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  • Department of Education discharges roughly $500 million in student loan debt

    Federal Issues

    On June 16, the Department of Education announced the approval of 18,000 borrower defense to repayment claims for individuals who attended a now-defunct for-profit educational institution, providing borrowers with 100 percent loan discharges and providing approximately $500 million in relief. The educational institution has been subject to several investigations and settlements related to its private student loan origination practices, including allegations brought by the CFPB claiming the educational institution forced borrowers into “high-interest, high-fee” private student loans knowing that borrowers could not afford them. (See InfoBytes coverage on matters related to the educational institution here and here.) According to the Department’s announcement, the approvals cover two categories of borrower claims related to employment prospects and the ability to transfer credits, and mark “the first approval of a new category of borrower defense claims by the Department since January 2017.” Among other things, the Department found that borrowers’ “job prospects were not improved by attending” the educational institution and that credits from the educational institution rarely transferred.

    Federal Issues Department of Education Student Lending Consumer Finance Debt Relief

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  • District Court approves new settlement in student debt-relief action

    Courts

    On June 15, the U.S. District Court for the Central District of California entered a stipulated final judgment and order against one of the defendants in an action brought by the CFPB, the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney in 2019, which alleged 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 settlement issued against the relief defendant—who acted in an individual capacity and also as trustee of a trust, and who neither admits nor denies the allegations—requires the liquidation of certain assets up to but not exceeding $3 million as monetary relief to go to the CFPB and the People of the State of California. If the liquidation value of the asset is less than $3 million, the relief defendant “will be additionally liable for the difference between the liquidation value of the [asset] and $3,000,000, up to but not exceeding $500,000.” The relief defendant is also liable to all plaintiffs for $88,381.80. In addition, the relief defendant must comply with certain reporting and recordkeeping requirements and fully cooperate with the plaintiffs.

    The court previously entered final judgments against four of the defendants, as well as a default judgment and order against two other defendants (covered by InfoBytes here and here). Orders have yet to be entered against the remaining defendants.

     

    Courts CFPB State Attorney General State Issues CFPA Telemarketing Sales Rule Student Lending Debt Relief Consumer Finance Enforcement Settlement

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  • Minnesota AG settles with student debt relief company

    State Issues

    On April 13, the Minnesota attorney general announced a settlement with a California-based student loan debt relief company that allegedly: (i) collected illegal fees from customers; (ii) misrepresented its services to cease operations in Minnesota by not providing full refunds to its Minnesota consumers; and (iii) violated Minnesota’s Debt Services Settlement Act, Prevention of Consumer Fraud Act, and Uniform Deceptive Trade Practices Act. The AG alleged that the company “falsely promised consumers student-loan forgiveness, when only the federal government can forgive federal student loans.” Under the terms of the settlement, the company is required to pay the AG $18,190.50, which will be used to provide full restitution to consumers. The settlement also requires the company to cease operations in Minnesota until it becomes registered as a debt-settlement service provider.

    State Issues State Attorney General Courts Student Lending Debt Relief Usury Settlement

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  • NY AG obtains $53 million judgment against company selling debt relief on student loans

    Courts

    On March 30, the U.S. District Court for the Southern District of New York entered a default judgment and order against a student debt relief company, which requires the payment of $53 million in statutory penalties, after the defendant failed to respond to a suit filed by the New York attorney general. The AG alleged that the defendant sold debt-relief services to student loan borrowers that violated several laws, including the state’s usury, banking, credit repair, and telemarketing laws, and the federal Credit Repair Organizations Act and the Telemarketing Sales Rule. In addition to the $53 million penalty, the order permanently bans the defendant from engaging in debt-relief activities, collecting on loans related to its debt relief products or services, or using any personal information it has for student borrowers. The court also ordered the defendant to turn over financial records and authorized the AG’s office to seek additional restitution and disgorgement on the basis of those records. The order follows a 2020 stipulated judgment entered against other defendants in the action, which included a $5.5 million judgment (covered by InfoBytes here).

    Courts State Issues State Attorney General Student Lending Debt Relief Usury Telemarketing Sales Rule

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  • CFPB sues student loan debt-relief operation

    Federal Issues

    On March 16, the CFPB sued a California-based student loan debt relief company, its owner, and manager (collectively, “defendants”) for allegedly charging borrowers more than $3.5 million in unlawful advance fees. The complaint alleged that between 2015 and 2019, the defendants violated the Telemarketing Sales Rule (TSR) and the CFPA by unlawfully marketing and enrolling borrowers in the company’s purported debt relief services. Defendants allegedly charged and collected advance fees from borrowers with federal student loans to file paperwork on their behalf in order to access free Department of Education debt-relief programs. According to the Bureau, the defendants violated the TSR by requesting and receiving payment of fees before renegotiating, settling, reducing, or altering the terms of at least one debt pursuant to an agreement, and before the consumer made at least one payment pursuant to that agreement. The Bureau also alleged that the owner defendant formed a California limited liability company (relief defendant) and unlawfully transferred a portion of the funds received from the advance fees into the relief defendant’s bank account. The complaint seeks injunctive relief, as well as restitution and civil money penalties. The complaint also seeks to have the relief defendant disgorge or compensate consumers for the funds it received.

    Federal Issues CFPB Enforcement Student Lending Debt Relief Telemarketing Sales Rule CFPA

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  • DFPI issues first enforcement action against student debt-relief company

    State Issues

    On February 3, the California Department of Financial Protection and Innovation (DFPI) announced the first-ever enforcement action under its new structure against a student loan debt-relief company and an investigation into others. According to the order, DFPI alleges, among other things, that an Irvine-based debt-relief company violated the Telemarketing Sales Rule (TSR) and the California Consumer Financial Protection Law (CCFPL) by charging consumers fees ranging from $2,100 to $26,510 to “‘wipe away’ their student loans by getting them ‘dismissed’ or ‘discharged,’” which the company could not achieve. Moreover, consumers often financed the payment of the company’s fees, resulting in more debt and the company refused to issue refunds when requested by some consumers. DFPI alleges the company’s actions constitute unlawful and deceptive practices under the CCFPL and violated the TSR’s prohibition of charging fees before performing services. Lastly, DFPI alleges the company was required to obtain a license under the state’s Student Loan Servicing Act (SLSA) because its actions constitute “servicing” student loans under the statute. The order requires the company to refund the fees collected from 18 consumers by March 15 and to pay a civil penalty of $45,000.

    DFPI also announced it issued subpoenas to four other student loan debt-relief companies to determine whether the companies engage in or have engaged in any unlawful, unfair, deceptive, or abusive acts or practices and whether their activities require a license. Responses to the subpoenas are due in March.

    State Issues DFPI State Regulators Debt Relief Student Lending TSR CCFPL Licensing

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  • Court enters nearly $90 million default judgment against student debt-relief defendants

    Courts

    On December 15, the U.S. District Court for the Central District of California entered a default judgment and order against two companies (collectively, “default defendants”) for their role in a student loan debt-relief operation. As previously covered by InfoBytes, the CFPB, along with the Minnesota and North Carolina attorneys general, and the Los Angeles City Attorney (together, the “states”), announced an action against the student loan debt relief operation (defendants) for allegedly deceiving thousands of student-loan borrowers and charging more than $71 million in unlawful advance fees. 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 that 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. In September, the court entered final judgments against four of the defendants (covered by InfoBytes here), which included a suspended monetary judgment of over $95 million due to the defendants’ inability to pay.

    The new default order enters a $55 million judgment against one of the defaulting defendants and requires the defaulting defendant to pay a $30 million civil money penalty with $50,000 of that sum going directly to each of the states. Additionally, the court entered a judgment of over $165,000 to the other defaulting defendant and total civil money penalties of $2.5 million, with $10,000 going to each of the states directly and an additional $1.25 million to California. The judgment also, among other things, permanently bans the defaulting defendants from telemarketing any consumer financial product or service and from selling any debt-relief service.

    Courts CFPB Enforcement Telemarketing Sales Rule Civil Money Penalties Debt Relief Student Lending State Attorney General CFPA UDAAP Deceptive

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  • Court enters judgments against multiple defendants in CFPB debt-relief action

    Courts

    On December 15, the U.S. District Court for the Central District of California entered final judgment against two defendants (defendants) and a default judgment against another defendant (defaulting defendant) in an action brought by the CFPB alleging the defendants (and others not subject to these judgments) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defendants, one other company, its two owners, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with one of the owners of the other company and three of the attorneys. In December, the court entered a default judgment against the other company and another owner (previous InfoBytes coverage available here).

    The final judgment permanently bans the defendants from engaging in any debt-relief service or telemarketing of any consumer financial product or service. Additionally, the court entered a suspended judgment of over $11 million in redress, which will be satisfied by a payment of $5,000 (due to an inability to pay) and each defendant is required to pay a civil money penalty of $1 to the Bureau. Liability for nearly $5 million was entered by default judgment against the defaulting defendant and a civil monetary penalty in the amount of $5 million. 

    Courts CFPB Enforcement Telemarketing Sales Rule Civil Money Penalties Debt Relief Student Lending

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  • Court enters $41 million default judgment against student debt-relief operators

    Courts

    On December 3, the U.S. District Court of the Central District of California entered a default judgment against a student debt-relief company and one of its owners (collectively, “defaulting defendants”) in an action brought by the CFPB alleging the defaulting defendants (and others not subject to the judgment) charged thousands of customers approximately $11.8 million in upfront fees in violation of the Telemarketing Sales Rule (TSR). As previously covered by InfoBytes, in July, the CFPB filed a complaint against the defaulting defendants, one other company, its owner, and four attorneys, alleging the companies would market its debt-relief services to customers over the phone, encouraging those with private loans to sign up with an attorney to reduce or eliminate their student debt. The businesses allegedly charged the fees before the customer had made at least one payment on the altered debts, in violation of the TSR’s prohibition on requesting or receiving advance fees for debt-relief service or, for certain defendants, the TSR’s prohibition on providing substantial assistance to someone charging the illegal fees. In August, the court approved stipulated final judgments with the other company owner (available here) and three of the attorneys (available here, here, and here).

    The court entered into a default judgment against the defendants after they failed to file an answer or otherwise respond to the Bureau’s complaint. The judgment requires the defaulting defendants to pay over $11 million in consumer redress with separate $15 million civil money penalties entered against the company and the owner. Additionally, the defaulting defendants are permanently banned from providing debt-relief services or engaging in telemarketing of any consumer financial product or service.

    Courts CFPB Enforcement Telemarketing Sales Rule Civil Money Penalties Student Lending Debt Relief

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  • CFPB charges debt-relief company and owners

    Federal Issues

    On November 20, the CFPB announced it filed a complaint in the U.S. District Court for the Northern District of Illinois against a debt-relief company and its two owners (collectively, “defendants”) for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act. According to the complaint, between 2011 and April 2019, the defendants allegedly misrepresented material aspects of their student loan debt-relief services, by, among other things, falsely representing that the services would reduce or eliminate payments, stop wage garnishment, lift tax liens, and improve credit scores. Additionally, the Bureau alleges the defendants violated the TSR by requesting and receiving payment of fees for their services before they renegotiated, settled, reduced, or otherwise altered the terms of at least one debt pursuant to an agreement. Moreover, the defendants’ fees were allegedly not proportional to or a percentage of the amount saved as a result of their services. The complaint seeks injunctions against the defendants as well as damages, redress, disgorgement of ill-gotten gains, and the imposition of civil money penalties.

    Federal Issues CFPB Enforcement Courts Debt Relief Debt Settlement CFPA Telemarketing Sales Rule

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