Banking and Finance Law Daily CFPB sues participants in student loan debt-relief operation for taking illegal advance fees
Tuesday, July 14, 2020

CFPB sues participants in student loan debt-relief operation for taking illegal advance fees

By Nicole D. Prysby, J.D.

The Bureau sued multiple participants in a student-loan debt-relief operation for allegedly taking illegal advance fees and settled with some participants.

On July 13, 2020, the Consumer Financial Protection Bureau announced that sued two companies, their owners, and four attorneys who were allegedly part of a nationwide student-loan debt-relief operation that charged thousands of consumers saddled with private student loan debt approximately $11.8 million in illegal upfront fees in violation of the Telemarketing Sales Rule (TSR). The Bureau also announced that it negotiated settlements with four of the individual defendants.

The Bureau sued GST Factoring, Inc., which runs a student loan debt-relief business, and two of its owners, Rick Graff and Gregory Trimarche, as well as Champion Marketing Solutions, LLC (CMS), a customer service and marketing company, and its owner, Scott Freda. The Bureau also filed suit against four attorneys, California attorneys Amanda Johanson and Jacob Slaughter, Arizona attorney David Mize, and Florida attorney Daniel Ruggiero. The Bureau’s complaint alleges that the defendants’ Debt-Relief Operation uses telemarketing to sell debt-relief services provided by the attorneys to consumers with private student loan debt. The services are sold as legal services, even though most of the fees paid by consumers go to GST, CMS, and their lead generators, and in nearly all instances, the service provided is debt-settlement negotiation, something that does not require legal training. If a consumer signs up, he or she electronically signs an attorney engagement agreement while on the phone with the lead generator. The agreement provides for a fee, typically 40 percent of the outstanding debt, along with a processing fee that costs an additional $10 per month. GST, on behalf of the Debt-Relief Operation, had received about $11.8 million in fees from approximately 2,600 consumers as of May 2020.

The Bureau alleged that Defendant GST manages the Debt-Relief Operation and works with lead generators to market the business, including through telemarketing. Defendant CMS acts as the customer-service arm. Johanson, who was the first attorney recruited by GST, was associated with the business from about July 2015 through March 2018. During that period, more than 1,000 consumers signed engagement agreements with Johanson. But Johanson did little to no work pursuant to the agreements. After several client complaints, the California Bar initiated an investigation into Johanson’s conduct and instituted disciplinary charges against her. GST then recruited Ruggiero to take over work on Johanson’s client files. Ruggiero knew, or was on notice, that the Johanson consumers were enrolled in the Debt-Relief Operation through lead generators that had made those sales through telemarketing. Ruggiero also knew that GST was receiving fees before consumers’ debts were settled because he was receiving payments from GST for consumers whose debts had not been settled. Similar allegations were made against attorneys Mize and Slaughter.

The Bureau has negotiated proposed stipulated final judgments and orders with four of the defendants: TrimarcheSlaughterMize, and Ruggiero. The proposed orders will permanently ban Trimarche from providing debt-relief services and telemarketing any consumer financial product or service and impose permanent debt-relief bans on Slaughter, Mize, and Ruggiero. The proposed orders will also impose monetary judgments in the amounts of $11.8 million against Trimarche, $240,000 against Slaughter, $573,000 against Mize, and $125,000 against Ruggiero. The full judgment amounts will be suspended upon the settling defendants’ paying a portion of the redress based on their demonstrated inability to pay the full amount. Each settling defendant will also pay a $1 civil money penalty to the Bureau. The Bureau’s lawsuit would continue to proceed against Defendants GST Factoring, Champion Marketing Solutions, Graff, Freda, and Johanson. The complaint seeks redress to consumers, an injunction, and the imposition of civil money penalties against them.

Attorneys: Jeffrey S. Blumberg, for the CFPB. Gregory Trimarche, pro se.

Companies: GST Factoring, Inc.; Champion Marketing Solutions, LLC

MainStory: TopStory CFPB EnforcementActions Loans

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