The National Consumer Law Center has just released their latest report. This one is all about student loan assistance programs. While I have been reporting about this new debt relief solution, the NCLC report goes into more detail. I was happy to see they referenced a number of the articles I’ve written in the footnotes.
The report is titled “SEARCHING FOR RELIEF: Desperate Borrowers and the Growing Student Loan “Debt Relief” Industry.” – Source
The key findings of the report are student loan debt relief companies engage in the following behavior:
- Mischaracterizing Federal Government Programs as Their Own Programs
- Charging High Fees for Services that are Available for Free. This practice is not inherently abusive, but it raises a number of warning signs. At a minimum, it is deceptive that most of the companies fail to prominently disclose that “their” programs are actually federal government programs that an individual can access on her own at no cost.
- Not Disclosing Fees
- High Fees. Our investigation found a range of fees charged, including initial fees up to $1600 in some cases and monthly fees for ongoing services of $20-50. The monthly fees are particularly suspect since it is unclear what services, if any, the consumer is buying on a monthly basis.
- Selling a One-Size-Fits-All Approach. Despite claims of broad services, most of the companies appear to offer mainly loan consolidation. There are numerous problems with this approach, including that consolidation is not an appropriate product for all borrowers and may not even be available to all borrowers.
- Providing Inaccurate Information. The report highlights a shocking number of inaccuracies about consolidation, garnishment, rehabilitation, bankruptcy and other critical topics. These inaccuracies are in stark contrast to the ubiquitous claims of sophisticated student loan expertise.
- Discouraging Borrowers from Handling Their Own Cases
- Focusing on Sales, Not Counseling
- Limiting Remedies and Access to Justice. NCLC found widespread use of mandatory arbitration clauses (which require consumers to waive their right to use the court system and instead limit consumers to resolving their disputes with the lender through a binding arbitration process) and waivers of jury trials in consumer contracts.
- Numerous potential legal violations of consumer protection laws, including the federal Credit Repair Organizations Act (CROA), Federal Trade Commission (FTC) Telemarketing Sales Rule, state debt settlement and debt management laws, and unauthorized practice of law provisions. Abuses in the debt relief industry are not new. The abuses grew so severe in the credit counseling, foreclosure rescue, and debt settlement industries in recent years that the federal government and many states passed laws to crack down on abuses. Most of these laws should apply to student loan debt relief companies. Many of these companies appear to be routinely violating all or some of these consumer protection laws. Some potential violations: not including a three-day cancellation right in contracts, requiring payment before initiating services and false and deceptive advertising.
- Requiring Powers of Attorney. This is extraordinary power that consumers are giving to questionable companies.
- Safeguarding Consumer Privacy. A number of the companies in our investigation required a consumer to reveal his/her federal student loan PIN number in order to move forward with the service. This practice raises serious privacy concerns and violates U.S. Department of Education guidance.
Many of the recommendations I laid out in February in How to Run a Clean Student Loan Assistance Program were adopted in the NCLC report as well.
Given the many misrepresentations that NCLC uncovered, it is unlikely that these companies are providing quality services in return for the money they are charging. Such practices severely compound the pain of vulnerable consumers seeking to find resolutions to difficult student debt problems.
The recommendations of NCLC are:
- Improve Government Bureaucracy and Simplify Student Loan Relief Programs
- Require Fair and Reasonable Fees
- All companies must disclose fees online and in all calls with consumers.
- The companies must not charge advance fees in violation of federal law before services are completed.
- Companies should charge only fees that are bona fide and reasonable.
- Prohibit Misleading Advertisements or Representations
- Companies must not engage in false, deceptive, or misleading advertising, including improperly stating or implying affiliations or connections with government agencies.
- Companies must prominently disclose if their programs are government programs and if so that these programs are available at no cost through the government.
- Claims about performance must be transparent and verifiable.
- Claims about borrower rights and the requirements of student loan programs must be accurate and up to date.
- Safeguard Consumer Privacy
- Companies must not request or require borrowers to provide PIN numbers for the National Student Loan Data System (NSLDS).
- Companies must provide information about the potential dangers of signing power of
attorney documents and comply with all applicable laws regarding such documents.
- Refunds
Refunds should not be as much of a concern if companies comply with applicable laws and do not charge any fees until services are completed. However, the companies must, at a minimum, refund any funds received if the consumer does not qualify for a program or otherwise has grounds for refund. - Other Consumer Protections
- Commissions should not be allowed based on numbers of borrowers enrolled in particular programs.
- Transparency is critical. The companies must not only disclose all fees online and in response to requests for information, but also provide sample contracts upon request and verification of performance information.
- Comply with all applicable consumer laws, state and federal, including cancellation rights.
- Companies must comply with unauthorized practice of law provisions.
- Mandatory arbitration and other contract provisions limiting consumer access to justice should be banned.
- Enforcement
Federal and state regulators must step up to investigate these companies and enforce consumer protection laws. - Expand Reliable Assistance Resources
Schools, loan holders, and credit counselors can and should do more to assist borrowers, with
possible public funding or support from higher education institutions. – Source
Companies named or identified in the report include Student Loan Relief.US, Student Loan Managers, Student Loan Consultant, Student Loan Relief, Debt Alternative Center, Default Student Loan Specialists, Student Loan Processing, Student Loan Assistance, Federal Student Aid Relief, Student Consulting Group
The report identifies a number of problematic areas the student loan assistance companies wander into including the Credit Repair Organizations Action and the use of the power of attorney.
Power of Attorney Problems
Nearly every company we reviewed requires clients to sign powers of attorney. A few of the companies explicitly state that the client must cease communication with the loan holder after signing the agreement and power of attorney. One company requires con- sumers to sign that they will not work on their own accounts after signing up with the company. The company says it will not provide a refund if the client works on his own account after signing the agreement.
There are numerous potential problems with the widespread use of powers of attor- ney. This is extraordinary power that consumers are giving to questionable companies. One problem is that not all of the documents contain specific instructions about how to revoke this authority. Many of the consumer complaints are from consumers who claim that the companies stopped contacting them after taking their money. It is particularly troublesome that these companies are not in touch with consumers, even those trying to get refunds or otherwise terminate services. Consumers may not know that they also must attempt to cancel the power of attorney documents in these cases.
In addition, in all of the documents we reviewed, the authority is given to the company, not to a particular individual. Although the Uniform Power of Attorney Act, which has been adopted in 14 states, does not require that the power be granted to an individual, some states do have such requirements. For example, Florida’s law requires that the agent be a natural person over 18 years old or a financial institution with trust powers. The documents we examined would violate the laws in these states. A few loan holders reported to us that they are now requiring that the student loan debt relief companies name the individuals who are authorized to act for the corporation.
It is still early days for problems to come with consumers that fall for many of these student loan assistance programs. It is a probable statement to predict many consumers will be financially harmed and a tremendous amount of damage will occur before these programs are reined in and made safe.
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