Operators of two student loan debt relief scams agreed to settlements with the Federal Trade Commission (FTC) last week regarding the agency's claims that they engaged in unlawful practices, including charging illegal upfront fees and promising nonexistent student debt relief opportunities.
Both cases are part of the FTC's federal-state crackdown titled "Operation Game of Loans" initiated in October 2017. The enforcement plan is the first coordinated effort targeting operators using misrepresentation and false promises to lure student borrowers into paying unnecessary fees.
"The FTC is proud to work with state partners to protect consumers from these scams, help them learn how to spot a scam, and let them know where to go for legitimate help," said Maureen Ohlhausen, FTC acting chairman, in a statement following the plan's announcement.
The first operation involved in the latest settlements, Strategic Student Solutions (SSS), was temporarily halted in May 2017 after an FTC complaint charged the company with falsely promising consumers to eliminate or reduce their student loan debt through enrollment in student loan forgiveness programs since at least 2014. The company also made false claims, charged illegal upfront fees of as much as $1,200, and offered nonexistent options to improve consumers' credit scores.
"Consumers who paid Strategic Student Solutions for help with their student loans watched their situations go from bad to worse," said Tom Pahl, acting director of the FTC's Bureau of Consumer Protection, in a statement after the FTC initiated the case in May 2017. "The bottom line: never pay an up-front fee to a company promising to deliver debt relief."
The FTC permanently banned SSS from debt relief and credit repair services, and charged the company more than $17 million for the malpractices.
The other operation, Bloom Law Group PC, was accused of defrauding consumers out of millions of dollars by posing as the Department of Education (ED) since at least 2016. The company also promised to reduce consumers' monthly payments or forgive their loans, and charged illegal upfront fees up to $45,000.
The settlement order bans Bloom Law Group PC from debt relief and telemarketing activities, and requests more than $9 million to reflect the gross revenues of its debt relief and Mortgage Assistance Relief Services (MARS) operations.
Consumers sometimes wound up owing more on their student loans than when they first signed up for these companies' services, according to the complaints.
In addition to touting false promises of loan forgiveness, third-party agencies have in recent years attempted to lure students into paying for services they perform themselves for free, such as loan consolidation or enrolling in an income-driven repayment plan. The FTC and the Consumer Financial Protection Bureau (CFPB) have taken legal action against several third-party agencies found to request upfront fees for federal student loan services, claim affiliation with ED or pose as ED itself, and promote nonexistent loan forgiveness programs and lower monthly payment programs, without specifying those services are already available through the federal government.
A survey by NerdWallet and Student Debt Crises released in fall 2017 underscored the vitality of these efforts as fraudulent companies become increasingly pervasive: 60 percent of respondents said they had seen advertisements for fraudulent companies on social media, online search engines, television, or the radio.
However, nine percent of respondents indicated they had paid for services from third-party companies and seven percent said they were unsure.
ED has worked to raise awareness on third-party debt companies in the last several years. Further, the FTC offers advice about student loan debt relief in English and Spanish, and lists on its website every company and person banned from debt relief services.
Publication Date: 6/7/2018