Deceptive student loan debt relief scams are the target of a new coordinated federal-state law enforcement initiative led by the Federal Trade Commission (FTC).
Operation Game of Loans involves 11 states and the District of Columbia and includes a total of 36 actions against defendants alleged to have used false and deceptive promises to rake in north of $95 million in illegal upfront fees, the FTC announced. In addition to five new cases brought by the FTC (and updates on two previously pending FTC lawsuits), the operation includes actions brought by Colorado, Florida, Illinois, Kansas, Maryland, North Carolina, North Dakota, Oregon, Pennsylvania, Texas, Washington and the District of Columbia.
In one of the new FTC cases, the agency asserted that the Los Angeles-based defendants took in at least $6 million through mortgage assistance and student loan debt relief schemes, at times claiming to be affiliated with the Department of Education and promising consumers that it could reduce their monthly payments or get their loans forgiven. The defendants targeted distressed homeowners, the FTC alleged, but the company’s CEO used the collected upfront fees on cars, jewelry, nightclubs and restaurants.
A second case filed in California federal court charged 20 defendants with deceptively marketing their purported student loan debt relief services heavily on social media, including Facebook. By charging upfront fees of up to $1,000 per consumer, the defendants made more than $20 million, the FTC said.
In a third action, the FTC alleged that related Fort Lauderdale entities and their owner pocketed $7 million by charging upfront fees of $750 or more per consumer. Advertisements via email, telemarketing and social media touted the defendants’ services as providing loan forgiveness in as little as five years or less, the FTC said. Consumers were instructed not to communicate with their loan servicers, and the defendants did not hesitate to fabricate income, unemployment status and family size information to qualify borrowers for reduced or eliminated monthly payment applications, the agency added.
The FTC obtained temporary restraining orders against the defendants as it continues to pursue the cases.
In addition to the law enforcement actions, the FTC updated its consumer education related to student loan debt relief scams and announced upcoming events on social media (a Twitter chat and a Facebook live session) to share ways to avoid such scams.
To read about Operation Game of Loans, click here.
Why it matters
Scrolling through the publicly disclosed enforcement actions on the CFPB’s website reveals numerous cases involving purported debt relief assistance that in fact fails to deliver for the consumer, particularly with respect to student loans. Now the FTC is focusing its efforts on such issues as well. “Winter is coming for debt relief scams that prey on hardworking Americans struggling to pay back their student loans,” FTC Acting Chair Maureen K. Ohlhausen said in a statement. “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.” The agency used the operation as an opportunity to provide three reminders to companies in the student loan debt relief business: It is illegal to charge upfront fees, clear disclosures about key elements of the service are required (such as how much it costs and how long it will take to see results), and false or unsubstantiated claims about student loan debt relief services are prohibited by both the Federal Trade Commission Act and the Telemarketing Sales Rule.