Prosecutors Haul Student Debt Relief Company Into Court

Washington Post
Published: 5/30/2016 10:01:59 PM
Modified: 5/30/2016 10:03:39 PM

District of Columbia Attorney General Karl Racine on Wednesday filed a lawsuit against Student Aid Center, a Florida-based debt relief company, and its owners for misleading area residents about the firm’s ability to lower student loan payments and illegally charging upfront fees before providing the service.

Racine found evidence of the company charging fees of $600 to $1,000 in exchange for simply mailing out paperwork that borrowers can obtain and submit for free through the federal government. Telemarketers went so far as to promise full refunds if customers did not receive debt relief. But when people demanded their money back, Student Aid Center either failed to hand over the full amount or any money at all, according to the complaint.

To hook consumers, telemarketers implied or told them Student Aid Center was affiliated with the Department of Education, a relationship that could help fast-track applications for loan forgiveness or lower monthly payments, the complaint said. That kind of deceptive advertising violates consumer protection laws, as does charging upfront fees for debt consulting.

Companies must by law renegotiate, settle or reduce at least one debt before collecting fees for the service. They are also not allowed to promise results that they have no way of accomplishing, such as quick relief from default or wage garnishment.

“Hard-working residents often take on significant amounts of debt in order to further their education. They should be able to avail themselves of the many tools available to help relieve their debt burdens, without being preyed upon by fraudsters,” Racine said, in a statement.

The District of Columbia’s top prosecutor is asking the court to put an end to Student Aid Center’s illegal practices as well as restitution for consumers and civil penalties. Attorneys for Student Aid Center did not immediately return calls for comment.

Racine coordinated his investigation with Florida authorities and the Federal Trade Commission, which filed a separate lawsuit against Student Aid Center on Wednesday. The federal agency is accusing the company of using false claims and deceptive advertising to lure consumers, including advertised promises such as “Get Your Student Loans Forgiven Now!” and “$17,500 in Up Front Forgiveness?” Those false claims netted the company more than $36 million in revenue from unwitting consumers.

“Consumers should be wary of any company that claims it can eliminate or greatly reduce debt, especially if they ask for money in advance,” said Jessica Rich, director of the FTC’s Bureau of Consumer Protection, in a statement.

This is not the first time Student Aid Center has run afoul of authorities. Minnesota Attorney General Lori Swanson in July filed a similar lawsuit against the company, which has also been sued by consumers across the country.

There is no definitive data on student debt relief scams. But government agencies say they have noticed a spike in complaints in the wake of the federal government’s expansion of repayment options and forgiveness plans. In some cases, the same companies accused of mortgage relief fraud have reinvented themselves as student debt relief advisers, according to the FTC.

Advocacy groups and attorneys general have blamed inadequate student loan servicing for the rise in debt relief scams. They argue that if servicers, the middlemen that collect payments, were doing a better job of helping borrowers, fewer people would turn to debt relief companies. Industry groups, however, say legitimate debt consultants offer a convenience of navigating a system that is often complex and confusing.

There are warning signs that a company offering student loan debt relief may be a scam. People should avoid companies that require upfront payment, bank account information or access to their federal student aid PIN, according to advisories issued by the CFPB and Department of Education.

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