We warned you about student debt “relief” companies three years ago. Since then, I’ve heard plenty of stories from scared students desperate for help who were steered the wrong way…on expensive detours that didn’t actually help reduce their debt burdens. Now, federal regulators are taking notice.
The Consumer Financial Protection Bureau stopped what it called a “loan debt relief scam” that tricked borrowers into paying fees for federal loan benefits that are free, and misrepresented to consumers that it was affiliated with the Department of Education. The CFPB is ordering the student debt relief company, Student Aid Institute, Inc., to pay a penalty, halt debt relief services, and stop charging affected customers. The CFPB is also permanently barring the company and its CEO from the debt relief industry.
“We see more and more companies and websites demanding large upfront fees to help student loan borrowers enroll in income-driven plans that are available for free,” said CFPB Director Richard Cordray. “These practices bear a disturbing resemblance to the mortgage crisis where distressed consumers were preyed upon with false promises of relief. We will continue to shut down illegal scams and address sloppy servicing practices that victimize consumers.”
Student Aid Institute is a San Diego-based debt relief services company that offers to reduce consumers’ student loan payments. The CFPB says the firm deceived customers about the benefits of their services and misrepresented that fees were required to participate in federal student loan programs when those programs were, in fact, free. The company ultimately reaped millions of dollars in advance fees from thousands of consumers.
The Department of Education offers numerous plans to help borrowers, such as income-based repayment. Monthly payments under these plans can be as low as zero dollars per month for unemployed or very low-wage borrowers. The Department of Education does not charge any fees to apply for or enroll in these plans, for which many student loan borrowers qualify.
“To all the Americans out there working hard to keep up with your student loan payments, please remember: you never have to pay for help,” said U.S. Secretary of Education John B. King Jr.
The CFPB says Student Aid:
- Charged illegal advance fees: Federal law requires at least one debt to be renegotiated, settled, or reduced before a fee can be collected for debt relief services. But Student Aid Institute often charged consumers hundreds of dollars and required all, or a substantial portion, of its fees to be paid upfront.
- Deceived borrowers about the benefits and terms of its services: The company misrepresented to consumers how much they would save, whether they were eligible for loan forgiveness, whether they had been preapproved for specified programs, and whether the fees were required to participate in the federal programs.
- Failed to provide required privacy notices: The Bureau also found the company failed to provide its customers with privacy notices required by law.
- Falsely represented an affiliation with the Department of Education: The company’s marketing materials falsely implied that it was affiliated or endorsed by the federal government.
The firm has been ordered to:
- Shut down debt-relief operations: Student Aid Institute must shut down debt relief operations.
- Cancel all contracts with consumers and stop charging them: The company must immediately stop charging customers any fees for its services. All contracts will also be cancelled.
- Stop participating in the debt relief industry: The order bars Student Aid Institute and Lamont from offering, or receiving any payments from, debt relief services.
- Ensure student loan borrowers do not miss important repayment benefits: The Department of Education requires that student loan borrowers recertify their income-driven repayment plans every year. For consumers enrolled in any income-driven repayment or forgiveness plan whose annual recertification or renewal deadlines for these programs are within 30 days of the entry of the judgment, the company must prepare, process, and mail all paperwork necessary to maintain enrollment in the plan.
- Pay a civil penalty: The order also imposes a penalty of $50,000 to be paid into the CFPB’s Civil Penalty Fund.