The CFPB, joined by the Minnesota Attorney General’s Office, North Carolina Department of Justice, and the Los Angeles City Attorney, filed a lawsuit in the U.S. District Court for the Central District of California in downtown Los Angeles earlier this month. The suit was filed against two companies and owners and managers of the companies, all involved in the marketing and sale of student-loan debt-relief services that scammed customers out of millions of dollars. The complaint alleges violations of the CFPA, the Telemarketing Sales Rule (TSR), and various state laws. It also names three companies as “relief defendants” that are alleged to have served as conduits of funds between the two other company defendants and the individual defendants.
The lawsuit seeks a temporary restraining order blocking the businesses’ operations. It also asks that the court free their assets and bank accounts and take immediate control of the businesses.
The companies allegedly claimed to have “special relationships” with the federal government and federal debt-relief programs and told customers their student-loan debts would be forgiven shortly after paying for their services. In addition, customers were also allegedly told that their payments would be credited to their outstanding loan amounts, according to Los Angeles City Attorney Mike Feuer.
The companies violated various federal and state laws designed to protect consumers and student borrowers from deceptive and fraudulent conduct.
The complaint alleges that the defendants violated the CFPA and TSR by conduct that included: charging and collecting advance fees before consumers had received any adjustment of their student loans or made any payments toward such adjusted loans, misrepresenting the purpose and application of fees charged by the companies, misrepresenting their ability to obtain loan forgiveness and their ability to lower consumers’ monthly payments, and failing to inform consumers that the companies automatically requested that student loans be placed in forbearance. It also alleges that the defendants submitted false information in applications for loan consolidation or income-driven repayment programs.
The individual defendants are alleged to have provided substantial assistance to the company defendants in connection with the TSR violations.
One of the victims mentioned in the lawsuit claimed to have made payments to one of the defendants, Prime, for more than a year before discovering that none of the funds were sent to his actual loan servicer.