The Consumer Financial Protection Bureau (Bureau) today filed a complaint in the federal district court for the Central District of California against GST Factoring, Inc., which runs a student-loan debt-relief business in Texas, and two of its owners, Rick Graff and Gregory Trimarche, as well as Champion Marketing Solutions, LLC, a customer service and marketing company, and its owner, Scott Freda.
The Bureau also filed suit against four attorneys, California attorneys Amanda Johanson and Jacob Slaughter, Arizona attorney David Mize, and Florida attorney Daniel Ruggiero.
The Bureau alleges that the companies, their owners, and the attorneys were part of a nationwide student-loan debt-relief operation that charged thousands of consumers saddled with private student-loan debt approximately $11.8 million in illegal upfront fees in violation of the Telemarketing Sales Rule (TSR). Concurrent with the complaint, the Bureau and four of the defendants filed proposed stipulated final judgments and orders to resolve the claims against them. If entered by the court, the orders will ban Trimarche, Slaughter, Mize, and Ruggiero from participating in certain activities, impose monetary judgments to provide consumer redress totaling approximately $11.8 million, and impose a civil money penalty.
Under the TSR, it is illegal to request or receive any fees for debt-relief services sold through telemarketing before the debt is settled or renegotiated.
But, as the complaint alleges, from 2015 through the present, the defendants violated the TSR’s prohibition on requesting or receiving advance fees for debt-relief services, or substantially assisted others in violating this prohibition by charging illegal advance fees purportedly to renegotiate student loan debt.
As the complaint alleges, the defendants did not wait to complete their work for consumers, and instead charged fees right away by arranging for monthly payments over the course of years that began at or just after consumers signed up for defendants’ services.
Using telemarketing campaigns, the debt-relief operation led consumers to believe that they were working solely with an attorney, but in fact, the fees—which were as large as about 40% of the consumers’ outstanding student-loan debt—went to defendant GST Factoring, which distributed the funds to the participants in the scheme.
The complaint also alleges that consumers were encouraged to stop paying their student loans all together.
The Bureau negotiated proposed stipulated final judgments and orders with four of the defendants that were filed alongside the complaint. If entered by the court, the proposed orders will permanently ban Trimarche from providing debt-relief services and telemarketing any consumer financial product or service and impose permanent debt-relief bans on Slaughter, Mize, and Ruggiero.
The proposed orders would also impose monetary judgments against the settling defendants to provide redress to the approximately 2,600 consumers who paid a total of approximately $11.8 million to the defendants over the course of nearly five years.
The full judgment amount will be suspended upon the settling defendants’ paying a portion of the redress based on their demonstrated inability to pay the full amount.
Each settling defendant will also pay a $1 civil money penalty to the Bureau. Whenever the Bureau collects a civil money penalty through an enforcement action, that penalty is deposited into the Bureau’s Civil Penalty Fund. Assuming continued available funds, the Bureau will work to provide full relief to eligible harmed consumers from this fund.
If the proposed orders are entered by the Court, the Bureau’s lawsuit would continue to proceed against Defendants GST Factoring, Champion Marketing Solutions, Graff, Freda, and Johanson. The complaint seeks redress to consumers, an injunction, and the imposition of civil money penalties against them. The complaint is not a finding or ruling that the defendants have violated the law.
Details From the Complaint
While the consumer is buying student loan assistance services, the complaint states, “The services are sold as legal services, even though most of the fees paid by consumers go to GST, CMS, and their lead generators, and in nearly all instances, the service provided is debt-settlement negotiation, something that does not require legal training.”
“Lead generators, hired and directed by GST and trained by CMS, market the services of the Debt-Relief Operation through telemarketing. The lead generators send consumers mail solicitations marketing debt-relief services for federal student loans with a telephone number that connects to the lead generators’ telephones. If consumers call that telephone number and indicate that they have private student loans, the lead generators encourage those consumers to sign up with an Attorney to obtain debt-relief services.”
“In the sales pitch, the lead generators follow a script that was drafted and vetted by GST, CMS, or one of the Attorneys. One such script, for example, instructs the lead generators to encourage consumers to “get … UNDER THE PROTECTION of the Law Firm,” claiming that the consumer would have “a licensed attorney [who would] zealously attack your debtholder to the full extent of the law” and use “any and all legal tools available to attack your debt.” The lead generators encourage consumers to stop paying their student-loan debt, claiming that being behind in payments will make lenders more likely to agree to a settlement.”
“Johanson, who was the first attorney recruited by GST to provide debt-relief services, was associated with the business from about July 2015 through March 2018. From July 2015 through some time in 2018, more than 1,000 consumers from across the United States signed engagement agreements with Johanson through the process described above.
But Johanson did little to no work pursuant to these engagement agreements. After several client complaints, the California Bar initiated an investigation into Johanson’s conduct and instituted disciplinary charges against her. Then, after Johanson stipulated to inactive status, the proceedings against her were abated. She is also suspended from the practice of law for failure to pay the required fees.”
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“Under the engagement agreements described above, GST, on behalf of the Debt-Relief Operation, had received about $11.8 million in fees from approximately 2,600 consumers as of May 2020.
After paying the other Defendants and the lead generators, as of November 2019, GST had retained more than $4.5 million in fees. Of this amount, Graff took more than $1.6 million and Trimarche took more than $1.5 million.
As of May 2020, CMS’s distribution of fees from the Debt-Relief Operation amounted to approximately $1 million.
As of May 2020, Johanson’s distribution of fees from the Debt-Relief Operation amounted to approximately $520,000.
As of May 2020, Ruggiero’s distribution of fees from the Debt-Relief Operation amounted to approximately $125,000.
As of May 2020, Mize’s distribution of fees from the Debt-Relief Operation amounted to approximately $573,000.
As of May 2020, Slaughter’s distribution of fees from the Debt-Relief Operation amounted to approximately $240,000.”