Clarifying the Face-to-Face Sales Exemption under the Telemarketing Sales Rule: CFPB v. Stratfs

Introduction

Consumer Financial Protection Bureau v. Stratfs, LLC (f/k/a Strategic Financial Solutions, LLC) was decided by the United States Court of Appeals for the Second Circuit on June 2, 2025. At issue was whether a debt-relief provider could evade the Telemarketing Sales Rule’s prohibition on collecting advance fees by sending independent notaries to consumers’ homes, claiming that these encounters qualified as “face-to-face sales presentations” exempted from the advance-fee ban. The Consumer Financial Protection Bureau (CFPB), joined by seven state attorneys general, sought and obtained a preliminary injunction against Strategic and its affiliates, halting their fee-collecting practices. Strategic appealed, arguing both that its use of third-party notaries satisfied the exemption and that certain TSR provisions were inconsistent with the Telemarketing Act. The Second Circuit affirmed, establishing that only presentations by the seller or its agents qualify for the exemption, and that mere facilitation by independent notaries does not suffice.

Summary of the Judgment

The Second Circuit affirmed the district court’s grant of a preliminary injunction preventing Strategic from collecting advance fees under its debt-relief programs. The Court held:

Strategic’s practice of dispatching third-party notaries to consumers’ homes did not meet the “face-to-face sales presentation” exemption in 16 C.F.R. § 310.6(b)(3) because those notaries were neither “sellers” nor agents authorized to sell on Strategic’s behalf.
The district court’s factual finding — that notaries were expressly prohibited from explaining or marketing Strategic’s programs and were instructed only to notarize documents — was not clearly erroneous.
The appointment of a receiver and the asset freeze were within the district court’s equitable powers to preserve the status quo and ensure meaningful relief (restitution/disgorgement) if Strategic’s practices were ultimately unlawful.
Individual defendants (e.g., the CEO Ryan Sasson and consultant Jason Blust) were properly enjoined because they knowingly provided substantial assistance to the TSR violations.

The Court remanded for further proceedings, leaving in place the injunction and receivership.

Analysis

1. Precedents Cited

The Court’s decision drew on several key authorities:

Telemarketing Sales Rule (TSR), 16 C.F.R. § 310.1 et seq.
Prohibits advance fees for debt-relief services, with a narrow “face-to-face sales presentation” exemption at § 310.6(b)(3).
In re Nine West LBO Securities Litigation, 87 F.4th 130 (2d Cir. 2023)
Defined the standard for agency relationships under the Restatement (Third) of Agency — a principal’s assent plus control and the agent’s assent.
Restatement (Third) of Agency § 1.01 (2006)
The foundational test for agency: manifestation of consent by principal and agent, and subjection to principal’s control.
Conn. State Police Union v. Rovella, 36 F.4th 54 (2d Cir. 2022)
Standard of review for preliminary injunctions: abuse of discretion, with legal conclusions reviewed de novo and factual findings for clear error.
Gucci Am., Inc. v. Weixing Li, 768 F.3d 122 (2d Cir. 2014)
Recognizes district courts’ inherent equitable authority to issue asset-freeze injunctions when restitution or disgorgement may follow.
SEC v. American Board of Trade, Inc., 830 F.2d 431 (2d Cir. 1987)
Endorses receiverships to manage assets during complex litigation when needed to preserve the status quo.

2. Legal Reasoning

Two central issues framed the Court’s reasoning:

Applicability of the Face-to-Face Exemption:
TSR § 310.6(b)(3) exempts telemarketers from the advance-fee ban if the fee is taken only after a “face-to-face sales presentation by the seller.” The Court emphasized that “seller” means the entity providing or arranging the service (16 C.F.R. § 310.2(ee)). The exemption does not apply when independent contractors merely hand over documents without substantive presentation. Strategic’s notaries were instructed only to notarize contracts and refer questions back to remote “Financial Consultants,” showing no actual sales activity or control by Strategic over those presentations. Under the Restatement test, the absence of principal-agent assent and control foreclosed an exemption.
Equitable Remedies—Asset Freeze & Receiver:
Because the CFPB and states sought restitution and disgorgement, the district court properly exercised its equitable authority to freeze Strategic’s assets (Gucci) and to appoint a receiver to safeguard funds and maintain a clear accounting (Manor Nursing Centres, Rosen v. Siegel). The Court found no abuse of discretion in these measures given the risk of asset dissipation and the complexity of tracking interconnected corporate entities.
Individual Liability:
Under 16 C.F.R. § 310.3(b), persons who “provide substantial assistance” to TSR violations with knowledge of the wrongdoing are themselves liable. The district court’s findings — that Sasson founded and ran Strategic and that Blust drafted scripts and coordinated the firms — were sufficient to support injunctions against them individually. The Court declined to entertain strategic challenges to the TSR’s validity under the Telemarketing Act, deeming them forfeited.

3. Impact on Future Cases and the Law

CFPB v. Stratfs clarifies and narrows the face-to-face exemption in debt-relief telemarketing:

Strict Agency Requirement: Only presentations conducted by the seller itself or by agents with actual authority and control qualify for the exemption. Merely facilitating contract execution through neutral third parties will not suffice.
Broad Application of TSR: Telemarketers offering financial or debt services will need to restructure in-person sales models if they rely on exemptions. They may need to employ company-controlled sales representatives on site or delay fee collection until genuine face-to-face meetings occur.
Equitable Safeguards: Regulators may continue to secure asset freezes and receiverships at the preliminary stage to preserve remedies—a reminder that multi-entity corporate structures cannot easily shelter assets from equitable relief.
Enforcement Against Individuals: Company officers and consultants should be aware that personal participation and knowledge of TSR violations can trigger injunctions and liabilities.

Complex Concepts Simplified

Telemarketing Sales Rule (TSR): A federal regulation (16 C.F.R. § 310) that governs how telemarketers can operate. It generally bans collecting fees for debt-relief services until the services are delivered, but allows certain exemptions.
Face-to-Face Sales Presentation Exemption: An exception in the TSR (16 C.F.R. § 310.6(b)(3)) permitting advance‐fee collection if payment is only taken after an in-person sales pitch conducted by the seller or its authorized agent.
Advance Fee Prohibition: The core rule (16 C.F.R. § 310.4(a)(5)(i)) makes it unlawful for debt-relief providers to request or receive any fee until after the promised services are fully performed.
Preliminary Injunction: A court order issued early in a lawsuit to prevent ongoing harm before the case is finally decided. The movant must show: likelihood of success on the merits, irreparable harm, balance of equities, and public interest.
Agency Relationship: Occurs when one person (the principal) authorizes another (the agent) to act on its behalf and exercises control over that person’s actions in carrying out the task.
Asset Freeze & Receiver: Equitable tools allowing a court to lock down a defendant’s assets and appoint a neutral third party (receiver) to manage or preserve those assets pending litigation outcome.

Conclusion

CFPB v. Stratfs, LLC significantly tightens the requirements for the face-to-face exemption under the Telemarketing Sales Rule, making clear that only sellers or their agents—subject to the principal’s control and assent—can invoke it. The decision underscores the CFPB’s ability, in tandem with state attorneys general, to deploy preliminary injunctive and equitable remedies, including asset freezes and receiverships, to curb unlawful fee-collecting practices. This ruling will guide debt-relief providers in re-designing their marketing and payment processes to ensure compliance with the TSR and warns corporate officers and consultants of personal exposure when facilitating or authorizing unlawful telemarketing conduct.