The Federal Trade Commission is tackling three student loan debt relief companies, as well as their majority owner, through a lawsuit in a federal district court in California. The lawsuit was initiated because of perceived violations of the FTC Act and the Telemarketing Sales Rule (TSR).
While some experts worry about how the Consumer Financial Protection Bureau’s 2018-22 strategic plan will regulate student loan debt relief companies, the FTC continues to be a consumer watchdog to make sure these companies are fully following statutes and laws. This is the eighth time the FTC has stepped in as part of Operation “Game of Loans,” a joint federal and state effort to stop deceptive practices in the student loan debt relief arena.
What Are the Alleged Violations?
Some of the alleged violations by the companies included mailing information to borrowers. This information could have allegedly misled borrowers into thinking they were eligible for federal programs that would grant them loan forgiveness or permanently reduce their payments to a fixed and smaller amount. Many borrowers aren’t eligible for such programs – and even then the programs don’t permanently reduce payments, according to the FTC.
In addition, the lawsuit alleged that, unbeknownst to borrowers, their full monthly payments were not necessarily applied to the balance of their loan. Unrelated monthly fees were also slapped on to their bills, according to the lawsuit.
Finally, the lawsuit alleged an advance fee was tacked on bills for enrollment in a program that was supposedly for financial education, which is a violation of TSR.
What It Means for Consumers
Borrowers have long complained about the lack of transparency with student loan debt relief companies, and there can be little recourse for borrowers who feel they’ve been misled or downright cheated out of their money.
Although it’s hard to speculate how this specific lawsuit will turn out, it can bode well for consumers anytime there is legal action of this scope taken in the interest of protecting student loan borrowers.
What Consumers Should Watch for When Choosing a Debt Relief Company
Working with debt relief companies, particularly where student loans are concerned, can be a risky undertaking. While some companies take pride in doing things the right way, there are other, less reputable companies borrowers should be on the lookout for.
Before making a deal with a debt relief company, consumers might first want to consider other options, such as adding on a part-time job until their financial situation improves or working directly with the student loan company to see if a forbearance or deferment can be granted.
The CFPB advised consumers to stay away from companies that charge fees before the debt is settled or promise to make all of their debt vanish. High-pressure tactics are another common red flag for consumers to watch for, like if the company says a borrower must act fast or the offer will not be available.
Author: Andrew Rombach
Your Guide to Financial Freedom
Money tips, advice, and news once a week
Join the LendEDU newsletter!Thanks for submitting!Please Enter a valid email
Student Loan Guides
Student Loan Reviews