The Illinois Attorney General yesterday filed lawsuits targeting what it alleges to be student loan debt scams that purportedly seek to exploit people struggling to repay their debt. The lawsuits are the first in the nation to crack down on an emerging industry of alleged scam operations charging upfront fees for services or for government services that may already be free of charge.
The AG filed the suits against First American Tax Defense LLC based in Chicago and Broadsword Student Advantage LLC based in Frisco, Texas, alleging the companies were unlicensed, engaged in deceptive marketing practices and illegally charged consumers hundreds of dollars in upfront fees to reduce or eliminate their student loan debt burden. The Illinois AG alleges the companies offered assistance enrolling in a fake “Obama forgiveness program.”
“These companies illegally charge fees for services that student loan borrowers can obtain themselves through government programs at no cost,” the AG said. The defendants advertised heavily via radio, offering consumers a myriad of options to ease their debt burden, via consolidation or forgiveness, based on the companies’ representations of expertise and what the AG believes to be a false affiliation with the U.S. Department of Education. The companies are alleged to offer to cut student loan payments in half or eliminate them entirely, and specifically offer public service employees a loan debt forgiveness program for which the companies could not qualify them.
The AG office’s lawsuits target operations that it believes are attempting to circumvent an Illinois law intended to ban companies from charging people upfront fees for so-called debt settlement services. These suits come at a time when the Consumer Financial Protection Bureau has also stepped-up enforcement over debt relief service providers.
The lawsuits allege the companies are in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organizations Act and the Debt Settlement Consumer Protection Act. In 2010, the Illinois AG helped pass the Debt Settlement Consumer Protection Act to ban companies from charging upfront fees to consumers for help with debt relief.
The lawsuits allege the companies are not complying with the requirements of the Debt Settlement Consumer Protection Act and, in addition, are not providing any meaningful assistance to reduce consumers’ student loan debt.