FTC Bans Student Loan Debt Relief Scammers

Financial Services Law

Student loan debt relief scammers were on the receiving end of a ban by the Federal Trade Commission (FTC) as part of the agency’s Operation Game of Loans.

In addition to the ban, the defendants are subject to partially suspended judgments totaling $3.5 million (out of a possible $36 million).

What happened

In October 2017, the FTC joined forces with 11 states—Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas and Washington—and the District of Columbia to launch a total of 36 actions against defendants alleged to have used false and deceptive promises in order to rake in more than $95 million in illegal upfront fees in connection with student loan debt relief services.

Dubbed Operation Game of Loans, the actions included lawsuits against two Florida-based entities.

The first collected at least $7 million from consumers by charging illegal upfront fees of $750 or more, the agency alleged, using social media, email and telemarketing to promote its student loan debt relief services in both English and Spanish. The company and its owner promised consumers loan forgiveness in as little as five years or less, the FTC said, and instructed consumers not to communicate with their loan servicers.

In addition, the defendants fabricated income, unemployment status and family size information on relief applications in order to qualify borrowers for eliminated or reduced monthly payments, according to the Florida federal court complaint. A district court judge issued a temporary restraining order (TRO) to halt the deceptive practices and freeze the defendants’ assets.

To settle the charges, the defendants agreed to a complete ban from the student loan debt relief industry. They also are prohibited from making misrepresentations related to financial products or services and must pay approximately $2.2 million of a partially suspended $13 million judgment.

In the second case, the company and two co-owners bilked student loan borrowers out of at least $11 million, the FTC alleged, with false promises of lowered monthly payments, reduced interest rates and loan forgiveness. The defendants also lied about an affiliation with the U.S. Department of Education and duped consumers into believing that the illegal upfront fees charged—up to $899—were being used to pay off student loans.

After a TRO and a preliminary injunction were issued by the Florida federal court, the defendants reached a deal. On top of the industry ban, the defendants must turn over roughly $1.3 million (including assets that would not be collectible in litigation) from a partially suspended judgment of $23 million.

To read about the FTC’s operation and the latest settlements, click here.

Why it matters

Litigation continues against other defendants targeted in the joint FTC-state operation, reflecting both the trillions of dollars of student loan debt outstanding and the increase in scammers taking advantage of students having difficulties repaying those loans. The actions are part of a larger trend of cracking down on student loan debt relief companies, student lenders and student loan servicers, by entities from the FTC to state regulators in California and, in the Director Richard Cordray era, the Consumer Financial Protection Bureau.