A federal judge has approved a judgement order to shut down a student debt relief company that the Consumer Financial Protection Bureau has accused of illegally charging upfront fees before providing any services to unwitting borrowers.
Student Loan Processing, which also operates as IrvineWebWorks, has 45 days to cease operations but must immediately stop accepting payments from customers, according to the order. The company, headquartered in Laguna Niguel, Calif., did not immediately respond to requests for comment.
By law, debt consulting companies must renegotiate, settle or reduce at least one debt before collecting fees for the service. They are also not allowed to promise results that they have no way of accomplishing, such as quick relief from default or wage garnishment. Yet many companies skirt the law.
“Student Loan Processing and its owner, James Krause, preyed upon students looking for loan repayment help and fleeced them out of millions,” said CFPB Director Richard Cordray, in a statement. “The bureau is taking action to shut down the unlawful operation permanently and to prevent the company and its owner from participating in the student lending and debt relief industries ever again.”
In the case of Student Loan Processing, CFPB officials say that the company charged customers an initial enrollment fee of 1 percent of their federal student loan balance, plus a monthly maintenance fee of at least $39 per month for the entire repayment term. In exchange, the firm promised to advise and assist customers applying to student loan repayment programs.
Company representatives allegedly failed to disclose the recurring monthly fee during the initial enrollment calls with customers, according to the lawsuit the CFPB filed in December 2014. The complaint alleges that the debt relief company also misrepresented the amount and duration of the fee.
All contracts between Student Loan Processing and its customers must now be canceled. The order the judge approved also imposes over $8.2 million in consumer relief and damages, but most of that payment is being suspended because of the company’s inability to pay. Still, at least $326,000 will go to the CFPB, which plans to use the money to compensate victims.
Acting Education Secretary John B. King, in a statement, applauded the CFPB for shutting down “a company that was charging borrowers exorbitant fees for services they can access for free through studentloans.gov or by calling their servicers.”
He added: “We are working with the CFPB to make sure these borrowers know where to go to get help enrolling in an income driven repayment plan or consolidating their loans, for free. We are also continuing to work with our enforcement partners to weed out bad actors and with other agencies and advocates to get the word out to borrowers: Don’t be fooled — You never have to pay for help with your student loans.”
Advocacy groups and attorneys general have blamed inadequate student loan servicing for the rise in debt relief scams. They argue that if servicers, the middlemen that collect and apply payments, were doing a better job of helping borrowers, fewer people would turn to debt relief companies. Industry groups, however, say legitimate debt consultants offer a convenience of navigating a system that is often complex and confusing.
There are warning signs that a company offering student loan debt relief may be a scam. People should avoid companies that require upfront payment, bank account information or access to their federal student aid PIN, an ID that would give a company power to take actions on a consumer’s behalf, according to advisories issued by the CFPB and Department of Education.
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