Student loan borrowers already burdened by excessive debt may have another problem to worry about: unscrupulous debt relief companies.
According to a lawsuit filed by New York State Attorney General Barbara D. Underwood, nine student loan debt relief companies, their financing company, and two individuals with leadership roles in several of the companies “fraudulently, deceptively, and illegally advertised and market, offer for sale, sell and finance student debt relief services to thousands of consumers nationwide, including thousands of New Yorkers.”
The complaint alleges multiple violations, including false claims about affiliation with the federal government, misrepresentations to induce consumers to enroll in their services, and illegal upfront fees and/or usurious interest rates. The firms typically charge more than $1,000 for services that are available for free through the federal government or the consumer’s student loan servicer and 20.99% interest, which tops New York’s civil usury rate cap of 16%.
The suit also alleges that defendants violate federal and New York state laws designed to protect consumers from fraudulent credit repair organizations, telemarketers and consumer credit agreements. The U.S. Department of Education estimates that 92% of all outstanding student loans are federal student loans.
The defendants are student debt relief companies Hutton Ventures LLC; Progress Advocates LLC; Progress Advocates Group LLC; Student Advocates LLC; Student Advocates Group LLC; Student Advocates Team LLC; Student Loan Care LLC; Student Loan Support LLC; and Debt Resolve, Inc., which is a majority owner of Progress Advocates LLC and Student Loan Care LLC, and its current and former CEOs Bruce Bellmare and Stanley E. Freimuth. Also named in the suit is Equitable Acceptance Corp., a financing company that is already the defendant in a class action lawsuit filed by the New York Legal Assistance Group and the law firm Quinn Emanuel Urquhart & Sullivan LLP, alleging scam debt relief services sales to tens of thousands of federal student loan borrowers.
The lawsuit filed by the New York State attorney general seeks injunctive relief, a declaration that defendants’ contracts with borrowers are null and void, restitution, damages, disgorgement, penalties and costs.
“New Yorkers are already struggling under a mountain of student loan debt,” Underwood said. “These companies sought to line their own pockets by taking advantage of students who were simply trying to pay for their education. My office will continue to do everything in our power to protect students — and all New Yorkers — from predatory scammers.”
New Yorkers’ student loan debt is estimated at $86.54 billion by a 2017 Consumer Financial Protection Bureau report.
According to the New York lawsuit, the defendants allegedly contact borrowers through deceptive personalized direct mail solicitations that appear to come from the federal government, deceptive Facebook ads and by phone with telemarketers selling debt relief agreements posing as “student loan advisors” affiliated with the federal government.
Some borrowers stop making loan payments, believing that their payments to defendants are being used to paying their student loans, but ending up owing more because of their missed payments.
The AG’s Office recommends that student loan borrowers who believe they have been defrauded file a complaint with the Attorney General online, or call (800) 771-7755 to have a complaint form sent via mail.
— Check out States vs. Feds in Latest Student Loan Debt Court Battle on ThinkAdvisor.