The Consumer Financial Protection Bureau (CFPB) has taken action against some student loan assistance companies that are selling programs to consumers saying they can offer great benefits to those with student loans.
The CFPB went so far as to say they “took action to put an end to two student “debt relief” scams that illegally tricked borrowers into paying upfront fees for federal loan benefits.”
The two companies in the crosshairs have passed over my keyboard before. Both Student Loan Process.US and College Education Services raised concerns for me early on and had been the target of other reports as well.
Back in February of 2013 I wrote this article warning consumers about dubious student loan assistance outfits. The tea leaves were very clear on what was about to happen to consumers. It seemed the sales outfits that had been pushing debt settlement had moved on to now target those with student loans. It is/was almost like shooting fish in a barrel.
And ironically, it was the very government loan servicers that were driving consumers into the hands of scammers by not knowing what programs were in their quivers or being properly incentivized to offer them.
Rohit Chopra of the CFPB said, “We have previously noted that problems in student loan servicing can create the opportunity for scammers to flourish – similar to the “foreclosure rescue” scams that grew in number as homeowners struggled with their mortgage servicers.”
And with the recent action against those two companies the CFPB says they are “issuing a consumer advisory today warning student loan borrowers to be wary of paying high fees for free federal loan benefits.”
“Student loans are already a significant debt for many Americans. College Education Services and Student Loan Processing.US added to that hardship by taking advantage of troubled borrowers and failing to describe their services honestly,” said CFPB Director Richard Cordray. “When scam artists prey on student loan borrowers, we will take action to halt their illegal activity.”
College Education Services Banned from Industry
College Education Services, its owner, Marcia Elena Vargas, and advisor and employee, Frank Liz, marketed and advertised debt relief services to student loan borrowers with loans in default. Based in Tampa, Florida, the company advertised through Internet ads and operated websites including CollegeDefaultedStudentLoan.com and HelpStudentLoanDefault.com. The company reaped millions of dollars in advance fees from thousands of consumers before it ceased operations around February 2013. Specifically, College Education Services:
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- Charged illegal advance fees: Federal law requires at least one debt to be renegotiated, settled, or reduced before a fee can be collected for debt relief services. But College Education Services charged consumers between $195 and $2,500 and required all, or a substantial portion, of its fees to be paid upfront; the average fee was about $500. The company even took money from financially distressed consumers who could not qualify for loan consolidation, income-driven payment plans, or loan forgiveness programs.
- Falsely promised lower payments: Presenting themselves as “counselors,” College Education Services’ telemarketers promised consumers that they could solve all the student loan issues that plagued consumers. Internet ads and telemarketers guaranteed lower monthly payments for consumers. One College Education Services’ ad said, “Cut Your Student Loan Monthly Payment Up to 50% – Save Today!” The company often failed to deliver the promised results. For some consumers who qualified for loan consolidation, College Education Services selected monthly repayment plans that increased their monthly payments.
- Falsely claimed quick relief from default or garnishment: The company promised quick relief from default or garnishment. Garnishment is when a court order allows money to be taken from a consumer’s salary, bank account, or other asset when she owes money. But the principal debt relief approach the company used – loan consolidation − did not and could not ensure those benefits in all cases, and not in the quick timeframe the company promised. – Source
College Education Services entered into a consent order with the CFPB. This agreement bans Vargas and Liz from “(1) offering, marketing, selling, or providing any Debt-Relief Service, whether directly or indirectly, (2) assisting any person offering, marketing, selling, or providing any Debt-Relief Service, including by consulting, brokering, planning, investing, or advising, and (3) receiving any monies or consideration from, holding any ownership interest in, providing services to, or working in any capacity for any person engaged in or assisting in the offering, marketing, selling, or providing of any Debt-Relief Service.”
The CFPB also took action against what I think was the larger player in this announcement, Student Loan Processing.US.
Student Loan Processing.US Sued As Well
Student Loan Processing.US, a fictitious business name of Irvine Web Works, Inc., is headquartered in Laguna Nigel, California, with an office in Dallas, Texas. The CFPB alleges that since at least July 2011, the company and its owner, James Krause, has been marketing and advertising services to advise and assist borrowers applying for Department of Education federal student loan repayment programs. The company operates websites under the names StudentLoanProcessing.us, StudentLoanProcessing.org, and slpus.org. In the complaint filed today, the Bureau is accusing the company and Krause of:
- Falsely representing an affiliation with the U.S. Department of Education: Claiming to be a “consultation service,” Student Loan Processing.US implies to consumers that it is affiliated with the Department of Education. The company uses a logo that resembles a government seal, stamps “Official Business” on its mail to consumers, and cites federal law prohibiting mail tampering to create the impression that the marketing material is sent or endorsed by the federal government.
- Charging illegal advance fees: Student Loan Processing.US charges consumers considerable upfront enrollment fees of either 1 percent of the consumer’s federal student loan balance or $250, whichever is higher. The company requires payment of the entire fee before it even mails application materials to consumers.
- Deceiving borrowers about the costs and terms of its services: Student Loan Processing.US fails to clearly explain and disclose that it charges a monthly service fee that continues until the consumer’s federal student loans are paid in full or discharged, a timeframe that could last decades. In certain cases, the company advises consumers who may qualify for zero payments to pay $39 a month – without adequately explaining that the $39 is going to Student Loan Processing.US as a fee.
The folks behind Student Loan Processing did not enter a consent order with the CFPB and are headed down the long road towards a trial.
The complaint the CFPB filed let’s us know the CFPB alleges:
- “Defendant James Krause is the founder, president, and sole owner of Student Loan Processing.US. Krause has substantial managerial responsibility for and daily control over the operations of Student Loan Processing.US, including sales, onboarding, training, communications, compliance, as well as Student Loan
Processing.US’s policies and procedures.”
- “Consumers who contacted Defendants in response to an outbound call, the Defendants’ mailer, or any other recruitment channel spoke with a self-proclaimed “Student Loan Specialist” for enrollment with Student Loan Processing.US.
The enrollment calls typically began with staff at Student Loan Processing.US telling the consumer that they were “prequalified” for certain federal student loan repayment and forgiveness programs. During the call, the “specialists” directed the consumer to divulge their confidential 4-digit PIN information for the U.S. Department of Education’s National Student Loan Data System, collected information about the borrower’s federal student loan balances and annual income, and then quoted the new expected federal student loan monthly payment amount for borrowers who enroll.
Defendants then gathered banking information from the borrower for payment of the enrollment fee, which was generally collected from the consumer’s debit/credit card or bank account during the initial enrollment call. If a consumer needed to schedule payment of the enrollment fee or to break the enrollment fee into more than one payment, Defendants’ employees were directed to ask the consumer about the frequency with which they were paid, as well as their next expected payday, in order to schedule the enrollment fee payment around that date.”
- “Throughout the relevant time period, Defendants misrepresented to consumers, directly or by implication, that they were agents of the U.S. Department of Education or were affiliated with that agency in some capacity.”
- “Until approximately September 2012, the logo for Student Loan Processing.US (image on the left below) shared several similarities with the U.S. Department of Education seal (image on the right below), including the outer spherical gold border, inner spherical gold border, tree “growing” from a base, and medium blue shading between the borders with white text.”
- “For at least some consumers whose financial circumstances could potentially qualify them for a $0 monthly payment, Defendants regularly advised those consumers that Student Loan Processing.US could get that consumer’s monthly payment amount “down to $39,” without separately explaining that the entire $39 payment would be paid to Defendants as a monthly fee, rather than payment toward the consumer’s federal student loans. These types of statements, as well as those described in the preceding paragraphs, were made before a consumer consented to payment, as well as during the actual enrollment (when payment was made).”
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