Attorney General Lisa Madigan today filed lawsuits targeting a new industry of
student loan debt scams that 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 scam operations charging large upfront fees for bogus services or
for government services that are already free of charge.
Madigan filed the suits earlier
today against First American Tax Defense LLC, based in Chicago, and Broadsword
Student Advantage LLC, based in Frisco, Texas, alleging the unlicensed companies
engaged in deceptive marketing practices and illegally charged consumers
hundreds of dollars in upfront fees to reduce or eliminate their student loan
debt burden. In reality, Madigan alleges, the companies sought to scam
vulnerable people into paying as much as $1,200 upfront for bogus services,
including assistance enrolling in a fake “Obama forgiveness program,” or for
government services that are already free of charge.
“These companies illegally
charge fees for services that student loan borrowers can obtain themselves
through government programs at no cost,” Madigan said. “My office will be
aggressive in cracking down on scam operations that prey on student loan
borrowers for profit.”
Student loan debt levels have
grown to historic proportions, now affecting nearly 40 million Americans who
have $1.2 trillion in outstanding debt. Madigan’s lawsuits targeting these scam
operations allege that First American and Broadsword Student Advantage are doing
an end-run around an Illinois law that she wrote to ban companies from charging
people upfront fees for so-called debt settlement services.
Madigan’s lawsuits allege First
American and Broadsword Student Advantage have advertised heavily on the radio
in Chicago and downstate, offering consumers a myriad of options to ease their
debt burden based on the companies’ alleged expertise and false affiliation with
the U.S. Department of Education to consolidate or forgive their loans. 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 lawsuit
against First American specifically advertises an “Obama forgiveness program”
that is not an actual government program.
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, Madigan crafted and helped pass the Debt
Settlement Consumer Protection Act to ban companies from charging upfront fees
to consumers for help with debt relief. Today’s 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.
In announcing the lawsuits,
Madigan urged current and former students never to pay upfront for help with
student loan debt relief. For information on legitimate sources of free
assistance, consumers can contact the Consumer Financial Protection Bureau
or the National Consumer Law
Center. For problems with your student loan servicer or a debt collector,
consumers can also contact the U.S. Department of Education’s Student Loan
Ombudsman at 1-877-557-2575 or www.ombudsman.ed.gov, the Consumer Financial Protection Bureau
or Attorney General Madigan’s Consumer Fraud Hotline at
1-800-386-5438.
“We applaud the Attorney
General for cracking down on scammers targeting student loan borrowers,” said
Dev Gowda of Illinois Public Interest Research Group. “Consumers experiencing
problems with their student loans such as fraudulent activity should bring their
complaints to the Attorney General’s office, and also to the Consumer Financial
Protection Bureau, which our report, ‘Private Loans, Public Complaints’ has
found to get real results for students.”
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