CFPB and State AGs Sue Student Loan Debt Relief Companies

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The CFPB and the Attorneys General of California, Minnesota, and North Carolina recently filed a complaint in the U.S. District Court for the Central District of California, against a group of related debt relief companies, alleging violations of state consumer protection laws, the CFPA, Telemarketing Act, and Telemarketing Sales Rule.  The allegations relate to federally-administered student-loan repayment programs managed by the U.S. Department of Education.

The complaint alleges that the defendants made misrepresentations to thousands of consumers with federal student loan debt, with offers to obtain accelerated loan forgiveness and lower monthly payments.  Defendants allegedly collected over $71 million in advance fees since 2015, in violation of federal and state regulations.  In addition, the defendants allegedly misrepresented to consumers how they would obtain relief, not disclosing that the relief they would obtain was typically temporary and may be obtained by submitting false information about such things as income, family size, and marital status.  The defendants would allegedly seek forbearance on borrowers’ behalf without explaining that interest would continue to accrue and that any savings would be temporary.  Additionally, the defendants allegedly led consumers to believe that their payments to the defendants were being applied to decrease the borrowers’ loan balances, which was not the case.

The court has already granted a temporary restraining order, and the CFPB and AGs are also seeking a preliminary injunction, damages, restitution to consumers, disgorgement, and civil money penalties.

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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