Consumer Fin. Prot. Bureau v. Aria, 54 F.4th 1168 (9th Cir. 2022)
The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:
The Ninth Circuit Court of Appeals (the Court) recently ruled that a student financial aid advisor, who mailed solicitation packets to current and prospective college students pertaining to their ability to apply for scholarships and grants in aid, was a “covered person” subject to the Consumer Financial Protection Bureau’s (CPFB) civil enforcement authority and that the net impression of the solicitations was deceptive. Consumer Fin. Prot. Bureau v. Aria, 54 F.4th 1168 (9th Cir. 2022).
To view the opinion, click here.
Armon Aria, as owner and CEO of Global Financial Support, Inc., between 2011 and 2016 mailed millions of solicitations to current and prospective college students, advertising a targeted program for assisting those students in applying for scholarships. The solicitation packets contained a letter which looked official with college-themed seals and an arbitrary filing deadline, which generally advised students to avoid taking out loans until they had applied for all available “free” financial aid.” In exchange for providing basic demographic information to Global and paying a $59-78 fee by the arbitrary deadline, students were vaguely promised that Global would provide as many targeted financial aid opportunities as possible to each applicant.
Approximately 76,000 students responded to the solicitations, paying more than $4.7 million in fees to Global. The only product or service these students ever received was a booklet that provided an overview of student financial aid and contained some generic information loosely tied to the students’ demographic profiles. However, nothing was individualized per student in the booklets and Global provided no further assistance in obtaining financial aid.
Not surprisingly, hundreds of students complained to state, federal and nonprofit consumer watchdog entities, which triggered the CFPB investigation. Global went out of business and Aria individually became the target of the investigation which led to this federal litigation, commenced in 2015, as a civil enforcement action by the CFPB. The action asserted that Aria’s solicitations were deceptive and violated the Consumer Financial Protection Act (the Act). After a multi-year stay due to a federal criminal investigation, in 2019 the CFPB moved for summary judgment against Aria. In the motion, the CFPB asserted that the solicitations were deceptive because they promised customized services to students which would be individually designed to assist them in obtaining scholarships if the solicited students responded (with the fee) by the arbitrary deadline, implying that failure to meet the deadline would result in lost opportunity. The district court granted summary judgment for the CFPB and entered judgment against Aria for restitution of $4.7 million in collected fees and a civil penalty of $10 million.
Aria appealed to the Court, asserting that he was not a person covered by the Act because he provided “nonfinancial advice on free scholarships” and the net impression of the solicitations were not deceptive. The Court affirmed in this published opinion.
The Act “makes it unlawful for a covered person [ ] to engage in any unfair, deceptive, or abusive act or practice.” 12 U.S.C. § 5536(a)(1)(B). The Act defines a “covered person” as “any person that engages in offering or providing a consumer financial product or service.” 12 U.S.C. § 5481(6)(A). Because the Act did not define “financial product or service,” the Court looked at dictionary definitions for the meaning of “financial”. Beginning with Merriam-Webster’s Collegiate Dictionary’s definition of “financial” as “relating to finance,” this inquiry caused the Court to conclude that “financial service” was to be broadly construed and included “to raise or provide funds or capital for” or “to furnish with necessary funds.” Looking at Aria’s solicitations, the Court easily concluded they fell within the financial service definition. Per the Court, “[a]dvising students to exhaust scholarship opportunities before taking on debt is no less ‘financial’ than advising students to leverage their unique access to federally subsidized loans.” Cementing this conclusion was the Court’s observation that the booklets sent to the students covered the entire field of student financial aid, including offering advice regarding student loans and leveraging a family home to pay for college. Thus, Aria was a covered person, subject to the Act.
Because the matter came before it from a summary judgment, the Court then was tasked to determine whether as a matter of law based on the undisputed facts the net impression of the solicitations was deceptive. The “net impression” measure was adopted by the Court in a Federal Trade Commission Act case and carried forward into Act cases by later Ninth Circuit authority. Because the solicitations promised customized services that Global neither provided nor intended to provide and were presented to students with a drop-dead response date which implied the opportunity could be lost without timely response, the Court ruled the net impression was deceptive. Summary judgment for the CFPB was affirmed.
It is heartening to see that financial services are so broadly defined by the Ninth Circuit, as what Aria was doing with his solicitations was certainly misleading and deceptive. It is even more satisfying to see the order for restitution include the entire amount of money that Aria received. The generic booklets he sent could not have cost him more than a few thousand dollars to prepare and print, making the potential profits from such behavior an incentive to defraud vulnerable students. Although the structure of the CFPB has come under federal attack due to the unique procedure used by Congress and the executive branch to create and fund this bureau, it would be a substantial blow to consumer protection if it were disbanded or otherwise prevented from carrying out its role.
This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.