Lots of folks were wondering whether at the Federal Trade Commission (FTC) it was “School’s Out” with a shortage of Commissioners and a new administration in the White House. A recent case involving the telemarketing of student loan debt relief services makes clear that, at least in certain areas, school is still in session. The case also highlights the growing regulatory scrutiny on the student loan space.
In obtaining a temporary restraining order shutting down a group of related companies, the FTC alleged that in “many instances,” the companies failed to deliver any of the promised services. Specifically, according to the FTC, the defendants collected upfront and monthly fees in exchange for enrolling consumers in student loan forgiveness or income-driven repayment programs and to improve consumers’ credit scores. The FTC found that many consumers received no services and many went into further debt.
Although this case seems to be the type of “hard core” fraud that Acting Chair Ohlhausen has said she wants the Commission to focus on, it also signals the FTC’s concerns regarding—and heightened attention to—the student loan market. There is more than $1.4 trillion in student loan debt, and the FTC, as has the Consumer Financial Protection Bureau (CFPB), appears to be going where the action is. In the Complaint, the FTC included a section devoted to describing the market as a whole, including detailing the various loan forgiveness programs developed by federal and state agencies to help address the growing problem. From the FTC’s perspective, the complicated and patchwork nature of student loan programs, and consumers’ lack of understanding, make it ripe for fraud or abuse. As stated in the Complaint, “consumer can apply for forgiveness and IDR program through their student loan servicers at no cost; these programs do not require the assistance of a third-party company or payment of fees.”
Given the size of the student loan market it would be surprising if this is the last we hear from the FTC on this industry. Similarly, the FTC appears to show no signs of slowing down on the attack on fraudulent telemarketing related to debt-related services. At least on these types of issues companies need to be very careful, or they will get sent to the principal’s office.