Recently, the Consumer Financial Protection Bureau, along with the states of Minnesota, North Carolina, and California, filed a lawsuit in California federal court against a student loan debt-relief operation. The CFPB alleges that the companies charged over $71 million in unlawful advance fees in connection with the marketing and sale of student loan debt-relief services to consumers.

Specifically, the CFPB alleges that since 2015, the companies deceived consumers by misrepresenting that they could qualify for loan forgiveness in a matter of months, when forgiveness typically takes at least 10 years of on-time payments and is determined by the Department of Education rather than the companies. Further, the companies falsely told consumers or led consumers to believe that their payments to companies would go toward their student loan balances. In actuality, initial fees, typically totaling about $900-$1,300, were paid for the companies’ services and were levied well before consumers had made a payment under their new loan agreement, in violation of the Telemarketing Sales Rule. The CFPB also alleges that the companies failed to inform consumers that they automatically request their loans be placed in forbearance (increasing the total amount owed) so that consumers are more likely to be able to pay the companies’ substantial fees.

The CFPB filed the lawsuit on October 21 and requested that the Court grant their request for a temporary restraining order against the student loan debt-relief operation. At this stage, the allegations remain unsubstantiated. However, if the Court grants the temporary restraining order, it would mean that an unfavorable ruling may lie ahead for the companies. The CFPB would likely obtain their request for damages, redress to consumers, disgorgement of ill-gotten gains, and the imposition of civil money penalties.

Troutman Sanders will monitor this matter for future developments.