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On March 23, the Virginia governor signed HB 743, which outlines disclosure requirements for private student loan providers to follow before issuance of a qualified education loan. The disclosure must contain contact information for the state’s Office of the Qualified Education Loan Ombudsman, as well as “a summary of the student loan information applicable to private education loans.” HB 743 further states that this disclosure may be “made in in conjunction with or incorporated into another disclosure” provided it is sent to a borrower prior to the issuance of a loan. The act takes effect July 1, 2021.
On March 30, the FTC announced a settlement with three student loan debt relief companies and their owner for violating the FTC Act and the Telemarketing and Consumer Fraud and Abuse Act by allegedly engaging in deceptive practices when marketing and selling their debt relief services. The complaint alleges that the defendants, among other things, (i) falsely promised consumers that they could permanently lower or eliminate student loans by enrolling in an income-driven repayment plan for an upfront fee; (ii) offered consumers incentives for positive reviews; (iii) failed to advise consumers to state that they were offered payment for reviews, and failed to disclose that consumers were paid when responding to reviews; and (iv) incorrectly advised consumers on how to report family sizes on applications for student loan debt relief, or falsified consumers’ family size without their knowledge.
According to the FTC, the defendants agreed to a pending stipulated final order that would, among other things, permanently ban the defendants from providing unsecured debt relief services and from making misrepresentations or unsubstantiated claims related to any products and services. However, the defendants will be allowed to continue to assist existing consumers prepare and submit applications to the Department of Education as part of the yearly recertification process, provided the consumers have provided an opt-in confirmation. The stipulated order also requires the defendants to pay $350,000, with the total judgment of approximately $23.9 million suspended due to inability to pay.
Special Alert: CARES Act places significant burdens on servicers of consumer debt but provides some relief to depositories
President Trump late last week signed the Coronavirus Aid, Relief, and Economic Security Act that attempts to soften the negative economic effects of the Covid-19 pandemic on consumers, including by suspending payments for certain student loan borrowers and enabling mortgage loan borrowers to easily obtain temporary forbearances. The act also provides certain limited regulated relief for banks and credit unions.
This Special Alert summarizes the provisions providing relief to borrowers with federal student loans and the provisions of Title IV that dictate the manner in which servicers and collectors report borrowers to consumer reporting bureaus; provide forbearance, foreclosure, and eviction relief throughout the housing market; and provide limited regulatory relief to depository institutions.
Buckley issued a separate Special Alert on the Small Business Administration-related provisions contained in Title I of the act and will be covering separately the new Special Inspector General’s office created by the act, False Claims Act considerations, and other liability risks that we expect to arise.
On March 27, the CFPB issued guidance on the student loan provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Pursuant to the Act, borrowers with federally held student loans will automatically have their loan principal and interest payments paused until September 30. Borrowers do not need to take any action to have their payments suspended and interest will not accrue during this period. The CFPB also provided additional guidance on the impact on privately held student loans and federal loans held by commercial lenders, and provided information to help borrowers avoid student loan debt relief scams.
On March 25, U.S. Secretary of Education Betsy DeVos announced that in order to provide additional relief for student loan borrowers, the Department will take a number of actions which include the following:
- Stop collection activities and wage garnishments for at least 60 days, effective March 13;
- Stop requests to the Department of Treasury to withhold funds from “defaulted borrowers' federal income tax refunds, Social Security payments, and other federal payments”;
- Refund almost $2 billion to over 830,000 borrowers from funds previously withheld as of March 13;
- Direct private collection agencies to “halt all proactive collection activities, including making phone calls to borrowers and issuing collection letters and billing statements,” however, “[p]rivate collection agencies are permitted to provide assistance upon the borrower's request”;
- Begin to “monitor employers' compliance with the request to stop wage garnishment.” Those “[b]orrowers whose wages continue to be garnished after March 13 should contact their employers' human resources department.”
Borrowers with defaulted loans who would like to “continu[e] a prior payment arrangement, consolidat[e] their loans, or begin a loan rehabilitation arrangement with their private collection agency, should contact the Department's Default Resolution Group at 1-800-621-3115 (TTY for the deaf or hearing-impaired 1-877-825-9923).”
For more information, borrowers may visit StudentAid.gov/coronavirus.
On March 20, U.S. Secretary of Education Betsy DeVos announced temporary relief for student loan borrowers in response to the Covid-19 national emergency. The borrower relief measures include:
- Automatic 0% interest rates on all federally held student loans for at least 60 days;
- Option to suspend payments for at least two months;
- Administrative forbearance on any federally held loan by all federal student loan servicers at the request of the borrower, for at least 60 days, beginning on March 13;
- Automatic payment suspension for any borrower who is “more than 31 days delinquent as of March 13, or who becomes more than 31 days delinquent”; and
- The entire loan “payment will be applied to the principal” loan amount “once all interest accrued prior to the president's March 13 announcement is paid” for all borrowers who wish to continue making payments on their loans.
Additional information may be found at StudentAid.gov/coronavirus.
On February 19, the Minnesota House Health and Human Services Finance and Policy Committee introduced a bill that would require the Commissioner of Commerce to negotiate with credit reporting bureaus to waive negative credit reports, and to negotiate a federal waiver for federally guaranteed student loans for persons under isolation or quarantine.
On March 9, the Minnesota Senate Health and Human Services Finance and Policy Committee introduced a bill that would accomplish the same objectives.
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).
On March 10, the FTC announced that it obtained default judgments of over $10.7 million against three defendants in a student loan debt relief operation that the FTC alleged violated the FTC Act and the Telemarketing Act. The defendants were alleged to have deceptively marketed services to reduce or eliminate student loan debt and to have tricked borrowers into paying illegal upfront fees for these services. In its order granting the default judgment, in addition to the monetary penalties, the court permanently enjoined the defendants from (i) participating in telemarketing; (ii) selling secured and unsecured debt relief products and services; and (iii) making misrepresentations related to financial products and services.
On March 11, the U.S. Senate, in a 53-42 vote, joined the House in passing H.J. Res. 76, which provides for congressional disapproval of the Department of Education’s 2019 Borrower Defense Rule (the Rule). As previously covered by InfoBytes, the Rule, published last September and set to take effect July 1, revises protections for student borrowers that were significantly misled or defrauded by their higher education institution and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” If signed by the president, H.J. Res. 76 would undo changes made by the Rule that, among other things, would have required individuals to apply to the Department for a defense to repayment (under the 2016 Rule, applications could be submitted on behalf of an entire group). H.J. Res. 76 would also undo the Rule’s elimination of automatic closed-school discharges and its ban on pre-dispute arbitration and class action waivers that were previously contained within the 2016 Rule.
- Hank Asbill to discuss "The federal fraud sentencing guidelines: It's time to stop the madness" at a New York Criminal Bar Association webinar
- Daniel P Stipano to moderate "Digital identity: The next gen of CIP" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference