State Officials in California crackdown on fraudulent Student-Loan Consolidators

Photo courtesy of CA Dept of Financial Protection & Innovation

No doubt the increased amount of people working at home or left without a job since the onset of COVID-19 last year has prompted many people to consider going back to school.

With new streaming technology and ‘video conferencing’ capabilities the obtaining of a college degree online, is certainly an option. Yet, what about 44 million people who are in debt over an education already? According to Forbes and other sources, Americans with education debt totals over $1.7 Trillion.

This current statistic perhaps is what might be fueling the eagerness of some debt-consolidators to engage in unethical tactics. When people are in debt often they become vulnerable to clever schemes & scams. This type of loan debt weighs heavily upon students making them anxious for a way to relieve the financial burden.

The California Department of Financial Protection and Innovation (DFPI) today announced the galvanized effort to take action against predatory student loan-debt relief companies like Amerifed Doc Prep, LLC. The DFPI is requiring the company to pay penalties for violations in California Consumer Financial Protection (CCFP) Laws.

Through the Student Loan Servicing Act (AB-2251) among others, this concern over student loan debt has been growing. In 2020, Governor Gavin Newsom signed the CCFPL into law, as reported by Consumer Reports. In doing so, this expanded the DFPI’s authority to regulate a broader range of consumer financial products and services, such as debt-relief companies.

In their investigations, DFPI officials found that Amerifed Doc Prep, LLC had been collecting illegal advance fees prohibited under the federal Telemarketing Sales Rule.

Both the Telemarketing Sales Rule and similar lawmaking like AB-2251 along with other regulations have been in existence for a considerable length of time. Under the Federal Trade Commission – (FTC) the Telemarketing Sales Rule requires telemarketers to make specific disclosures of material information. It also, in essence prohibits misrepresentations, sets limits and is designed to combat fraudulent dealings.

The action taken today isn’t the first time the DFPI has sought to bring predatory student-loan debt consolidators to justice. Earlier this year back in February, the DFPI launched an investigation into Optima Advocates, Inc. Allegedly the company required a fee to help a struggling student or recent graduate get out of financial difficulties. DFPI has pledged and continues to be undaunted in investigating this type of loan-debt scheme. 

As with Amerifed Doc Prep LLC, the DFPI ordered Optima Advocates, Inc. to pay penalties and to return to the student/clients they bilked all money and fees Optima had unlawfully taken.

Leading the investigation, DFPI officials found that Amerifed Doc Prep, LLC lured consumers with promises of getting their student loans reduced or forgiven in exchange for an initial payment as high as $899. As if that wasn’t enough, Amerifed Doc Prep, LLC also required a fee of $39.00 per month.

The DFPI also found that more than 1,000 California student loan borrowers who had signed up with Amerifed had been pressured to pay the illegal up-front fees. Again, whether it be a one-time fee or an ongoing fee, the FTC prohibits these sorts of activities done by student-loan debt consolidators under the current federal telemarketing law.

“The DFPI is committed to protecting student loan borrowers from predatory debt-relief scams,” said Acting DFPI Commissioner Christopher S. Shultz. “The Department will not tolerate student loan debt-relief companies that charge California consumers fees that violate the law or bilk and mislead consumers.”

Christopher S. Shultz is Acting Commissioner at the Department of Financial Protection and Innovation. Photo courtesy of CA Dept. of FPI

In a consent order, the DFPI required Amerifed to refund California student loan borrowers more than $870,000 it had collected in fees and pay a $500,000 penalty to the Department. In the consent order, Amerifed Doc Prep, LLC also agreed to cease its illegal conduct, to cancel all unlawful contracts with consumers, and to refund consumers within 60 days. Court documents can be examined via the California Government web site. 

Understanding the painful situation many students and recent college graduates are in financially, DFPI Commissioner Shultz had this to say. “Borrowers with challenges repaying student loans should call the U.S. Department of Education or their loan servicer directly.”

Unfortunately as consumer debt has risen in recent years, student-loan debt is the second-largest class of consumer debt behind mortgage loans. To learn more about this particular case of student loan debt consolidator misconduct or to file a complaint visit the California Department of Financial Protection & Innovation web site.