Student Loan Debt Relief Operators Banned by FTC

According to the Federal Trade Commission, two alleged Florida-based student loan debt relief schemes have been banned from the debt relief business as part of settlements with the FTC.  The cases involves allegations by the FTC that defendants illegal upfront fees and falsely promised to help some consumers enroll in government programs that would reduce or forgive their student loan debt.  The settlements with Student Debt Doctor and American Student Loan Consolidators (ASLC) are part of 2017’s Operation Game of Loans, a coordinated federal-state law enforcement sweep that targeted deceptive student loan debt relief schemes.

“People struggling to repay student debt should know that an offer of debt relief with an upfront fee is likely to be a scam, and they should alert the FTC,” said Andrew Smith, Director of the agency’s Bureau of Consumer Protection.

FTC Debt Relief Defendants

In October 2017, a federal district court issued a temporary restraining order against the SDD defendants, halting their alleged deceptive student loan debt relief practices and freezing their assets.  The court later entered a preliminary injunction.  The SDD settlement prohibits the defendants from making misrepresentations related to financial products or services, requires the defendants to pay approximately $2.2M and includes a partially suspended $13 million judgment.

In September 2017, a federal district court issued a temporary restraining order halting the ASLC defendants’ allegedly deceptive student loan debt relief practices.  The court later entered a preliminary injunction.  As set forth in the FTC’s complaint, the ASLC operators pretended to be affiliated with the U.S. Department of Education or with consumers’ loan servicers, and misled consumers into believing that illegal upfront fees were being used to pay off their student loans.  The FTC alleged that the defendants collected at least $23 million from student loan borrowers by falsely promising loan forgiveness, lowered monthly payments, and reduced interest rates.  The FTC also has obtained a settlement with the ASLC defendants, which includes a partially suspended judgment of $23 million and payment of approximately $1.3 million.

Debt Relief Service and Credit Repair Scams

According to the FTC, debt relief service scams target consumers with significant credit card debt by falsely promising to negotiate with their creditors to settle or otherwise reduce consumers’ repayment obligations.  What grabs the FTC’s attention is that such operations often charge large up-front fees.  The FTC’s interest is piqued when automated “robocalls” to consumers on the Do-Not-Call List are used.  The FTC has brought, and shall most likely continue to bring, law enforcement actions against unlawful credit-related services.  The agency has also partnered with the states to bring hundreds of additional lawsuits.

In 2010, the FTC amended its Telemarketing Sales Rule to protect consumers seeking debt relief services.  The TSR prohibits for-profit companies that sell these services over the telephone from charging a fee before they actually settle or reduce a consumer’s debt.  It also prohibits debt relief providers from making misrepresentations and requires that they disclose key information that consumers need in evaluating these services.

If you are interested in learning more about FTC enforcement priorities, or need to review your marketing practices or disclosures, please email the author at [email protected], or call us at (212) 756-8777. Follow him on Facebook @ FTC Defense Lawyer. 

The material contained herein is provided for information purposes only and is not legal advice.  Attorney Advertising