The Consumer Financial Protection Bureau has banned a dispute resolution platform, Ejudicate, after the Los Angeles company misled student borrowers and initiated arbitration proceedings without their consent.
The CFPB said Thursday that Ejudicate committed unfair and deceptive acts and practices by failing to disclose that it had financial interests aligned with a Delaware-based creditor, Prehired, that ceased operating last year after being sued by the CFPB and 11 states. Prehired operated a 12-week online training program but when its debt collection practices came under scrutiny by regulators, it changed its contracts to force consumers into arbitration through Ejudicate. Last year, Prehired was ordered to void nearly $27 million in outstanding "income share" loans and pay $4.2 million in redress to student borrowers.
The CFPB said Ejudicate initiated arbitration proceedings on behalf of 68 student borrowers in 2022 who had defaulted on income share agreements with Prehired. Ejudicate deceived the borrowers about its own role in the arbitration process by "falsely representing itself as a neutral and impartial forum for consumer debt arbitrations," and failing to disclose that it had financial interests aligned with Prehired, the consent order stated.
"Ejudicate ran bogus arbitration proceedings, deceived borrowers and hid its financial conflicts of interest," CFPB Director Rohit Chopra said in a press release. "Arbitration outfits cannot rig the process against consumers to enrich their corporate clients."
The company, which changed its name to Brief, did not respond to requests for comment.
Arbitration has been a major topic for the CFPB. Last year, the bureau proposed a rule to rein in arbitration clauses by creating a nonbank public registry of nonnegotiable contracts that limit liability amounts, waive class action rights and force customers into arbitration.
The bureau finalized a rule in 2017 that banned mandatory arbitration clauses in financial contracts including cell phones, credit cards and checking accounts. But
In the case of Ejudicate, the company claimed on its website that it had a "neutral and unbiased" process that was recognized by courts as "legally binding and enforceable." But the CFPB said Ejudicate "fashioned its rules and procedures to skew outcomes in favor of creditor-claimants."
The CFPB said that before starting arbitration proceedings of Prehired claims, Ejudicate did not require proof of a valid arbitration agreement between the parties.
The CFPB's order permanently bans Ejudicate from arbitrating disputes about consumer financial products or services and imposed a $1 civil penalty because of the company's inability to pay more.
