On May 8, 2023 the FTC announced that it filed complaints against two loan forgiveness and debt relief companies on April 24, 2023 alleging that they falsely claimed to be affiliated with the Department of Education.
The companies allegedly told students that certain fee payments would count toward repayment programs and student loan forgiveness. In response to the complaints seeking to end these alleged deceptive practices, the Central District of California entered a temporary restraining order in each case and froze the assets of the two companies on May 2 and May 3.
The FTC complaints allege that the two companies have been targeting low-income borrowers with high student debt, tricking them into paying illegal upfront fees since at least 2019. The complaint further alleges that the companies’ programs were marketed as legitimate loan repayment programs that would forgive the consumers’ student loans in whole or in part, and that most or all of consumers’ payments to the companies would be applied to their loan balances. The complaints state that, typically, the companies would collect or attempt to collect several “initial” monthly payments of between $200 to $300, sometimes followed by monthly payments in a lower amount.
Further the companies allegedly represented that the Department of Education would eventually take over servicing the loans. According to the FTC, in reality, the companies allegedly collected approximately $12 million in illegal fees. Samuel Levine, Director of FTC’s Bureau of Consumer Protection commented, “[a]s Americans struggle with massive student loan debt and uncertainty around the prospect of forgiveness, scammers are looking to cash in,” adding, “[t]hese lawsuits to shut down student loan debt relief schemes continue the agency’s crackdown on junk fees, unwanted calls, and financial exploitation.”
The FTC alleges that the companies’ misrepresentations about their affiliation with the Department of Education constitute a violation of Section 5 of the FTC Act and the Telemarketing Sales Rule (TSR). Further, the illegal advance fees allegedly violate the TSR and the Gramm-Leach-Bliley Act by using deceptive tactics to obtain consumers’ financial information. Lastly, one of the companies allegedly violated the TSR by calling consumers on the Do Not Call Registry and failing to pay associated fees.
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