Students' Debt Relief Companies Sued | CreditRaters.com | Credit Raters post

Students’ Loan Debt Relief Companies Sued By The CFPB And States For Violation Of TSR

06 Nov 2019
Approx Reading time: 3 minutes
  • Accused companies and owners violated TSR by charging advance fees before adjusting student loans
  • Companies lied about debt forgiveness within months when it is the DOE to determine forgiveness
  • States indicate that the defendants violated UDAP and other state rules

Two student-loan debt-relief companies have been sued for alleged violation of state laws and CFPA regulations. The complainants include the attorney generals of Minnesota, Los Angeles, and North Carolina and the CFPB.

Student-loan debt relief companies violated TSR

The states and CFPB have filed a suit against the managers and owners of the companies. The companies are responsible for the marketing and selling of student-loan debt-relief services.  According to the lawsuit, the companies broke the Telemarketing Sales Rules and other state regulations.  Also named in the lawsuit are three "relief defendants" companies that acted as conduits of money between the companies and owners.

According to the complaint, the companies charged and collected advance fees even before they could adjust student loans of consumers.  They equally failed to make payments to the modified loans before receiving the advance fees, which is a violation of the TSR and CFPA rules. Consumers paid between $900 and $1,300 in service fees, which the companies levied before the consumer made payment under new terms.  Equally, the complaint indicated that they misrepresented the use and application of the fees they charged.

Defendants lied about debt forgiveness to consumers

They also lied about the ability to lower monthly payments of consumers and the ability to obtain debt forgiveness. The defendants lied that they will help consumers receive loan forgiveness with months, yet forgiveness takes around ten years. Equally, it is the US Department of Education that can determine forgiveness. Similarly, the companies allegedly deceived consumers about lower monthly payments with the new payment amount approved using false information.

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The defendants also failed to provide information to consumers that they requested for automatic placement of the loans in forbearance. Besides, the companies equally offered false information in the application for income-based repayment plans or student loan consolidation. The managers and owners allegedly provided considerable help to the companies concerning their violation of TSR rules. They carried out the operation through a network of various connected companies and over several factious and unregistered business names.

States indicate defendants violated UDAP and state laws

Besides the joint lawsuit brought by states and CFPB on TSR violation, there are other complaints contained in the trial. Each state is alleging that the companies violated their UDAP as well as other laws by their actions.

The complaint is seeking consumer redress and injunctive relief as well as other civil monetary fines. The Central District of California’s District Court has put a provisional restraining order for freezing of the assets of the defendants. Equally, the court has appointed a transitory receiver for both company defendants. The court will later this month hear the CFPB request for an injunction.

The CFPB announced on September 17 that it would not be defending its constitutionality in the Supreme or appellate courts.

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Rebecca White

Rebecca White is chief editor at CreditRaters.com. Rebecca has an extensive amount of knowledge on financial subjects including short-term loans & debt consolidation in the UK and USA. Rebecca has wrote for many publishers such as Debt Secret, My Money, VL and more.