Some Lessons from the CFPB’s Springstone Enforcement Action

Last week, the Consumer Financial Protection Bureau (CFPB) announced a settlement with Springstone Financial, LLC, for deceptive practices related to enrolling consumers in deferred-interest credit products. Springstone administered a health-financing program through which consumers could finance various medical treatments, including dental treatments. Consumers could apply for credit either through Springstone’s website or at their medical provider’s office. In the case of the latter, the health care providers’ staff — who were trained and monitored by Springstone — would provide consumers with application materials and assist them in filling out the application before submitting it to Springstone on consumers’ behalf. The CFPB’s claim centered on these providers. “In some cases,” according to the CFPB, dental staff allegedly told consumers that the deferred-interest product was a no-interest loan and failed to mention that a 22.98 percent interest rate would apply from the date of the loan if the loan balance was not paid in full by the end of the promotional period. The CFPB found these practices deceptive and determined that more than 3,200 consumers “may have been” affected by them. As a result, Springstone was ordered to provide $700,000 in restitution to the 3,200 consumers who ended up paying deferred interest on a loan they applied for with a health-care provider’s assistance. The CFPB did not assess a civil money penalty.

Several lessons can be drawn from this settlement. First, the CFPB is clearly interested in the marketing of deferred-interest products, particularly in the health-care space where such credit is often accessed through health care providers. This is the agency’s second settlement involving this issue and the allegations in this case are very similar to those in the CFPB’s settlement with GE Capital Retail Bank and CareCredit LLC in December 2013. In both cases, health care staff marketing deferred-interest credit products were found to have mischaracterized the products as interest-free and failed to inform consumers of the interest that would accrue if the entire balance were not paid during the promotional period.

Second, as with the CareCredit case and other CFPB actions, the agency continues to hold covered persons responsible for the conduct of their agents. In both Springstone and CareCredit, the CFPB alleged that the respondent had failed to properly train and monitor the health care providers who were the consumers’ gateway to the credit product. But it was the health care providers’ conduct that formed the real core of the agency’s claim, for it was those providers who made the allegedly deceptive statements in describing the credit available. The CFPB has consistently taken the position that providers of consumer financial products and services are responsible for the conduct of their agents and service providers. The Springstone settlement once again reinforces the CFPB’s determination to hold creditors responsible for how their products are marketed, originated, and serviced.

Third, the case also reflects the CFPB’s very broad approach to consumer restitution. The Consent Order makes clear that it was only in “some cases” that dental care providers allegedly deceived consumers about the nature of the deferred-interest product. Similarly, it states that more than 3,200 consumers “may have been” affected by this conduct. Notwithstanding these factual findings, the Order requires Springstone to provide restitution to all consumers who signed up for the deferred-interest product at a dental office and ended up paying some deferred interest. This blanket approach to consumer restitution is consistent to the CFPB’s approach in other cases, where the agency has found some illegal conduct sufficient to warrant wholesale restitution to include consumers who may not have been deceived. Essentially, once the CFPB has identified an allegedly illegal practice, it places the burden on respondents to prove that consumers were not harmed by it. Companies caught up in a CFPB enforcement action involving consumer restitution should explore ways to identify groups of consumers who should not be entitled to restitution. Identifying such carve outs and convincing CFPB enforcement staff of their validity can be an effective means of lowering the agency’s restitution demands.

Finally, the Springstone case is noteworthy because the agency did not impose a civil money penalty. In its roughly 100 enforcement actions to date, the CFPB has foregone a civil penalty only 15 times. The lack of a penalty in virtually all of those cases can be explained by responsible business conduct the agency has highlighted, the fact that most or all of the violations at issue occurred before the CFPB had penalty authority, or the participation of many other agencies and substantial other relief being afforded. In less than a handful of cases has the CFPB foregone a penalty when those factors were not present. One can only surmise why no penalty was imposed here. Perhaps it was because the current owner of Springstone acquired the company in April 2014 and terminated the deferred-interest product in December 2014 (presumably during the pendency of the CFPB’s investigation). In at least one other case, its action against Fort Knox National Co., the CFPB has not imposed a penalty when the underlying conduct had ceased long before the Consent Order was issued. It would be helpful for the CFPB to highlight its reasoning in cases such as this where no penalty is imposed.