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New York AG settles with student loan debt collector for $600k
On September 11, the New York attorney general announced one of the nation’s largest debt collectors will pay $600,000 in restitution to student loan borrowers and will make significant changes to its debt collection practices in order to resolve allegations that it made false, misleading, and deceptive statements in lawsuits and in communications with borrowers. According to the AG, the debt collector, among other things, (i) filed complaints that falsely identified trusts, which hold the defaulted loans, as the borrower’s “original creditor,” when in fact, the trusts are the assignees of the original financial institutions that originated the loans; (ii) filed various misleading sworn affidavits; (iii) filed complaints that represented borrowers applied for loans from a “servicing agent” when, in fact, borrowers never dealt with the entity; (iv) filed lawsuits beyond the applicable three-year statute of limitations; and (v) threatened legal action against borrowers even though the trusts “could not or would not sue because the statute of limitations for suing on the debt had expired.”
The assurance of discontinuance requires the debt collector to stop identifying the trusts as the original creditor and to cease using misleading language in communications with borrowers. In addition, the debt collector must (i) provide enhanced staff training; (ii) stop filing lawsuits beyond the statute of limitations, and voluntarily dismiss all wrongfully-filed lawsuits; (iii) voluntarily release “all pending garnishments, levies, liens, restraining notices, attachments, or any other judgment enforcement mechanism” obtained as a result of judgments obtained in wrongfully-filed lawsuits where the statute of limitations has expired; (v) take steps to vacate any judgment obtained in any of these wrongfully-filed lawsuits; and (vi) pay restitution to certain borrowers or to the state to be disbursed as appropriate.
Court approves additional settlements in CFPB student debt relief action
On September 8, the U.S. District Court for the Central District of California entered a stipulated final judgment against two additional defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. Four defendants settled in August, with a total suspended judgment of over $95 million due to the defendants’ inability to pay and total payments of $90,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties.
The new final judgment holds the two relief defendants liable for nearly $7 million in redress; however, the judgment is suspended based on an inability to pay. The defendants are not subject to any civil money penalties, but are required to relinquish certain assets and submit to certain reporting requirements.
FTC settles with student debt relief operation for $835,000
On September 9, the FTC announced an $835,000 settlement with the operators of a student loan debt relief operation, resolving allegations against five individuals (collectively, “defendants”) whom the FTC claims engaged in deceptive marketing and charged illegal upfront fees. According to the November 2019 complaint, filed in the U.S. District Court for the Central District of California against the defendants and several others, the defendants allegedly used telemarketing calls, as well as media advertisements, to enroll consumers in student debt relief services in violation of the FTC Act and the Telemarketing Sales Rule. The defendants allegedly misrepresented that they were affiliated with the U.S. Department of Education and misrepresented “material aspects of their debt relief services,” including by promising to enroll consumers in repayment programs to reduce or eliminate payments and balances. Additionally, the defendants charged illegal upfront fees, and often placed the consumers’ loans into temporary forbearance or deferments with their student loan servicers, without the consumer’s authorization.
The settlement order includes a monetary judgment of over $43 million, which is partially suspended due to the defendants’ inability to pay. The defendants “will be required to surrender at least $835,000 and additional assets, which will be used for consumer redress.” Additionally, the defendants are prohibited from providing student debt relief services in the future and they must cooperate in the FTC’s pursuit of the case against the remaining defendants.
Court approves settlements in CFPB student debt relief action
On August 26 and 28, the U.S. District Court for the Central District of California entered two final judgments (see here and here) against four of the defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney alleging a student loan debt relief operation deceived thousands of student-loan borrowers and charged more than $71 million in unlawful advance fees. As previously covered by InfoBytes, the complaint alleged that the defendants violated the Consumer Financial Protection Act, the Telemarketing Sales Rule, and various state laws by charging and collecting improper advance fees from student loan borrowers prior to providing assistance and receiving payments on the adjusted loans. In addition, the complaint asserts the defendants engaged in deceptive practices by misrepresenting (i) the purpose and application of fees they charged; (ii) their ability to obtain loan forgiveness; and (iii) their ability to actually lower borrowers’ monthly payments.
The finalized settlements suspend a total judgment of over $95 million due to the defendants’ inability to pay, and requires the two defendants who settled on August 26, to pay a total of $75,000 to Minnesota, North Carolina, and California, and $1 each to the CFPB, in civil money penalties, and the two defendants who settled on August 28, to pay a total of $15,000 to the respective states and $1 to the CFPB in civil money penalties. In addition to the monetary penalties, the defendants are required to relinquish certain assets and submit to certain reporting and recordkeeping requirements. All four defendants neither admit nor deny the allegations, as part of the settlements.
Department of Education extends Covid-19 student loan protections until 2021
On August 21, the U.S. Department of Education announced the implementation of the presidential memorandum extending a forbearance plan on federal student loans through the end of the year. As previously covered by InfoBytes, the memorandum directed the Department of Education to take action to continue to provide “deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.” According to the announcement, until December 31, in addition to suspended payments and the waiver of all interest, there will be (i) no collections on defaulted federal loans; and (ii) borrowers will receive a refund of any continued employer garnishment related to defaulted federal loans. Additionally, non-payments by borrowers working full-time for qualified Public Service Loan Forgiveness employers will continue to receive credit towards their 120 payments.
ARRC releases transition guides for ARMs, private student loans referencing LIBOR
On August 18, the Alternative Reference Rates Committee (ARRC) released reference rate transition guides for adjustable-rate mortgages (ARMs) and variable rate private student loans that reference LIBOR. Both guides are intended to support the transition from LIBOR to an alternative reference rate, such as the Secured Overnight Financing Rate (SOFR), and focus on LIBOR-based contracts that will continue to exist after LIBOR’s anticipated cessation at the end of 2021. The LIBOR ARM Transition Resource Guide and the LIBOR-Based Private Student Loan Transition Resource Guide cover key milestones, suggested readiness timeframes, transition risks, and stakeholder impacts, and include various resource guidance, tools, and templates to assist institutions in “fortify[ing] their products and support[ing] consumers’ transitions to SOFR.”
Find continuing InfoBytes coverage on LIBOR here.
Pennsylvania settles with third-party financing company, resulting in $200k in debt cancellation
On August 4, the Pennsylvania attorney general announced it had entered into an Assurance of Voluntary Compliance with a third-party financing company, which permanently shuts down the company’s operations in the state and requires the company to cancel nearly $200,000 in debt for its former customers. According to the AG, the company entered into agreements with various debt relief companies to provide third-party financing to student loan borrowers so they could be enrolled in certain federal student loan repayment programs offered by the Department of Education. However, the company allegedly violated provisions of the Pennsylvania Consumer Protection Law and TILA related to closed end credit transaction by, among other things, (i) misrepresenting that the finance plan was a revolving credit plan, when it was actually a closed end transaction; (ii) misrepresenting that it retained a security interest as a result of its financing agreements when in in fact it did not; (iii) financing consumers’ student loan debt relief services when it knew, or should have known, that consumers were not receiving the services as advertised; and (iv) failing to provide Regulation Z-required disclosures for closed end credit transactions, including the amount financed, finance charges, total of payments, and the number and amount of payments necessary to repay the total payments. In addition, the AG claimed that the company charged consumers unacceptably high interest rates. Under the terms of the settlement, the company is banned from financing or assisting others in financing student loan debt relief services and from collecting debt from Pennsylvania borrowers. The company must also request that credit reporting agencies delete the reported debts from consumers’ credit reporting files. Monetary relief in the amount of $930,000 is suspended unless a court determines the company has violated the terms of the settlement.
President Trump extends student loan forbearance program
On August 8, President Trump issued an executive order to Secretary of Education Betsy DeVos extending a forbearance plan on student loans through the end of the year. The executive order directs the Department of Education to take action to continue to provide “deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.” The current forbearance program provided under the CARES Act (covered by a Buckley Special Alert) ends September 30. While the executive order states that it applies to “student loans held by the Department of Education,” it does not specifically outline which kind of federal student loans are covered under the new forbearance order.
States urge Department of Education to protect federal student loans borrowers as CARES Act deadline approaches
On August 6, the NYDFS sent a letter to the Department of Education, urging Secretary Betsy DeVos to take measures to protect student loan borrowers when federal student loan borrower relief under the CARES Act ends September 30. Currently, the CARES Act provides an automatic freeze for borrowers with Federal Family Education Loan Program and Federal Direct loans (covered by a Buckley Special Alert), and stipulates that during the suspension period, interest will not accrue, servicers will report suspended payments as having been made to consumer reporting agencies, and—for borrowers in loan forgiveness or rehabilitation programs—servicers will treat suspended payments as having been made.
The letter, sent on behalf of seven state student loan ombudspersons, expresses concerns that, despite protections afforded by the CARES Act, “many borrowers are being left behind and . . . borrowers will face hardships once the CARES Act coverage expires.” Specifically, the letter requests DeVos to take additional proactive steps, including: (i) expanding the CARES Act protections to federal borrowers not currently eligible for relief (i.e., “borrowers whose loans are owned by commercial lenders and Perkins Loan borrowers whose loans are owned by their schools”) and extending the term of those protections; (ii) ensuring servicers are prepared for the September 30 end-date to ensure that borrowers are not harmed when their student loan accounts are placed back into repayment status; and (iii) streamlining access to income driven repayment (IDR) plans by eliminating “logistical and administrative barriers to automated IDR plan enrollment” and recommending “that borrowers be able to self-report income and that applications be deemed provisionally approved upon submission, even if incomplete, so that relief is given as quickly as possible.”
Massachusetts AG requires debt buyer to discharge 300K in educational debt
On July 30, the Massachusetts attorney general announced a Nevada-based debt buyer will discharge nearly $300,000 in student loan debt in connection with a for-profit education company that sold allegedly ineffective online study guides and education materials. According to the assurance of discontinuance (AOD), the education company allegedly engaged in unfair and deceptive acts in the marketing and selling of its educational materials and services, which included arranging for consumers to finance equivalency exam fees. The company arranged for consumers to obtain financing from certain credit unions and those credit unions subsequently sold the loans to other entities, including the Nevada-based debt buyer.
The AOD requires the debt buyer to discharge and cease collection of the company’s loans for each of the 76 Massachusetts consumers, amounting to nearly $300,000 in debt. Additionally, the debt buyer is required to pay Massachusetts approximately $70,600 for the attorney general to distribute to consumers who made payments to the debt prior to the action, and is prevented from reporting any negative credit information.