Perhaps involving consumers who also have installment contracts with subprime auto finance providers, the Consumer Financial Protection Bureau and the Federal Trade Commission each announced enforcement actions against firms the regulators deemed to be orchestrating fraudulent debt-relief programs.
Over at the CFPB, the bureau recently settled its lawsuit against Freedom Debt Relief, one of the nation’s largest debt-settlement services providers. The company agreed to pay $20 million in restitution to affected consumers and a $5 million civil money penalty.
Meanwhile, the FTC said it recently has stopped a student loan debt relief scheme, alleging it bilked more than $23 million from thousands of consumers with false claims that it would service and pay down their student loans.
The bureau’s lawsuit alleged that Freedom Debt Relief violated the Telemarketing Sales Rule by charging advance fees and failing to inform consumers of their rights to funds they deposited with the company. The bureau also alleged that Freedom Debt Relief violated the Consumer Financial Protection Act of 2010 by charging consumers without settling their debts as promised, charging consumers after having them negotiate their own settlements with creditors, and misleading consumers about the company’s fees and its ability to negotiate directly with all of a consumer’s creditors.
Officials explained the settlement enjoins Freedom Debt Relief from engaging in this conduct in the future. The company has also agreed to a consent order with the Federal Deposit Insurance Corp (FDIC).
The bureau will remit $493,500 of the $5 million civil penalty it assessed in light of the penalty that the company was ordered to pay the FDIC.
“This settlement is subject to approval by the court,” the CFPB said.
The judicial system also is involved in the FTC’s newest matter. After the FTC filed a complaint seeking to end deceptive practices by the firm connected to its investigation, officials said a federal court temporarily halted the scheme and froze its assets.
According to the FTC’s complaint, since at least 2014, the operators of Mission Hills Federal and Federal Direct Group have lured consumers into paying hundreds to thousands of dollars in illegal upfront fees with false promises to lower consumers’ monthly student loan payments. The defendants also allegedly tricked consumers into submitting their monthly student loan payments directly to the defendants by falsely claiming to take over servicing the consumers’ loans.
In reality, Andrew Smith, director of the FTC’s Bureau of Consumer Protection, explained the defendants either only applied minimal payments on consumers’ loans or, in many instances, applied none of the payments to the loans, diverting consumers’ payments to themselves.
“Debt relief companies can’t collect advance fees or masquerade as federal student loan servicers,” Smith said in a news release. “Anyone asking for upfront fees to help with student loan debt is likely a scammer, and consumers should hang up and alert the FTC.”
The FTC also alleged that the defendants obtained consumers’ student loan credentials, such as their FSA ID — a username and password used to log in to U.S. Department of Education websites — to log in and change consumers’ contact information, effectively hindering or entirely preventing consumers’ loan servicers from communicating with consumers.
Many consumers went months or years before discovering that their student loans were not being repaid, according to the complaint.
The FTC has charged the following defendants with violating Section 5 of the FTC Act and the Telemarketing Sales Rule:
— Elegant Solutions (also doing business as Federal Direct Group)
— Trend Capital (also doing business as Mission Hills Federal)
— Dark Island Industries (also doing business as Federal Direct Group and formerly known as Cosmopolitan Funding)
— Heritage Asset Management (also doing business as National Secure Processing)
— Tribune Management (also doing business as The Student Loan Group)
— Three individual defendants, Mazen Radwan, Rima Radwan and Dean Robbins
The commission vote authorizing the staff to file the complaint was 5-0. The U.S. District Court for the Central District of California entered a temporary restraining order in the case on July 10.
The FTC reiterated that it files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the regulator that a proceeding is in the public interest.
“The case will be decided by the court,” the FTC added.