund. According to its most recent report, the balance of funds CFPB has available for compensating all victims is currently $136.6 million.

The judgment also imposed a civil money penalty of $1.

“You might ask if there is any point of even imposing a $1 fine. But that fine is necessary to make victims eligible for participation in the fund,” Mishkin said.

Section 1017 of the Dodd–Frank Wall Street Reform and Consumer Protection Act established in the Federal Reserve a separate Consumer Financial Protection Bureau Civil Penalty Fund.

When the CFPB collects civil penalties in an enforcement action, it is required to deposit them in this fund.

The majority of the funds are used to compensate consumers harmed by activities that result in civil penalties. If any money is left after the CFPB has provided full compensation to all eligible victims, then the CFPB can use the funds for consumer education and financial literacy programs, Mishkin said.

In addition to the fines, the judgment bans Student Loan Processing.US and its sole owner, James Krause, from any future involvement in debt relief and student loan services.

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