Following a remand from the D.C. federal district court, Department of Education (ED) Secretary Betsy DeVos has issued an order restoring the Accrediting Council for Independent Colleges and Schools’ (ACICS) status as a federally recognized accrediting agency.

ACICS accredits for-profit colleges, whose access to federal student loan funds is contingent on becoming, and remaining, accredited by a “nationally recognized accrediting agency,” as determined by ED. Although not the sole basis for his decision, Secretary DeVos’ predecessor, John B. King, had revoked ACICS’ recognition in 2016 after concluding, with reference to schools such as Corinthian and ITT Educational Services, that ACICS lacked sufficient mechanisms to monitor the results of state and federal agency enforcement actions brought against schools and to deny accreditation to those schools found to have been engaged in fraudulent conduct or to have otherwise violated applicable law.

Secretary DeVos’ recent order means that ACICS’ status as a federally recognized accrediting agency is restored effective December 12, 2016 (the date Secretary King terminated ACICS’ recognition) and that ED will conduct a further review of ACICS’ petition for recognition. ACICS-accredited institutions now may have to decide whether to wait for the outcome of ED’s review or continue pursuing their in-process applications with other accreditors.

The review of ACICS’s 2016 petition will include consideration of material that the D.C. federal district court concluded had been improperly omitted during the 2016 proceeding as well as additional, related material ACICS wishes to submit. According to U.S. District Judge Reggie B. Walton’s March 23 opinion, ED had violated the Administrative Procedure Act in 2016 by failing to consider during ACICS’ recognition proceeding: (1) supplemental information, submitted by ACICS at ED’s request, largely concerning ACICS’ standards for “problem schools,” and (2) evidence of ACICS’ placement verification and data integrity programs and procedures.

After ED had terminated ACICS’ recognition in 2016, it directed ACICS-accredited institutions to find a new accrediting agency by June 12, 2018. Under the terms of Provisional Program Participation Agreements they signed with ED, ACICS-accredited institutions were required to submit an application to a new accrediting agency by June 12, 2017 and host a site visit by the new agency by February 28, 2018. ED was authorized to: (1) terminate federal student aid funding for new students if an institution failed to meet either deadline and (2) require a letter of credit or other financial guarantee (equal to at least 10% of the institution’s Title IV volume from the prior completed award year) if an institution failed to meet the second deadline or obtain an extension.

Judge Walton’s March 23rd ruling is another significant win for ACICS, which one year ago convinced the D.C. Circuit to affirm the federal district court’s denial of the CFPB’s petition to enforce a Civil Investigative Demand (CID) issued to ACICS. In that opinion, the D.C. Circuit concluded the CID failed to adequately describe the nature of the unlawful conduct under investigation. It did not reach the broader question of whether the CFPB had jurisdiction to investigate the accreditation process based on the possible connection to ACICS-accredited schools’ lending practices.

The Student Loan Servicing Alliance, a trade group representing student loan servicers, has sued the District of Columbia to enjoin the operation of Law 21-214, the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016.  The Act, which became effective February 18, 2017, established a student loan ombudsman within the D.C. Department of Insurance, Securities, and Banking with the authority to create rules for student loan servicers. The DISB issued initial emergency regulations on September 8, 2017 and revised regulations on December 26, 2017. The DISB also issued an initial borrower “bill of rights” on October 11, 2017 and revisions earlier this year.

The D.C. regulations and bill of rights impose significant restrictions upon servicers, including requirements that servicers be licensed, pay application and annual fees (including a now-revised annual assessment fee of $.50 per borrower), file a surety bond, and comply with recordkeeping requirements.  The bill of rights purports to dictate further requirements for handling complaints, applying payments, disclosing fees, providing access to default aversion services, and notifying borrowers of payment application methodologies when handling multiple loans.

SLSA seeks a declaratory judgment that the application of the Act and its regulations to federal student loan servicers is precluded by both field and conflict preemption.  In particular, SLSA notes that Federal Direct Loan and the Federal Family Education Loan Programs were created with the intent of providing uniform servicing standards and the Higher Education Act, 20 U.S.C. § 1098g, expressly states that federal loans “shall not be subject to any disclosure requirements of any State law.”

As further evidence of preemption, SLSA emphasizes that the HEA does not contemplate the assessment of state fees and will not permit a myriad system of state licensing and regulatory regimes that would inevitably result in severe cost increases to the federal government.  The Department of Education compensates servicers on a per-borrower basis depending on loan performance, with a maximum compensation of $34.20 per year.  If state licensing is not preempted and states are allowed to assess servicer fees with impunity, the resulting system will siphon ED compensation and require potentially exorbitant increases in ED compensation to servicers in order for those servicers to recoup the money lost to state fees.

SLSA’s suit comes on the heels of ED’s recent interpretation of the HEA, which stresses that the preemption of state regulation of federal student loan servicers expressly prohibits licensing schemes like that in the District of Columbia.   SLSA also relies upon the recent Statement of Interest, filed by the Department of Justice in litigation brought by the Commonwealth of Massachusetts against the Pennsylvania Higher Education Assistance Agency.  The DOJ likewise stresses that the Commonwealth’s efforts to oversee the handling of borrower benefits and payment application for federal student loans are preempted by the HEA.

A bipartisan coalition of 30 state attorneys general led by New York AG Eric Schneiderman and Colorado AG Cynthia Coffman have sent a letter to members of Congress urging them to reject a proposed amendment to the Higher Education Act (HEA) that would preempt state law requirements for servicers of federal student loans.

The letter followed (but did not mention) the U.S. Department of Education’s publication of an interpretation asserting that the HEA preempts state regulation of federal student loan servicers.  Both the AGs’ letter and the ED’s interpretation come in the wake of a wave of new state student loan servicing laws and enforcement activity.

The proposed HEA amendments would preempt state law requirements regarding licensing, disclosures, communications with borrowers that apply to the origination, servicing, or collection of a federal student loan.

The AGs assert that, contrary to ED’s interpretation, the amendments “would represent a stark departure from the traditional cooperative state-federal approach to enforcement—and would wrongly cast aside the long tradition of congressional deference to state prerogatives under the HEA.”  Despite the AGs’ characterization, the ED’s interpretation is based on, and consistent with, the HEA and federal preemption law.



Washington has become the latest state to impose a licensing requirement on student loan servicers. Yesterday, Governor Jay Inslee signed  SB 6029, which establishes a “student loan bill of rights,” similar to the bills that have been enacted in California, Connecticut, the District of Columbia, and Illinois.

The law has an effective date of 6/7/2018, and its requirements include the following:

  • Creation of Advocate Role: The law creates the position of “Advocate” within the Washington Student Achievement Council to assist student education loan borrowers with student loans. This role is analogous to that of “ombudsman” under proposed and enacted servicing bills in other states.  One of the Advocate’s roles is to receive and review borrower complaints, and refer servicing-related complaints to either the state’s Department of Financial Institutions (“DFI”) or the Attorney General’s Office, depending on which office has jurisdiction. The Advocate is also tasked with:
    • Compiling information on borrower complaints;
    • Providing information to stakeholders;
    • Analyzing laws, rules, and policies;
    • Assessing annually the number of residents with federal student education loans who have applied for, received, or are waiting for loan forgiveness;
    • Providing information on the Advocate’s availability to borrowers, institutions of higher education, and others;
    • Assisting borrowers in applying for forgiveness or discharge of student education loans, including communicating with student education loan servicers to resolve complaints, or any other necessary actions; and
    • Establishing a borrower education course by 10/1/20.
  • Licensing of Servicers: SB 6029 requires servicers to obtain a license from the DFI. There are various exemptions from licensing for certain types of entities and programs (trade, technical, vocational, or apprentice programs; postsecondary schools that service their own student loans; persons servicing five or fewer student loans; and federal, state, and local government entities servicing loans that they originated), although such servicers would still need to comply with the statute’s substantive requirements even if they are not licensed.
  • Servicer Responsibilities: All servicers, except those entirely exempt from the statute, are subject to various obligations. Among other things, servicers must:
    • Provide, free of charge, information about repayment options and contact information for the Advocate ;
    • Provide borrowers with information about fees assessed and amounts received and credited;
    • Maintain written and electronic loan records;
    • Respond to borrower requests for certain information within 15 days;
    • Notify a borrower when acquiring or transferring servicing rights; and
    • Provide borrowers with disclosures relating to the possible effects of refinancing student loans.
  • Modification Servicer Responsibilities: The bill imposes a number of requirements on third-parties providing student education loan modification services, including mandates that such persons: not charge or receive money until their services have been performed; not charge fees that are in excess of what is customary; and immediately inform a borrower in writing if a modification, refinancing, consolidation, or other such change is not possible.
  • Requirements for Educational Institutions: Institutions of higher education are required to send borrower notices regarding financial aid.
  • Fees: The bill also calls for the establishment, by rule, of fees sufficient to cover the costs of administering the program created by the bill.
  • Bank Exemption: The statute provides for a complete exemption for “any person doing business under, and as permitted by, any law of this state or of the United States relating to banks, savings banks, trust companies, savings and loan or building and loan associations, or credit unions.” Notably, this exemption does not expressly cover state banks chartered in other states.

As we recently noted, bills like  SB 6029 are being introduced in legislatures across the country at an increasing rate, and we are continuing to track the progress of these proposals as they move through various statehouses.

Hopefully the torrent of such proposals will soon be reduced to a trickle, now that the U.S. Department of Education has formally weighed in on this trend, issuing an interpretation emphasizing that the Higher Education Act, federal regulations, and applicable federal contracts preempt laws like SB 6209 that purport to regulate federal student loan servicers.

In response to the wave of new state student loan servicing laws and enforcement activity, the U.S. Department of Education has published an interpretation emphasizing that the Higher Education Act (HEA) preempts state regulation of federal student loan servicers.

Citing Supreme Court and appellate court precedent, ED stresses that the servicing of loans made by the federal government under the Direct Loan Program is an area involving “uniquely federal interests” and that state regulation of servicers of Direct Loans impermissibly conflicts with federal law and is entirely preempted. Further, state regulation of servicers of Federal Family Education Loan (FFEL) Program loans is preempted to the extent that it conflicts with, impedes, or otherwise undermines uniform administration of the program.

The interpretation also reaffirms the preemption of state laws that prohibit (1) misrepresentation or the omission of material information, because the HEA expressly preempts state disclosure requirements; and (2) unfair or deceptive acts or practices, to the extent such laws “proscribe conduct Federal law requires” or “require conduct Federal law prohibits.”

Direct Loan Program Servicers

In the interpretation, ED identifies the following conflicts between state laws that regulate Direct Loan servicers and federal law:

  • The licensing requirements interfere with ED’s power to select contractors for Direct Loan servicing. For example, states require servicers to satisfy certain financial requirements, secure a surety bond, and undergo background checks as a condition of licensure. Such requirements add to, and thereby conflict with, the “responsibility determinations” ED makes in accordance with federal contracting law.
  • State-imposed servicing standards pertaining to loan transfers, payment application, and borrower disputes, for example, would conflict with federal law and regulations and ED’s servicing contracts and “skew the balance the Department has sought in calibrating its enforcement decisions to the objectives of the [Direct Loan] program.”
  • State licensing fees, assessments, minimum net worth requirements, surety bonds, data disclosure requirements, and annual reporting requirements will increase the costs of student loan servicing, “distorting the balance the Department has sought to achieve between costs to servicers and taxpayers and the benefits of services delivered to borrowers.”
  • State laws that restrict the actions a servicer may take to collect on a loan impede ED’s ability to protect federal taxpayers by obtaining repayment of federal loans.
  • State-level regulation cuts against the HEA’s goal of creating a uniform set of rules to govern the federal student loan program and “subjects borrowers to different loan servicing deadlines and processes depending on where the borrower happens to live, and at what point in time.”

As ED correctly notes, U.S. Supreme Court precedent involving federal contractors compels the conclusion that the potential civil liability of student loan servicing contractors for non-compliance with state law is an area of unique federal concern because it would raise the price of servicing contracts and because “servicers stand in the shoes of the Federal government in performing required actions under the Direct Loan Program.” Moreover, federal student loan servicing “requires uniformity because State intervention harms the Federal fisc.”

FFEL Program Servicers

As for the servicing of loans made by private lenders and guaranteed by the federal government through the Federal Family Education Loan (FFEL) Program (which Congress discontinued and replaced with the Direct Loan Program in 2010), ED says that state regulation is preempted “to the extent that it undermines uniform administration of the program.” ED provides several examples of the kinds of state laws that invariably conflict with federal FFEL Program regulations, including deadlines for borrower communications and requirements around the resolution of disputes raised by borrowers. ED also notes that state servicing laws appear to conflict with express preemption provisions applicable to guaranty agencies (34 C.F.R. 682.410(b)(8)) and lender due diligence in collecting guaranty agency loans (34 C.F.R. 682.411(o)(1)).

State Disclosure Requirements

ED also stresses that Section 1098g of the HEA expressly preempts state disclosure requirements for federal student loans. ED interprets this to “encompass informal or non-written communications to borrowers as well as reporting to third parties such as credit reporting bureaus.” ED points out that state servicing laws that attempt to impose new prohibitions on misrepresentation or the omission of material information would likewise be preempted by Section 1098g.

Consistency with Earlier Pronouncements

As ED emphasizes, it is not breaking new ground here. Its interpretation is consistent with earlier U.S. responses to state laws that conflict with ED’s administration of federal student loan programs. For example, in 2009, it intervened in litigation in the Ninth Circuit to demonstrate to the Court that the state consumer protection laws on which the plaintiff relied were preempted by the HEA.

Most recently, the U.S. Department of Justice filed a Statement of Interest in litigation brought by the Commonwealth of Massachusetts against the Pennsylvania Higher Education Assistance Agency (PHEAA) alleging violations of Massachusetts law for allegedly unfair or deceptive acts related to the servicing of Federal student loans and administration of programs under the HEA. That Statement of Interest made clear that Massachusetts “is improperly seeking to impose requirements … that conflict with the HEA, Federal regulations, and Federal contracts that govern the Federal loan programs.” (Ballard Spahr LLP represents PHEAA in that matter.)

In its interpretation, ED reaffirms that such claims are preempted because they seek to “proscribe conduct Federal law requires and to require conduct Federal law prohibits.” ED continues, “We believe that attempts by other States to impose similar requirements will create additional conflicts with Federal law.”

Borrower Protections

ED concludes by describing its efforts to “ensure that borrowers receive exemplary customer service and are protected from substandard practices,” including:

  • Monitoring compliance with regulatory and contractual obligations, including call monitoring, account-level review and remote and on-site auditing;
  • Allocating more loans to servicers with better customer service performance metrics and paying servicers higher rates for loans that are in a non-delinquent status such as income-driven repayment; and
  • Maintaining processes for borrowers to report issues or file complaints about servicers.

We encourage servicers of federal and private student loans to consult with counsel regarding the interpretation as well as other defenses to the application of state student loan servicing laws and state enforcement actions.

The New York Education Department (NYED) has issued a ruling which states that the Bureau of Proprietary School Supervision (BPSS) will not permit an enrollment agreement, including an arbitration clause, to infringe on the Commissioner of Education’s or the NYED’s jurisdiction “to investigate schools and issue findings (whether or not a complaint is filed), to commence disciplinary action, or otherwise to issue any remedy, including with respect to the tuition reimbursement account, provided by the Education Law and the Commissioner’s regulations.”  BPSS regulates private career training schools.

The ruling further states that mandatory, pre-dispute arbitration will not be approved, regardless of whether a school receives financial aid under Title IV of the Higher Education Act because BPSS has determined that the use of arbitration clauses “would unreasonably undermine a student’s private right of action under New York’s Education Law §5003(8), which permits a ‘student injured by a violation of [Article 101 of the Education Law to] bring an action against the owner or operator of a licensed private career school for actual damages or one hundred dollars, whichever is greater.’”  The ruling includes conditions under which “permissive, post-dispute arbitration may be approved.”

In addition to covering enrollment agreements, the ruling would appear to apply to school financing arrangements offered by a career training school subject to BPSS’s jurisdiction.  Moreover, given the ruling, it also seems likely that BPSS would try to preclude a school from asserting rights under a mandatory, pre-dispute arbitration provision in a private loan note or credit agreement that finances a student’s education at the school.

In our view, NY’s effort is an exercise in futility since it is unlikely to survive a preemption challenge under the Federal Arbitration Act (FAA), which makes arbitration agreements “valid, irrevocable, and enforceable.”  See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747, (2011) (“[w]hen state law prohibits outright the arbitration of a particular type of claim, the … conflicting rule is displaced by the FAA”).



The Department of Education has published a request for information in today’s Federal Register seeking comment on the factors used to evaluate claims of undue hardship made by student loan borrowers attempting to discharge student loans through adversary proceedings in bankruptcy court.  Responses to the RFI must be received by May 22, 2018.

Under the federal Bankruptcy Code, a student loan can be discharged in bankruptcy only if necessary to avoid an “undue hardship” on the borrower.  Congress did not define “undue hardship” in the Bankruptcy Code nor did it authorize the ED to do so by regulation.  As a result, the legal standard for a student loan borrower to prove “undue hardship” has been developed through case law, with courts generally using one of two tests to determine if “undue hardship” has been established.  The three-factor Brunner test (named after the case in which the test was first articulated) evaluates the debtor’s standard of living, likely duration of his or her financial difficulties, and the efforts he or she made to continue making loan payments before filing for bankruptcy.  The “Totality of the Circumstances” test looks at the debtor’s financial resources (past, present, and future), his or her reasonably necessary living expenses, and any other relevant factors and circumstances surrounding the debtor’s individual circumstances.

ED regulations require guarantors and educational institutions participating in the Federal Family Education Loan Program (FFELP) and Federal Perkins Loan Program (Loan Holders) to evaluate undue hardship claims to determine if requiring repayment of a student loan would constitute undue hardship.  Guidance issued by the ED in 2015 provides that Loan Holders should use a two-step analysis when evaluating undue hardship claims.  First, using the tests established by the federal courts, a Loan Holder should determine whether requiring repayment would impose an undue hardship.  Second, if the Loan Holder determines that requiring repayment would not impose an undue hardship, it must evaluate the costs of undue hardship litigation.  If the costs to litigate the matter in bankruptcy court are estimated to exceed one-third of the loan balance, the Loan Holder is permitted to accept an undue hardship claim.

The 2015 guidance included a discussion of factors that are appropriate for a Loan Holder to consider when evaluating an undue hardship claim and how such factors fit within the tests established by the federal courts.  It also stated that the guidance mirrored the ED’s existing practice for the Direct Loan program and for ED-held FFELP and/or Perkins loans.

The RFI seeks comment on:

  • Factors to be used in evaluating undue hardship claims and the weight to be given to such factors
  • Whether the use of two tests results in inequities among borrowers
  • Circumstances under which a Loan Holder should concede an undue hardship claim
  • Whether and how the 2015 guidance should be amended




The District of Columbia Department of Insurance, Securities, and Banking (DISB) has released for comment a revised “Student Loan Borrower’s Bill of Rights.”  The District of Columbia Student Loan Ombudsman Establishment and Servicing Regulation Act of 2016 (Servicing Act), which became effective February 18, 2017, directed the DISB to draft the Bill of Rights.  (In September 2017, pursuant to the Servicing Act, the DISB began licensing student loan servicers operating in D.C.)

As originally released in October 2017, the Bill of Rights contained five articles.  We commented that instead of tracking the student loan servicing principles articulated by other regulators, the Bill of Rights seemed to borrow copiously from principles for the origination, servicing, and collection of small business loans adopted by the Responsible Business Lending Coalition, a network of for-profit and non-profit lenders, brokers and small business advocates.  In the revised Bill of Rights, which contains 17 articles, the DISB now appears to be proposing student loan servicing principles that more closely resemble those articulated by other regulators.

The revised Bill of Rights contains numerous requirements that were not in the original version.  For example, the revised version contains requirements concerning payment allocation and partial payments (Article IV), monthly billing statements (Articles V and VI), annual tax statements (Article VII), schedule of fees (Article IX), reporting to credit bureaus (Article XI), access to default diversion services (Article XII), and refinancing disclosures (Article XIII).  However, the DISB does not identify the source of those rights, which are not separately set forth in the Servicing Act.

The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has sent a letter to the DISB commenting on the revised Bill of Rights.  As a general matter, NCHER expresses its view that the principles should not create enforceable obligations and highlights the enormous compliance burden that would be created for servicers if the DISB were to attempt to require federal and private student loan servicers to follow separate servicing routines for D.C. residents.  We agree, and find it particularly troubling that the DISB appears to be seeking to create obligations that may not only be inconsistent with the terms of the underlying loans but also preempted by federal law.  

With respect to specific provisions of the revised Bill of Rights, NCHER’s comments include the following:

  • Article IV provides that a borrower “has the right to have his or her payments applied to outstanding loan balance(s) timely, appropriately, and fairly” and that the servicer’s application process “shall result in partial payments being applied in the best interest” of the borrower.  NCHER questions what it means to apply payments “appropriately,” “fairly,” and “in the best interest” of the borrower and states that servicers currently post their payment allocation procedures but “should not be held to a vague standard that could be interpreted to create fiduciary responsibilities.”
  • Articles V and VI provide that a borrower has a right to “a monthly billing statement” and quarterly periodic statements containing certain information.  NCHER questions whether these articles establish separate servicing requirements for D.C. residents and comments that if so, they “would be overly burdensome to require that monthly payments be sent to borrowers in an in-school deferment.”
  • Article IX provides that a borrower has a right to have the servicer’s current schedule of fees that could be charged to the borrower.  NCHER comments that this article “seems to be based on an inaccurate understanding of roles of the various players in the student loan industry.”  It notes that as a general matter, “loan fees such as late fees and NSF fees are charged by lenders, not servicers, and are disclosed as part of the lender’s Truth-in-Lending Act requirements.”  NCHER also comments that if the article purports to cover expedited payment or convenience fees, “it should be understood that these optional payment services are selected by the borrower.”
  • Article XII provides that a borrower has the right to access “default diversion services” from the servicer that notifies the borrower when he or she is at risk of default and requires the servicer to assist the borrower with avoiding a default.  NCHER raises numerous questions about this article, including what timeframe the DISB contemplates using when measuring whether a servicer has appropriately notified a borrower that he or she is at risk of default and what “default diversion services” are contemplated by the DISB.
  • Article XIII provides that to the extent a servicer or an agent of a servicer provides any financing to a borrower, including a loan modification or refinancing, the borrower has a right  to receive financing that complies with certain principles.  Such principles include that the financing “is in the best interest” of the borrower.  NCHER comments that this article also “misconstrues the role of servicers since they do not make loans or extent credit” and that the reference to financing that “is in the best interest” of the borrower “sets up a fiduciary or suitability standard where compliance may be impossible.”


Earlier this week New York Attorney General Eric Schneiderman sent a letter to select state legislators adding his backing to the creation of a licensing regime in New York for student loan servicing, similar to what has been emerging in state legislatures across the country over the past two years.

The letter provides express support for Governor Cuomo’s 2019 Executive Budget Proposal, which calls for, among other things, establishment of a Student Loan Ombudsman at the Department of Financial Services. As described in an outline summarizing the proposal:

The Governor will advance a comprehensive plan to further reduce student debt that includes creating a Student Loan Ombudsman at the Department of Financial Services; requiring all colleges annually provide students with estimated amounts incurred for student loans; enacting sweeping protections for students including ensuring that no student loan servicers or debt consultants can mislead a borrower or engage in any predatory act or practice, misapply payments, provide credit reporting agencies with inaccurate information, or any other practices that may harm the borrower; and prohibiting the suspension of professional licenses of individuals behind or in default on their student loans.

Draft legislation in line with this proposal appears in Senate Bill S7508 and Assembly Bill A9508. Last year, Assembly Bill A8862 was introduced (establishing “the student loan borrower bill of rights to protect borrowers and ensure that student loan servicers act more as loan counselors than debt collectors”) and is currently in committee in the New York State Senate.

As we’ve previously noted, California, Connecticut, the District of Columbia, and Illinois have already enacted similar laws, and we have been closely tracking pending legislation in other states, including Ohio, Missouri, New Jersey, Virginia, and Washington. This is a trend that shows no signs of abating, and adoption in New York could serve as an additional catalyst as more states take up the issue.

The FTC has filed a lawsuit in a California federal district court against three interrelated student loan debt relief companies and the individual who is their majority owner for alleged violations of Section 5 of the FTC Act and the Telemarketing Sales Rule (TSR).  The TSR implements the Telemarketing and Consumer Fraud and Abuse Act.  While the CFPB appears to be embarking on a new strategic path in 2018 that will result in less aggressive enforcement, the lawsuit demonstrates that the FTC is continuing to target the debt relief industry for compliance with consumer protection statutes.  According to the FTC’s press release, the lawsuit represents the eighth action the FTC has taken in “Operation Game of Loans,” the FTC’s enforcement initiative targeting deceptive student loan debt relief scams.

The FTC alleges that the defendants violated Section 5 and the TSR by engaging in conduct that included the following:

  • Sending mailers to consumers representing they were eligible for federal programs that would permanently reduce their loan payments to a fixed, lower amount or result in total loan forgiveness.  The FTC alleges these representations were deceptive in violation of Section 5 and material misrepresentations in violation of the TSR because while the Department of Education and state government agencies administer loan forgiveness and discharge programs, none of those programs guarantee a fixed, reduced monthly payment for more than one year, and most consumers are not eligible because of the programs’ strict eligibility requirements.
  • Representing that consumers’ monthly payments were being applied to their loan balances.  The FTC alleges that this representation was deceptive in violation of Section 5 and a material misrepresentation in violation of the TSR because the defendants were charging consumers a monthly fee unrelated to their student loans that purportedly gave consumers access to various discounts and other benefits.
  • Charging an advance fee for enrollment in a “financial education” program.  The FTC alleges that this fee violated the TSR advance fee prohibition.

The FTC’s complaint seeks consumer redress and injunctive relief.