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On September 11, the Federal Trade Commission announced final orders permanently banning two individual defendants from the debt relief industry and imposing asset surrender provisions to resolve allegations of a fraudulent student loan forgiveness scheme. The FTC alleged violations of the Federal Trade Commission Act, the Telemarketing Sales Rule, the Gramm-Leach-Bliley Act, and the FTC's new Impersonation Rule.
The Commission alleged that the defendants, operating through multiple companies, targeted borrowers following the end of the federal student loan payment pause, misrepresented affiliations with the Department of Education, and collected hundreds of dollars in illegal upfront fees while providing little or no relief. The agency also claimed the conduct amounted to unfair or deceptive acts or practices, reinforcing its core UDAP authority under the FTC Act.
The complaint alleges that the company:
- Pretended government affiliation. The defendants allegedly sent mailers and made telemarketing calls that misled borrowers into believing they were working with the Department of Education or its loan servicers.
- Collected unlawful upfront fees. Borrowers were allegedly charged up to $899 in initial costs and recurring $49 monthly payments for as long as 20 years.
- Misrepresented loan relief benefits. The company allegedly promised loan consolidation, reduced payments, or forgiveness that never materialized.
- Told borrowers to stop paying servicers. Consumers were allegedly instructed to cease payments to their actual servicers based on false assurances that the company would assume servicing responsibilities.
- Improperly obtained financial information. The FTC alleged that the company used deception to collect sensitive account data, violating the Gramm-Leach-Bliley Act.
- Impersonated government and business entities. Marketing materials and sales scripts allegedly misrepresented affiliations, in violation of the Impersonation Rule.
The stipulated orders against both parties impose industry bans, prohibit future misrepresentations, and require the defendants to pay more than $1.6 million and turn over approximately $560,000 in personal and business assets. A $45.9 million judgment will remain suspended unless they are found to have misrepresented their financial condition.
Putting It Into Practice: The FTC has continued to police deceptive debt relief schemes (previously discussed here). Moreover, the regulator has remained aggressive while other regulators, such as the CFPB, have taken a step back. Market participants should expect continued aggressive enforcement from the FTC.
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