The Consumer Financial Protection Bureau and Student Loan Processing.US have agreed to settle the bureau’s charges that the company collected illegal up-front fees and failed to disclose properly the cost of its services before signing customers up. Under the agreement, the company will cease operations and make a comparatively small payment to the CFPB, and both the company and its owner, James Krause, will be barred from participation in the debt relief and student loan industries in the future. Neither the company nor Krause admitted that any laws had been violated in agreeing to the settlement.
According to the CFPB complaint, Student Loan Processing.US promised to help student loan borrowers apply for Department of Education loan repayment programs—programs for which the DoE charges no application or enrollment fees. Customers were charged an initial enrollment fee of 1 percent of their loan balances, plus a monthly maintenance fee of at least $39 for the remaining term of their loans. The bureau charged that the company did not disclose the maintenance fee before it collected payment information and also misrepresented both the duration and amount of the fee.
TCPA applicability. The settlement was not reached until after a federal district court judge determined that the company’s services constituted debt relief services under the Federal Trade Commission’s Telemarketing Sales Rule (16 CFR Part 310). The judge also decided that the company had improperly obtained students’ consent to pay before it fully disclosed the program costs, in violation of the TSR and that the same practices violated the Dodd-Frank Act ban on deceptive acts and practices.
The bureau touted this ruling as “an important precedent in the student debt relief market” because it established a basis for liability under the federal consumer financial laws.
Relief ordered. Although the settlement orders the company and Krause to pay $8.2 million to the bureau for consumer redress, the great majority of that amount will be suspended based on their inability to pay. Instead, the company and Krause will pay only $326,000 for distribution to victims—less than 5 percent of the damages the bureau claims.
An additional payment of $1 will be made to the CFPB’s civil penalty fund. The bureau says this token payment could make victims of the scheme eligible for future payments from the Fund.
Student Loan Processing.US has agreed immediately to stop charging customers further fees and cancel all outstanding contracts. The company and Krause will be required to help customers ensure they do not miss any upcoming deadlines for recertifying their eligibility for DoE assistance programs and to halt all operations within 45 days. The DoE also will offer “enhanced assistance,” the bureau says.
Consumer advisory. According to the CFPB, there is nearly $1.3 trillion in outstanding student loan debt, and more than 25 percent of borrowers are delinquent on their payments. A 2014 consumer advisory offered information on student debt relief fraud (see Banking and Finance Law Daily, Dec. 12, 2014).
Companies: IrvineWebWorks, Inc.; Student Loan Processing.US
MainStory: TopStory CFPB ConsumerCredit DoddFrankAct EnforcementActions Loans UDAAP
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