Consumer Finance Insights
September 20, 2018

New York AG Sues Nine Student Loan Debt Relief Companies Over Misrepresentations

On September 20, New York Attorney General Barbara D. Underwood announced a lawsuit against nine student loan debt relief companies, their financing company, and two individuals with leadership roles in several of the companies (collectively, “defendants”).  The lawsuit alleges that defendants violated the Federal Credit Repair Organization Act, 15 U.S.C. § 1679 et seq., the Telemarketing Sales Rule, 16 C.F.R. § 310 et seq., the Truth In Lending Act, 15 U.S.C. 1601 et seq., as well as New York state laws concerning fraud, deceptive business practices, and excessive interest rates.

The Complaint​, filed in the New York Supreme Court for the County of New York, alleges that defendants falsely claimed to be affiliated with the federal government, made multiple misrepresentations to induce consumers to enroll in their services, and charged consumers illegal upfront fees and/or usurious interest rates. Specifically, the complaint alleges that the defendants contacted borrowers through deceptive personalized direct mail solicitations that appear to come from the federal government, and deceptive Facebook ads that claim “breaking news” that certain United States Department of Education programs were recently approved by the federal government, when in fact those programs have been available for years.

Further, the complaint alleges that the defendants relied on “Student Loan Advisors”—who hold themselves out as being knowledgeable about student loans, but are in reality telemarketers with no specialized experience or expertise—to sell student loan debt-relief agreements to consumers by phone.  These “advisors” allegedly made false and deceptive misrepresentations to consumers, including telling borrowers that they can eliminate their student loan debt by making a number of payments to one of the defendants.  In fact, however, making these payments did not reduce, let alone eliminate, their student loan debt.  Defendants typically charged consumers more than $1,000 each for their services, and, in recent years, have required that consumers enter into financing agreements that typically charge New York consumers 20.99% interest, above the New York civil usury rate cap of 16%.

The lawsuit seeks injunctive relief, a declaration that defendants’ contracts with borrowers are null and void, restitution, damages, disgorgement, civil penalties, and costs.