California DFPI Files First Enforcement Action Against Student Debt Relief Company

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On February 3, 2021, the California Department of Financial Protection and Innovation (DFPI) announced its first formal enforcement action against an Irvine-based student debt relief company.  The DFPI’s action alleges that the company’s student debt relief practices violated the California Consumer Financial Protection Law and Student Loan Servicing Act.

According to the DFPI, for over three years, the company and its affiliates ran a student loan debt relief scam from California​, convincing over a dozen California residents and others nationwide to pay tens of thousands of dollars to “wipe away” their student loans by getting them “dismissed” or “discharged.”  ​The company allegedly operates a website, where it offers to, among other things, ​”potentially save [consumers] hundreds or thousands of dollars over the course of [their]student loan repayment,” and employ​ed “private student loan specialists” who “help [consumers] find private student loan refinancing options,” “[o]ptimize [their] monthly payments, lifetime cost, or payoff speed,” and more.

The DFPI claims that at least 18 California residents agreed to pay the company tens of thousands of dollars for debt relief services.  Servicing fees purportedly ranged from $21,000 to more than $26,500, depending on the consumer’s student loan balance.  According to the DFPI, each consumer agreed to pay Optima between 25 to 40 percent of their total student loan balance.  The DFPI claims that the company did not actually provide any services.  Instead, the company allegedly allowed the consumers to default on their loans, which were then sent to collections, where the company would make weak attempts to dispute the accounts.  Many consumers were then allegedly left with damaged credit and even more money owed.

The DFPI’s action would require the company to provide refunds to consumers who were charged illegal fees and $45,000 in fines relating to the company’s alleged violations of the California Consumer Financial Protection Law. ​

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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