Consumer Finance Insights
September 23, 2019

FTC Settles With Operators of Alleged Student Loan Debt Relief Schemes

On September 12, 2019, the Federal Trade Commission (FTC) announced that it had settled lawsuits​ against the operators of two alleged student loan debt relief schemes, and a financing company that assisted them, alleging that they had bilked millions of dollars from consumers.  The FTC alleged that the defendants violated the FTC Act, 15 U.S.C. § 45(a), and provisions of the Telemarketing Sales Rule (TSR), 16 C.F.R. Part 310, by charging consumers illegal upfront fees, making false promises that their services would permanently lower or eliminate consumers’ loan payments or balances, and signing up consumers for high-interest loans without making the required disclosures.

The FTC filed two complaints against defendants involved in the scheme.  In the first, the FTC and the State of Minnesota alleged that the student debt relief defendants deceptively promoted payment reduction programs to consumers, charged consumers up to $1,400, and guided them to finance that fee through a high-interest loan with a third-party financier, another defendant in the scheme.  The student debt relief company and the financing company involved agreed to be banned from the debt relief business, and to refrain from making material misrepresentations about any other kind of product or service in order to settle the charges.  The stipulated order also imposes a $4.2 million judgment, and requires the student debt relief defendants to notify its customers that none of their prior payments have gone towards a Department of Education repayment program or towards their student loans.

In the second action, the FTC alleged that a different set of defendants also engaged in deceptive and abusive practices for several years – similar to those alleged in the first action – and that the financing company knew, or consciously avoided knowing, that the defendants in the first action were engaged in deceptive and abusive telemarketing practices.  The financing company is also charged with violating sections of the Truth in Lending Act, 15 U.S.C. §§ 1631 and 1638, and its implementing Regulation Z, 12 C.F.R. §§ 1026.17 and 1026.18, by failing to clearly and conspicuously disclose in writing necessary information concerning the closed-end credit financing that it offered.  Through the stipulated orders in both actions, the financing company has agreed to pay approximately $4 million and $24 million respectively to settle the claims.  It is also required to relinquish its right to collect on any outstanding balances from current or former customers of the student debt relief defendants and must notify consumers that it will not collect further payments from them.