Just recently more press has appeared about the growing market of student loan assistance companies.
One article even said, “For the debt settlement industry, all this means a tantalizing gold mine of new customers.
“Your entire student loan can be forgiven,” Broadsword Student Advantage of Carrollton, Texas, boasts in radio ads.
Debt settlement companies, which offer to help borrowers lower their monthly loan payments for a hefty upfront fee, have long been fraught with problems. But federal and state regulators are spotting new instances of abuse as the companies shift away from their traditional targets — credit card and mortgage debt — to zero in on student loans. The companies are coming under fire for potentially questionable tactics. On Monday, Illinois is expected to become the first state to bring legal action against debt settlement companies in connection with their student loan practices, contending in two lawsuits that Broadsword Student Advantage and First American Tax Defense duped vulnerable borrowers into paying for help that never arrived.” – Source
And as stated, Illinois has done just that. According to the State of Illinois, Attorney General Lisa Madigan today filed lawsuits targeting a new industry of student loan debt scams that seek to exploit people struggling to repay their debt. The lawsuits are the first in the nation to crack down on an emerging industry of scam operations charging large upfront fees for bogus services or for government services that are already free of charge.
Madigan filed the suits earlier today against First American Tax Defense LLC and Gustavo Montes, based in Chicago, and Broadsword Student Advantage LLC and Kenneth Talbert, based in Frisco, Texas, alleging the unlicensed companies engaged in deceptive marketing practices and illegally charged consumers hundreds of dollars in upfront fees to reduce or eliminate their student loan debt burden. In reality, Madigan alleges, the companies sought to scam vulnerable people into paying as much as $1,200 upfront for bogus services, including assistance enrolling in a fake “Obama forgiveness program,” or for government services that are already free of charge.
Regular readers may be familiar with the name Broadsword Student Advantage and Ken Talbert. Click here and here.
“These companies illegally charge fees for services that student loan borrowers can obtain themselves through government programs at no cost,” Madigan said. “My office will be aggressive in cracking down on scam operations that prey on student loan borrowers for profit.”
Student loan debt levels have grown to historic proportions, now affecting nearly 40 million Americans who have $1.2 trillion in outstanding debt. Madigan’s lawsuits targeting these scam operations allege that First American and Broadsword Student Advantage are doing an end-run around an Illinois law that she wrote to ban companies from charging people upfront fees for so-called debt settlement services.
Madigan’s lawsuits allege First American and Broadsword Student Advantage have advertised heavily on the radio in Chicago and downstate, offering consumers a myriad of options to ease their debt burden based on the companies’ alleged expertise and false affiliation with the U.S. Department of Education to consolidate or forgive their loans. The companies are alleged to offer to cut student loan payments in half or eliminate them entirely, and specifically offer public service employees a loan debt forgiveness program for which the companies could not qualify them. The lawsuit against First American specifically advertises an “Obama forgiveness program” that is not an actual government program.
The lawsuits allege the companies are in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organizations Act, and the Debt Settlement Consumer Protection Act. In 2010, Madigan crafted and helped pass the Debt Settlement Consumer Protection Act to ban companies from charging upfront fees to consumers for help with debt relief. Today’s lawsuits allege the companies are not complying with the requirements of the Debt Settlement Consumer Protection Act and in addition are not providing any meaningful assistance to reduce consumers’ student loan debt. – Source
You can read the suits filed, here and here.
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Wow. After reading the lawsuit, it becomes evident that this emerging industry and at least a few of the players have not learned the lessons throughout the debt settlement industry’s history. This lawsuit leans almost entirely on UDAAP violations (similar law text). It really boils down to companies offering transparent and honest disclosures of their services, doing a complete financial workup and only charging a fee when the client receives the intended/advertised service. This industry is notorious for making claims, hiding the true nature of the service and the results they should expect, and schmoozing in the grey area during the presentations (and in fine print within the contracts). How difficult is it to be honest with the consumers and disclose the fact that these programs are available free of charge through the DOE, that the company provides document preparation services and that the client will only be charged a fee if they qualify and receive the benefits of a program through their service? Look, some people mow their lawns, others pay people to do it. Some people file their own taxes, some pay companies to do it for them. Imagine paying a tax prep firm to file your taxes, paying a fee and finding out that they couldn’t do it for you after all. The second lesson is that you should handle every consumer with care. If you have a complaint, you better handle it immediately and amicably. Period. You can’t lie to consumers, you cannot omit a jot or tittle of information and the client must fully understand what they are paying for and what to expect. Accurately. I have a feeling this will be the first of many of these if the vertical doesn’t get buttoned up quick. Interestingly, I’ve held 3 SLDR UDAAP compliance classes and have discussed every single one of issues brought up in this lawsuit prior to her even filing it. Sadly, there are a lot of folks who haven’t been trained on this. I’ll keep doing my part, but you can only lead the horse to water… I think there is merit to this vertical if it is done right.