Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On January 3, an Illinois-based for-profit education company settled with 49 state attorneys general, agreeing to forgo collection of nearly $494 million in debts owed by almost 180,000 students nationally. According to the Illinois Attorney General’s announcement, after a seven-year investigation into the company’s practices, the participating states allege that, among other things, the company (i) deceived students about the total costs of enrollment; (ii) failed to adequately disclose that certain programs lacked programmatic accreditation, which would negatively affect a student’s ability to get a license or employment in that field; and (iii) misled prospective students about post-graduate job rates. Under the settlement, the company has agreed to forgo collection of debts owed by students who either attended a company institution that closed before Jan. 1, 2019, or whose final day of attendance at two participating online institutions occurred on or before Dec. 31, 2013. In addition to the debt relief, the settlement also requires the company to, among other things, reform its recruiting and enrollment practices, including providing students with a single page disclosure that covers the (i) anticipated total direct cost; (ii) median debt for completers; (iii) programmatic cohort default rate; (iv) program completion rate; (v) notice concerning transferability of credits; (vi) median earnings for completers; and (vii) the job placement rate.
Department of Education forgives roughly $150 million in student loans eligible for automatic closed school discharge
On December 13, the Department of Education announced it will automatically discharge approximately $150 million in student loans for roughly 15,000 eligible borrowers as part of implementing the Department’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”), which took effect in October following a decision by the U.S. District Court for the District of Columbia that the Department’s move to delay the regulations—finalized in 2016 and originally set to take effect July 1, 2017—was procedurally invalid (see InfoBytes coverage on the ruling here.) The Borrower Defense Regulations are designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. Of the $150 million, approximately $80 million of the amount is attributable to loans taken out by students who attended now bankrupt, for-profit Corinthian schools. (See InfoBytes coverage on matters related to Corinthian schools here.) The announcement also provides information for loan holders, guaranty agencies in the Federal Family Education Loan program, and schools concerning new closed school discharge requirements.
Court grants summary judgment in favor of FTC and Florida State Attorney General in debt relief scam case
On December 10, the U.S. District Court for the Middle District of Florida granted the FTC and the Florida Attorney General’s motion for summary judgment against an individual accused of participating in a scheme that allegedly targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. According to a 2016 complaint, several interrelated companies and the founder of such companies (defendants), among other things, allegedly violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act by (i) claiming to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates; (ii) charging up-front payments for debt relief and rate-reduction services; and (iii) pitching credit card debt-elimination services, claiming the defendants could access money from a government fund to pay off consumers’ credit card debt in 18 months, when in actuality, no such government fund existed. In some cases, the defendants instructed consumers to stop paying their credit-card bills, resulting in “significant harm in the form of reduced creditworthiness, higher interest rates on their existing credit-card debt, and higher overall credit-card debt due to the accrual of late fees and interest charges.”
The court entered a permanent injunction ordering the defendant founder of the companies involved to pay over $23 million in equitable monetary relief. The order also permanently restrains and enjoins such defendant from, among other things, participating—whether directly or indirectly—in (i) telemarketing; (ii) advertising, marketing, selling, or promoting any debt relief products or services; or (iii) misrepresenting material facts.
On December 7, as part of Operation Game of Loans—a coordinated effort between the FTC and state law enforcement—the FTC announced settlements with operators of two student loan debt relief operations to resolve allegations that the defendants violated the FTC Act and the Telemarketing Sales Rule by, among others (i) charging consumers who purchased the debt relief services illegal upfront fees; and (ii) falsely promising to assist consumers in enrolling in government programs that would reduce or forgive their student loan debt.
Under the terms of the settlement, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief product or service—or from assisting others in doing the same. Combined, the settlements total more than $36 million, though judgments have been partially suspended due to the defendants’ inability to pay.
FTC settles with one student loan debt relief operation; seeks separate permanent injunction against another
On November 20, the FTC announced a settlement with operators of a student loan debt relief operation to resolve allegations that the defendants defrauded consumers through programs offering mortgage assistance and student debt relief. Regarding the student debt operations, the FTC alleged that the defendants falsely offered student borrowers reduced monthly payments or loan forgiveness by falsely claiming to be affiliated with the Department of Education. In a 2017 complaint, the FTC alleged that the defendants also falsely promised foreclosure prevention and mortgage relief to distressed homeowners, but instead collected advance fees in violation of the Telemarketing Sales Rule (TSR) and the Mortgage Assistance Relief Services Rule. Among other things, the settlement includes a judgment of more than $9 million—which will be partially suspended once the defendants turn over all assets worth approximately $305,000 because of their inability to pay—and bans the defendants from participating in debt relief and telemarketing activities in the future.
The same day, the FTC also announced it was charging a separate student loan debt relief operation with violations of the FTC Act and the TSR for allegedly engaging in deceptive practices when marketing and selling their debt relief services. According to the complaint, the operators of the scheme—which include a recidivist scammer previously banned from participating in debt relief activities—allegedly “promoted a 96 percent success rate in reducing consumers’ student loan payments.” However, the FTC stated that consumers who purchased the debt relief services and often paid illegal upfront fees “often did not receive any debt relief and lost hundreds of dollars.” On November 13, the U.S. District Court for the Central District of California issued a temporary restraining order and asset freeze at the FTC’s request. The FTC seeks a permanent injunction against the defendants to prevent future violations, as well as redress for injured consumers through “rescission or reformation of contracts, restitution, the refund of monies paid, and the disgorgement of ill-gotten monies.”
Pension advance company settles with Virginia Attorney General over high-interest loans targeting veterans and retirees
On November 15, the Virginia Attorney General announced a $51.7 million settlement with a pension advance company, its owner, and related entities (defendants) to resolve allegations concerning allegedly illegal, high-interest loans made to more than 1,000 Virginia veterans and retirees in violation of the Virginia Consumer Protection Act (VCPA). According to the Attorney General’s complaint, the defendants allegedly “disguised [the] illegal, high interest loans as ‘pension sales’ that could provide Virginia pension holders with a quick lump sum of cash,” and seemingly concentrated the sales in two Virginia areas where a large number of retired veterans and civil servants reside. Following the lawsuit, the defendants shut down lending operations in Virginia and around the country. Under a permanent injunction and final judgment, the court—which declared the defendants’ agreements to be “usurious and illegal”—ordered the defendants to: (i) provide over $20 million in borrower debt forgiveness; (ii) pay a $31.7 million civil money penalty; (iii) pay $414,473 in restitution; (iv) pay $198,000 for costs and attorneys’ fees; and (v) agree to injunctive relief to prevent further violations of the VCPA.
On September 28, as part of Operation Game of Loans, a coordinated effort between the FTC and state law enforcement, the FTC announced settlements with several individuals and their associated companies (defendants), accused of violating the FTC Act and the Telemarketing Sales Rule when marketing and selling student debt relief services. According to the FTC, the defendants, among other claims: allegedly (i) misrepresented to consumers that they were affiliated with the Department of Education or a borrower’s loan servicer; (ii) claimed that consumers who paid an up-front fee—as much as $1,000 according to the FTC’s complaint—would qualify for or be approved to receive permanently reduced monthly payments or have their student loans forgiven or discharged; and (iii) engaged in deceptive advertising practices through social media, falsely claiming they could qualify, establish eligibility for, approve, or enroll consumers in loan forgiveness programs.
Under the terms of the settlements, the defendants are permanently banned from advertising, marketing, promoting, offering for sale, or selling any type of debt relief products or services—or from assisting others to do the same. The defendants also are prohibited from making misrepresentations related to financial products and services. Combined, the settlements total more than $19 million in monetary judgments, all of which have been partially suspended due to the defendants’ inability to pay the entire amount of their respective judgments. The more than $5 million in unsuspended amounts may be used for equitable relief, including consumer redress.
On September 20, the New York Attorney General announced a lawsuit against nine student loan debt relief companies, along with their financing company, and two individuals (collectively, “defendants”), alleging that the defendants fraudulently, deceptively, and illegally marketed, sold, and financed student debt relief services to consumers nationwide. Among other things, the complaint alleges that the defendants (i) sent direct mail solicitations to consumers that deceptively appeared to be from a governmental agency or an entity affiliated with a government agency; (ii) misrepresented that they would apply fees paid by borrowers to student loan balances; (iii) charged consumers over $1,000 for services that were available for free; (iv) requested upfront payments in violation of federal and state credit repair and debt relief laws; (v) charged usurious interest rates; and (vi) provided consumers with “incomplete and harmful advice,” such as counseling borrowers to consolidate federal student loans without explaining that in certain circumstances borrowers could “lose months or years of loan payments they had already made that would qualify toward forgiveness of their loans under the Public Service Loan Forgiveness Program.” The New York Attorney General maintains that these practices violated several federal and state consumer protection statutes, including the Telemarketing Sales Rule, New York General Business Law, the state’s usury cap on interest rates as covered by New York Banking Law and New York General Obligations Law, disclosure requirements under the Truth in Lending Act, and the Federal Credit Repair Organization Act.
On June 7, the FTC announced a settlement with an individual who allegedly operated a mortgage relief scheme, which charged distressed homeowners thousands in upfront fees while falsely promising foreclosure prevention or payment modifications. According to the FTC, the defendant, operating through multiple company names, falsely suggested the businesses were endorsed by the federal government and encouraged consumers not to communicate with their mortgage company and to stop making monthly mortgage payments. The settlement order imposes a judgment of more than $15.5 million but suspends the judgment due to the individual’s inability to pay. The settlement prohibits the individual from, among other things, (i) advertising, marketing, promoting, offering, or selling debt relief services or products; and (ii) misrepresenting, or assisting others in misrepresenting information relating to the offering of financial products and services. Additionally, the settlement bars the individual from disclosing or benefitting from the information collected from the consumers through the business operations.
On June 8, the U.S. District Court for the Central District of California approved an order requiring an owner and his multiple student debt relief companies (defendants) to pay almost $12 million to settle allegations that the defendants violated the FTC Act and Telemarketing Sales Rule (TSR) when marketing and selling student debt relief services. As part of a coordinated effort between the FTC and state law enforcement called Operation Game of Loans, the FTC filed a complaint in September 2017 alleging the defendants, among other things, charged upfront and monthly fees to enroll students in free government programs to manage student loan debt, but did not perform any services. Additionally, the FTC alleged that the defendants marketed themselves as associated with the Department of Education and called consumers listed on the Do Not Call Registry. Under the settlement order, in addition to the nearly $12 million fine, the defendants are permanently banned from: (i) advertising, marketing, promoting, offering, or selling debt relief or credit repair products or services, or assisting others in such activities; (ii) misrepresenting or assisting others in misrepresenting information relating to any products or services and, specifically, financial products or services; (iii) making any misleading or unsubstantiated representation or assisting others in making any such representation about the benefits, performance, or result of any financial product or service; and (iv) engaging in any unlawful telemarketing practices. The defendants neither admit nor deny any of the FTC’s allegations.
- Kathryn L. Ryan to discuss "NMLS usage" at the NMLS Annual Conference & Training
- Jeffrey S. Hydrick to discuss "State legislative update" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to speak at the "Business model primer" at the NMLS Annual Conference & Training
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program