District court rejects financing company’s dismissal bid in student loan debt relief scam

Courts Student Lending Debt Relief RICO

On March 11, the U.S. District Court for the Southern District of New York denied the motion of a Minnesota-based indirect finance company (defendant) to dismiss allegations that its participation in a student loan relief operation violated the Racketeer Influenced and Corrupt Organization Act (RICO), ruling that the borrowers had properly alleged mail and wire fraud and had established a pattern of “open-ended continuity.” According to the named plaintiffs, the defendant contracted dealers who marketed “student loan assistance services” to federal student loan borrowers, who were then redirected to pay the defendant a fee of $1,300 to file applications on their behalf for adjustments such as loan consolidation or enrollment in an income-driven repayment plan. Because the dealers could not legally accept the payments directly, the defendant allegedly approved borrowers for financing and made upfront payments to dealers for each recruited borrower. In denying the dismissal bid, the court ruled that “these allegations, if assumed true, establish that, in devising the scheme, [the defendant] intended to deceive borrowers so that they would incur debts to it.” Moreover, “[g]iven these allegations, the Amended Complaint contains sufficient allegations that reveal ‘the threat of continuity,’. . . and sufficient support for the proposition that [the defendant] ‘ha[s] been trying to continue’ the alleged scheme with respect to individuals in addition to the [n]amed plaintiffs,” the court wrote.

As previously covered by InfoBytes, last December the CFPB denied a petition by one of the defendants to modify or set aside a civil investigative demand (CID) issued by the Bureau, which seeks information as part of an investigation into the defendant’s promotion of student loan debt relief programs. Separately, the FTC and the Minnesota attorney general entered a stipulated order against the defendant for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the defendant being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services (covered by InfoBytes here).