Demonstrating the continuing enforcement activity by state attorneys general with respect to student lending and active servicemembers, the AGs in Massachusetts and New York recently obtained consent orders from, respectively, a student loan debt relief company and a residential leasing company.

What happened

In Massachusetts, Attorney General Maura Healey charged yet another student loan “debt relief” company with misleading consumers, this time with respect to the claim it was affiliated with the federal government as well as for charging illegal upfront fees.

This was the fourth in a series of enforcement actions brought against such companies in the commonwealth. The AG alleged that the company “conveyed a false association” with the U.S. Department of Education and its main loan program, known as the “Direct” loan program, by operating an entity dubbed “U.S. Direct Student Loan Services.”

This particular settlement was small: To settle the charges, the company agreed to refund 18 borrowers a total of $6,500, discontinue providing student loan services to Massachusetts residents, and refrain from selling or disseminating the information of loan customers in the state. That said, the deal brings the AG’s total recovery in her efforts against student loan debt relief companies to more than $260,000. Previous cases involved a company that was required to reform its business practices and refund $160,000 to more than 400 customers in September 2016 as well as a pair of lenders that settled with the AG in November 2015 for $96,000 over allegedly unfair and deceptive practices.

“In the middle of this student loan debt crisis, a host of fly-by-night ‘debt relief’ companies have cropped up to exploit struggling borrowers,” AG Healey said in a statement. “These companies falsely imply that they work for the federal government or that fees are required to enroll in a more affordable repayment plan or get out of default. We want to make sure that federal student loan borrowers realize that they can apply for income-driven repayment plans and get out of default on their own for free. We also hope these cases serve as a warning to this industry that it can no longer take advantage of student loan borrowers in Massachusetts.”

In New York, Attorney General Eric T. Schneiderman announced his enforcement effort, an agreement with a Virginia-based mortgage lender that allegedly violated the Servicemembers Civil Relief Act (SCRA) by charging illegal fees.

The company operates a community of 150 duplex-style townhomes near Fort Drum, NY, that “actively markets” its housing to servicemembers and their families. After an investigation into the company’s business practices, the AG said it charged unlawful fees to servicemembers and used a lease agreement with “numerous” unconscionable provisions in violation of state law.

Pursuant to the SCRA, servicemembers and their families may terminate a residential lease early without penalty when they are deployed, when they receive orders for a permanent change of station or upon honorable termination of military service. But the AG alleged the company “routinely bypassed” this protection by charging servicemembers a “lease processing fee” of $200 to $300 when they exercised their rights and, in some cases, denied early termination rights to servicemembers.

To settle the charges, the military housing facility developer must pay more than $59,000 to over 125 servicemembers, reform its business practices (in addition to compliance with the SCRA, the company must stop engaging in false advertising and maintain all security deposits in a New York bank, among other changes) and pay a $10,000 civil penalty.

“Service to our nation should not lead to victimization by predatory businesses,” AG Schneiderman said in a statement. “New York stands beside our servicemembers, and I will do what it takes to defend their rights as they bravely defend ours.”

To read the Massachusetts AG’s press release, click here.

To read the New York AG’s press release, click here.

Why it matters

Never mind that the CFPB is under attack. State regulation and enforcement will receive greater attention even if Congress unwinds one of Dodd-Frank’s largest enforcement weapons, and the recent actions by the attorneys general of Massachusetts and New York demonstrate the continuing enforcement efforts by state regulators.