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FTC and 11 states crack down on student loan scams

Illinois Atty. Gen. Lisa Madigan, left, is among several attorneys general targeting student debt relief scams.
Illinois Atty. Gen. Lisa Madigan, left, is among several attorneys general targeting student debt relief scams.
(Terrence Antonio James / Chicago Tribune)
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Federal and state officials have launched the first national crackdown on companies that they say gouge student loan borrowers, accusing the companies of taking more than $95 million in illegal fees in recent years and falsely promising debt relief.

The Federal Trade Commission, 11 states and the District of Columbia announced Friday that they had filed 36 lawsuits and other legal actions against companies — including some in Los Angeles — accused of scamming student loan holders.

More actions are coming, authorities say. Prosecutors are targeting a growing number of companies that prey on desperate debtors among the 42 million Americans who have borrowed a total of more than $1.4 trillion. Officials in Washington state alone said they are investigating more than 50 companies suspected of operating student loan debt relief scams.

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“Winter is coming for debt relief scams that prey on hardworking Americans struggling to pay back their student loans,” FTC Acting Chairman Maureen K. Ohlhausen said in a statement Friday. Officials call the crackdown Operation Game of Loans, a play on HBO’s hit show “Game of Thrones,” which made the phrase “winter is coming” famous.

Victimizing borrowers

The sweep comes four months after NerdWallet reported that federal regulators were doing little to combat the growing wave of so-called debt relief companies preying on student loan borrowers.

Companies can exploit borrowers by charging steep — and often illegal — upfront fees and recurring monthly amounts. Some scammers persuade borrowers to provide access to their loan accounts, then change their passwords and fail to keep payments current. As a result, borrowers’ wages are garnished, tax refunds seized or Social Security benefits cut.

NerdWallet reported that aside from enforcement actions by a handful of state attorneys general, little was being done. As companies were shut down in one state, they continued operating in the other 49.

Before the federal-state crackdown, national authorities — the FTC and the Consumer Financial Protection Bureau — had closed just seven student “debt relief” companies, although more than 100 have operated in recent years.

Several states join fight

Of the 36 enforcement actions in the crackdown, seven are by the FTC and 13 are by the attorney general’s office in Washington state, the state most aggressively pursuing fraudulent student loan companies. The crackdown includes five new FTC cases, a new judgment in the agency’s favor and a preliminary injunction in a case filed earlier this year.

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The operation includes law enforcement actions by states that have been aggressive in the past -- Florida, Illinois, Oregon and Washington. Others taking part in the sweep are Colorado, Kansas, Maryland, North Carolina, North Dakota, Pennsylvania, Texas and the District of Columbia.

The FTC has filed five new cases against 30 defendants. In one, the agency alleged that Los Angeles-based A1 DocPrep Inc. took at least $6 million through student loan and mortgage relief schemes. The agency accused another Los Angeles-based group of companies of bilking at least $7.3 million from struggling student loan holders.

Federal courts have backed the FTC in some cases. The U.S. District Court for the Southern District of Florida froze assets of Strategic Student Solutions, a company accused of taking more than $11 million from consumers by falsely promising to reduce student loan debt and to repair customers’ credit.

The FTC uses a variety of sources to find targets, including consumer complaints, suspicious advertisements, emails that consumers submit and referrals from the Better Business Bureau and attorneys general, said Michelle Grajales, an FTC staff attorney working on the A1 DocPrep case.

This article was written by staffers at NerdWallet, a personal finance website.

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