A lawsuit filed Thursday against nine student loan debt relief companies, their financing company, and two leaders in several of the companies alleges that the defendants illegally advertise, sell, and finance student debt relief services to thousands of consumers nationwide.
It alleges that defendants claim to be affiliated with the federal government, make misrepresentations to induce consumers to enroll in their services, and charge consumers illegal upfront fees and/or high interest rates. The defendants usually charge a consumer more than $1,000 for their services, which are available for free through the federal government or the consumer’s student loan servicer.
“New Yorkers are already struggling under a mountain of student loan debt,” said Attorney General Barbara D. Underwood “These companies sought to line their own pockets by taking advantage of students who were simply trying to pay for their education.”
The U.S. Department of Education estimates that 92 percent of all outstanding student loans are federal student loans.
Student loan debt is now the second-highest consumer debt category – behind mortgage debt – and higher than credit cards and auto loans. More than 44 million borrowers have $1.3 trillion in student loan debt in the United States. The average student in the Class of 2016 has $37,172 in student loan debt.
The student loan debt relief companies named in the lawsuit are Debt Resolve Inc.; Hutton Ventures; Progress Advocates; Progress Advocates Group; Student Advocates; Student Advocates Group; Student Advocates Team; Student Loan Care; and Student Loan Support. Debt Resolve Inc. is the majority owner of two of the other student loan debt relief companies. The two individuals are Bruce Bellmare and Stanley E. Freimuth, the current and past CEOs of Debt Resolve Inc. The financing company is Equitable Acceptance Corp.
The lawsuit alleges that defendants contact borrowers through deceptive direct mail solicitations that appear to come from the federal government and Facebook ads. The ads claim as “breaking news” that some department programs were recently approved by the federal government when they actually were passed years ago.
The lawsuit also alleges that the defendants then rely on “student loan advisors” to sell debt-relief agreements to consumers by phone. Despite saying they were knowledgeable about student loans, these “advisors” are really telemarketers with no experience or expertise, who sell identical student loan debt-relief agreements to borrowers using the same sales scripts and pitches. The advisors repeatedly make false misrepresentations to consumers such as telling borrowers that:
- They’re from the federal government, are a part of the federal student loan program, are working with the federal student loan program, or are working with a federal student loan servicer.
- They can’t enroll in the debt-relief services offered on their own – when borrowers can work directly with their servicers or use the department’s website to get student loan debt-relief services at no cost.
- They can eliminate their student loan debt by making payments to one of the defendants – when making the payments won’t reduce or eliminate their student loan debt.
Some consumers who stop making payments on their loans because of these companies will owe more on their student loans due to the missed payments, according to the lawsuit.
In recent years, the defendants have required consumers to enter into financing agreements with Equitable Acceptance Corp., also a defendant in the lawsuit. The lawsuit alleges that these financing agreements often charge New York consumers 20.99 percent interest, above the New York interest rate cap of 16 percent.
The lawsuit seeks rulings to stop the illegal practices, cancel the borrower's contacts, and require that payments be returned.
The New York Legal Assistance Group also recently filed a class action against Equitable Acceptance Corp. and several other companies, alleging that they sell scam debt relief services to tens of thousands of federal student loan borrowers.
The department offers free programs to help borrowers who are having difficulty paying back their federal student loans. Borrowers can learn about the programs by contacting their federal loan servicer or by going to the department’s student loan website.
Student loan borrowers who think they’ve been defrauded can file a complaint with the Attorney General’s Office in their state.
