Earlier today I wrote NY Sues a Bunch of Student Loan Debt Relief Companies and Equitable Acceptance Corporation and now I have a few minutes to take a deep dive into the complaint.
Let’s see what the State of New York claims the facts to be against Debt Resolve, Hutton Ventures, Progress Advocates, Progress Advocates Group, Student Advocates, Student Advocates Group, Student Advocates Team, Student Loan Care, Student Loan Support, Equitable Acceptance Corporation, Bruce Bellmare, and Stanley Freimuth.
The material in quotes comes from the complaint filed by New York, unless otherwise sourced.
“Many of the Defendants hold themselves out as loan experts, when they are not, and provide advice to borrowers that can make them worse off in the end. In addition to charging over $1,000 for services that are available for free, they worsen some borrowers’ already precarious financial situation by providing incomplete and harmful advice.
For example, they advise some borrowers they should consolidate their federal student loans without explaining that, in some cases, by doing so, consumers would lose months or years of loan payments they had already made that would qualify toward forgiveness of their loans under the Public Service Loan Forgiveness Program (“PSLF”). Relying on that advice, some of those borrowers consolidated their loans to their detriment.
Other borrowers even take out additional loans based on Defendants’ erroneous advice that with the assistance of their programs, the debt on the new loans will be forgiven.”
Here is an interesting finding, “Because Equitable remits to Defendants the full amount of the consumer contract before the services promised have been fully completed, these arrangements also constitute illegal, upfront fees.”
The complaint says the activities that raised concerns impacted people not just in New York. “Through their deceptive and unlawful practices, Defendants have collectively misled thousands of borrowers nationwide, including thousands of New Yorkers, into paying thousands of dollars to purchase student loan debt-relief services that the borrowers could have received for free.”
Parties Named in Suit
Defendant Debt Resolve, Inc. (“Debt Resolve”) is a publicly traded company, incorporated in Delaware, with its principal place of business at 22 Saw Mill River, 2nd Floor, Hawthorne, New York. Debt Resolve entered into a joint venture with LSH, LLC, a Delaware limited liability company, to start Defendant Progress Advocates, LLC in 2014. Debt Resolve entered into a joint venture with Defendant Hutton Ventures, LLC to start Defendant Student Loan Care, LLC in 2016. Debt Resolve is the majority owner of both Progress Advocates, LLC and Student Loan Care, LLC and has conducted business at the same address as both, namely, 1133 Westchester Avenue, Suite S-223, White Plains, New York. Debt Resolve also signed a 2017 agreement with Equitable Acceptance Corporation in which it agreed to “absolutely, unconditionally, and on a continuing basis” pay any debts Student Loan Care, LLC owed to Equitable Acceptance Corporation.
Defendant Hutton Ventures, LLC (“Hutton”) is a Delaware limited liability company with its principal place of business at 4 Hutton Centre, Suite 210, Santa Ana, California. According to the Debt Resolve Form 10-Q SEC filing for the period that ended September 30, 2017 (“Debt Resolve 10-Q”), Hutton partnered with Debt Resolve to form Student Loan Care, LLC. As a partner with Debt Resolve in its joint venture Student Loan Care, LLC, which as described below in paragraph 24, is located in New York, it engages in business in New York.
According to SEC 10-Q Statement – Debt Resolve, Inc. (the “Company”) was incorporated under the laws of the State of Delaware on April 21, 1997. The Company offers its service as a Software-as-a-Service (SaaS) model, enabling clients to introduce this collection or payment software option with no modifications to their existing collections computer systems. Its products capitalize on using the Internet as a tool for communication, resolution, settlement and payment of delinquent or defaulted consumer debt and as part of a complete accounts receivable management solution for consumer creditors.
In December 2014, the Company, jointly with LSH, LLC, organized Progress Advocates LLC, a Delaware limited liability company for the purpose to provide services in the student loan document preparation industry with ownership interests of 51% and 49% for the Company and LSH, LLC, respectively.
In February 2016, the Company, jointly with Patient Online Services, LLC, organized Payment Resolution Systems LLC, a Delaware limited liability company for the purpose of assisting Medical Groups and Hospitals in the online negotiation and settlement of delinquent accounts, with ownership interests of 51% and 49% for the Company and Patient Online Services, LLC, respectively.
In May 2016, the Company, jointly with Hutton Ventures LLC, organized Student Loan Care LLC, a Delaware limited liability company for the purpose of providing document preparation services for holders of Federal Direct Student Loans, with ownership interests of 51% and 49% for the Company and Hutton Ventures LLC, respectively.
The Company operates Payment Resolution Systems within Debt Resolve, Inc., whereas Progress Advocates LLC and Student Loan Care LLC operate as independent subsidiaries.” – Source
SEC Document Talks About Problems at Progress Advocates and Student Loan Care – “Student Loan Care LLC was launched in June 2016 and has already established itself as a financially viable company. This new joint venture is a partnership with Hutton Ventures LLC., a California based company with extensive experience in the federal student loan document preparation industry. The business model for Student Loan Care, specifically addresses the issues of high marketing costs and customer churn, both of which were significant negative impacts on the Company’s majority owned joint venture, Progress Advocates LLC.
The quarter ending September 30, 2017 was a challenging quarter for Student Loan Care. As the Company was slowly recovering from the seasonality of the Direct Mail industry that slowed response rates to our marketing campaigns in the second quarter ending June 30, 2017, a number of sales personnel unexpectedly left the Company during the month of August 2017. New sales management was put in place and the hiring and training of new sales personnel was completed by quarter end.” – Source
It appears the issues of Progress Advocates and Student Loan Care go back to 2015 and 2017 respectively. “New York State Attorney General Subpoena – In December 2015, the Company and Progress Advocates, its majority owned subsidiary, received a subpoena requesting documents regarding the operations of Progress Advocates. It is our understanding that this request was one of several requests sent to companies operating in the Federal Student Loan document preparation space in New York State. We have provided the requested information that was available, both from Progress Advocates and its vendors. Additional information has been provided subsequent to the Company’s initial response. We are confident that our compliance with payments aligned to the consumer’s receipt of benefit and our vendor’s responsible marketing has been accurately demonstrated in the information provided.
In August 2017, the Company and Student Loan Care LLC, its majority owned subsidiary, received a subpoena requesting documents regarding the operation Of Student Loan Care. We have provided the requested information regarding Student Loan Care and respective vendors’ services. We are confident that our compliance with regulations regarding marketing, sales, advanced payments, and our focus on helping consumers select the best programs for their financial situation supported by on-going people-based customer service, demonstrates our commitment to helping federal student loan holders.” – Source
Statements Made About Equitable Acceptance
“Defendant Equitable Acceptance Corporation (“Equitable” or the “Financing Defendant”) is a Delaware corporation with its principal place of business at 1200 Ford Road, Minnetonka, Minnesota. Equitable has an F rating from the BBB.
Equitable finances loans for borrowers who enter into agreements with certain of the Contracting Defendants, including Progress Advocates, Progress Advocates Group, Student Advocates Team, and Student Loan Care. Equitable also finances loans for borrowers who enter into student loan debt-relief agreements with more than thirty other debt-relief companies. Equitable is not a licensed lender in New York.
While the financing agreements, titled “Equitable Acceptance Revolving Credit Plan” (the “Equitable Credit Plan”) are ostensibly installment credit agreements between the Contracting Defendants and borrowers, Equitable in fact provides the financing, not the Contracting Defendants. Equitable purchases the Equitable Credit Plans from the Contracting Defendants within days of the borrowers signing them and before any payments on them are due. Accordingly, borrowers make all payments under these financing plans directly to Equitable, which: 1) drafted the agreements; 2) requires that its Equitable Credit Plan be used by the Contracting Defendants if they want Equitable to purchase those agreements from them, as Equitable routinely does; 3) requires that borrowers sign a Credit Request Authorization authorizing it to perform credit checks of the borrowers who have signed the agreements; and 4) requires borrowers to authorize Equitable to use ACH to debit their bank accounts monthly to pay it for its financing of the agreements.
Thus, Equitable purchases the Equitable Credit Plans from Progress Advocates, Progress Advocates Group, Student Advocates Team, and Student Loan Care and collects payments from borrowers.
Equitable is the assignee of the Equitable Credit Plans it purchases from the Contracting Defendants.
All of the borrowers’ Equitable Credit Plans provide that Equitable, as the holder of such credit contracts is subject to all claims and defenses that can be asserted against the seller of the goods or services obtained with the proceeds of the financing.
By financing and purchasing the contracts between borrowers and the Contracting Defendants, Equitable aids and abets the deceptive and fraudulent business practices of the coDefendants.
Equitable has received hundreds of complaints from the BBB, the CFPB, and other sources over the past several years, which describe in detail the illicit practices of the Marketing and Contracting Defendants alleged herein. Thus, Equitable knows of its co-Defendants’ deceptive and fraudulent activities. Equitable also provided substantial assistance in furtherance of these deceptive and fraudulent practices by providing the financing borrowers need to make purchases from the other Defendants.
Equitable is responsible for the fraudulent and illegal conduct alleged herein and is a necessary party to award complete relief.”
“Equitable entered the student loan industry in 2015 when it began financing and/or acquiring borrower contracts. Equitable has partnered with over forty student debt companies, including the Contracting Defendants.”
If you would like to read claims about the marketing and skills of commissioned sales representatives, start on page 24 of the complaint.
The complaint makes an interesting statement that the loans made by Equitable Acceptance for student loan debt assistance may be void and no payment is due since the interest charged is above the state usury laws.