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  • FTC seeks permanent injunction to stop alleged student loan debt relief scam

    Consumer Finance

    On February 7, the FTC announced it was charging a student loan debt relief operation with violations of the FTC Act and the Telemarketing Sales Rule (TSR) for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, defendants contacted consumers through personalized mailers that falsely claimed borrowers had pre-qualified for federal loan assistance programs that would reduce their monthly debt payments to a fixed payment or result in total loan forgiveness. However, the FTC asserted that monthly payments under federal income-driven repayment programs vary from year to year due to fluctuations in income, and that most consumers do not meet the programs’ strict eligibility requirements. Among other things, defendants allegedly charged illegal up-front fees to purportedly enroll consumers in programs, accepted monthly payments that were not applied towards student loans, and collected monthly fees that consumers believed were being applied to their loans but instead were going towards unrelated “financial education” programs. According to the FTC, defendants have collected over $28 million since 2014. In connection with the telemarketing of student loan debt relief services, the FTC also charged defendants with TSR violations for allegedly collecting illegal upfront fees and misrepresenting “material aspects of their debt relief services.” The FTC is seeking a permanent injunction against defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”

    This action is part of the FTC’s enforcement initiative, Operation Game of Loans, which targets companies that engage in practices that harm student loan borrowers. (See previous InfoBytes coverage here.)

    Consumer Finance FTC Debt Relief Enforcement Student Lending

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  • State AGs Sue Department of Education for Withholding Promised Student Loan Debt Relief

    State Issues

    On December 14, state attorneys general from California, Massachusetts, Illinois, and New York, filed lawsuits (see here and here) against the U.S. Department of Education (Department) in federal courts in California and Washington, D.C., accusing the Department of withholding student loan debt relief to tens of thousands of borrowers determined to have been defrauded by a now-defunct chain of for-profit colleges. According to the complaints, the Department promised borrowers expedited discharges of their federal student loans, reimbursements of previously paid amounts, and, according to the California complaint, “streamlined review procedures” to quickly process relief. However, the attorneys general made a variety of claims, including asserting that the Department has (i) since January 20, 2017, delayed approval of all pending borrower-defense claims; (ii) pursued unlawful debt-collection actions against borrowers, such as seizing students’ tax refunds and garnishing their wages in violation of the Administrative Procedure Act; and (iii) failed to justify the “disparate and unequal treatment of similarly situated claimants.” In addition to a request that the court vacate denials of covered borrower-defense claims, the attorneys general seek, among other things, that the Department (i) resume discharging the loans of affected borrowers; (ii) cease the alleged unlawful collections; and (iii) according to the Massachusetts, Illinois, and New York lawsuit, provide ancillary relief “including refunding amounts already seized from . . . borrowers pursuant to the unlawful certification for offset or administrative wage garnishment.”

    The lawsuits follow other challenges and proposals of state attorneys general to the Department related to its oversight of federal student loans (see previous InfoBytes coverage here, here, and here).

    State Issues State Attorney General Student Lending Department of Education Debt Relief

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  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State Attorney General Student Lending Debt Settlement Enforcement Debt Relief

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  • CFPB Takes Action Against Debt Relief Companies for Allegedly Violating the TSR and Claiming to be Affiliated With the Federal Government

    Consumer Finance

    On October 12, the CFPB announced the filing of a complaint in the U.S. District Court for the District of Maryland against two companies, their service provider, and their owners (defendants) for allegedly misleading consumers about their debt validation program. According to the complaint, the defendants allegedly engaged in abusive and deceptive acts and practices in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act by purportedly (i) charging advance fees for debt-relief services before altering the terms of the consumers’ debts or achieving promised results; (ii) misrepresenting the abilities of their debt-relief and credit-repair services; (iii) failing to disclose to consumer that if they stopped making payments on debts enrolled in the service they may be subject to collections or lawsuits from creditors that could increase the overall amount of money owed due to fees and interest; and (iv) misrepresenting an affiliation, endorsement, or sponsorship with the federal government by using direct mailers designed to look like an official government notice.

    Consumer Finance CFPB Debt Relief Enforcement CFPA Telemarketing Sales Rule UDAAP

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  • Florida Judge Issues Temporary Injunction to Halt Debt Relief Operation

    Consumer Finance

    On May 25, at the request of the FTC and the State of Florida, a Southern District of Florida court issued a preliminary injunction order temporarily halting a debt relief operation that bilked millions of dollars from financially strapped consumers. According to the complaint filed by the FTC and the State of Florida, the Defendants—who operated the debt relief operation—allegedly violated the FTC Act, the FTC’s Telemarketing Sales Rule (TSR), and the Florida Deceptive and Unfair Trade Practices Act by claiming they would enroll consumers in loan forgiveness or payment reduction programs to pay, settle, or obtain dismissals of their debts and improve their credit. (See FTC v. Marcus, No. 0:17-cv-60907-CMA (S.D. Fla. May 8, 2017).) Consumers were often promised attractive interest rates and significantly lower monthly payments. However, consumers, after paying hundreds or thousands of dollars a month for promised debt-consolidation services, discovered their debts were unpaid, their accounts had defaulted, and their credit scores damaged. Several were sued by their creditors, and some were forced into bankruptcy. The FTC and the State of Florida further allege that the Defendants “falsely claimed non-profit status to appear more credible and legitimate.” The complaint further alleges that Defendants called consumers already enrolled with debt-relief providers to inform them that they were taking over the servicing of those accounts and would provide the same or similar debt relief services. Contrary to the Defendants’ promises, consumers ended up in worse financial positions.

    In its preliminary injunction order, the court determined that there was good cause to believe that “immediate and irreparable harm” would result unless an injunction was issued. The order prohibits the defendants, in connection with the advertising, marketing, promotion or sale of any good or service, including any debt-relief product or service or credit product or service, from making misrepresentations about debt-relief programs or services and violating any provision of the TSR. The court also ordered a freeze of the Defendants’ assets, imposed financial reporting requirements, and appointed a temporary receiver. In a press release issued by the FTC, the Agency claims it seeks to “permanently stop the alleged illegal practices and obtain refunds for affected consumers.”

    Consumer Finance Debt Relief Enforcement FTC

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  • Massachusetts AG Announces Settlement with Student Loan Debt Relief Company

    Lending

    On April 28, Massachusetts Attorney General Maura Healey announced a settlement with a student loan debt relief company to resolve allegations that the company charged consumers illegal upfront fees to receive debt relief assistance and falsely led customers to believe it was affiliated with the federal government. According to the Attorney General’s office, this is the fourth in a series of enforcement actions brought against student loan debt relief companies in the state. Under the terms of the April settlement, the company is required to refund $6,500 to 18 affected borrowers, must agree to discontinue providing student loan services, and is prohibited from selling or disseminating Massachusetts customer information collected. Previously in 2015 and 2016, Healey announced settlements with three debt relief companies, bringing the overall recovery total to-date to more than $260,000. In November 2015, the state launched the Student Loan Assistance Unit to assist borrowers unable to repay their loans (see previous InfoBytes summary).

    Lending Debt Relief Student Lending State Attorney General Enforcement Settlement

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  • FTC Reaches $9 Million Settlement with Nationwide Debt Relief Company

    Financial Crimes

    On March 7, the FTC announced that it had reached a settlement with a debt relief company and its principals over allegations that they mislead consumers and charged illegal advance fees. The FTC claimed that the defendants sent direct mail ads that looked like official attorney or bank documents and exaggerated the amount of money consumers would save and the time it would take them to become debt free. In violation of the FTC’s Telemarketing Sales Rule, the defendants also allegedly charged advance fees before negotiating savings on credit card debts. The stipulated order requires the defendants to pay $9 million (to be partially suspended upon payment of $510,000), a figure that represents the amount of alleged harm to consumers. The defendants are also banned from “making misrepresentations about debt relief and other financial products or services, and making unsubstantiated claims about any products or services.”

    Financial Crimes FTC Telemarketing Sales Rule Debt Relief

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