As consumers across the country worry about how they will afford next month’s bills amid the coronavirus pandemic, executives accused of stealing an estimated $ 15.6 million from student loan borrowers are granted leniency because of their financial situation.
The Consumer Financial Protection Bureau recently announced agreements with actors in two schemes accused of illegally charging borrowers to help them manage their student loans. Through an audit of the defendants’ financial documents, the agency determined that the defendants in the schemes had a limited ability to pay the full amount that the agency said was owed to consumers. Instead, they’ll pay a fraction of what borrowers have lost in settlements.
In a case announced last week, the agency determined that more than 7,300 consumers were billed $ 3.8 million in illegal fees, but the company and two of its executives will pay a total of $ 22,000.
In the other set of colonies The CFPB said on Monday that the program cost borrowers $ 11.8 million in illegal fees. A judgment has been issued against one of the owners of the companies for the full $ 11.8 million, but as part of the deal he will pay $ 25,000. In total, a group of four people allegedly involved in the program will pay around $ 81,500.
In addition, the regulations prohibit people allegedly involved in the schemes from working in the debt relief industry in the future.
It is not uncommon for regulators or state attorneys general to allow a suspended payment as part of an enforcement action. It can be difficult to draw blood from a stone, as the saying goes.
And while the gap between how much borrowers lose and what executives will pay is large, borrowers will likely get relief from the CFPB’s civil sanctions fund – a safe deposit box the agency can use to pay for redress. to consumers in cases where the agency may have difficulty collecting from an insolvent defendant. By imposing a civil fine of $ 1 on each of the agents allegedly involved in the schemes, the CFPB can access this fund to help borrowers.
Yet critics say the contrast between how those accused of these crimes and their victims are treated is stark. Borrowers Falling behind on Student Loans Have Few Options – Getting Rid of Debt is Hard even bankrupt. Perhaps one of the most extreme examples of student loan rigidity: borrowers who incurred their student loan debt to attend for-profit colleges who allegedly tricked them into attending under false pretenses about their prospects. future jobs. They struggled under the Trump administration to get their loans canceled, despite a law entitling them to relief.
“This is yet another reminder to the millions of Americans who receive a student loan bill each month that in each turn the Trump administration has chosen predatory student loan companies above their interests,” he said. said Seth Frotman, executive director of the Student Borrower Protection Center, an advocacy group, and the former CFPB student loans ombudsman.
“Just as the Trump administration demands that borrowers scammed by predatory schools pay off every penny of illegally incurred debt, it is giving student loan crooks a free pass every turn.”
In cases where the CFPB imposes a penalty of $ 1 and a remedy together, the additional remedies are applied “for the purpose of providing the maximum remedy to the aggrieved consumers in a given case”, wrote a spokesperson for the CFPB in a press release sent by email.
“In actions where the business or person alleged to have caused harm to consumers cannot pay the full amount of redress to consumers, the Bureau will seek to obtain the greatest possible redress from that business or person and may then couple this repair with a symbolic sum. $ 1 penalty, ”the statement read.
It is not uncommon for those accused of financial crimes to pay less than what consumers have lost
Other agencies sometimes allow defendants to pay less than the cost of their illegal activity in financial insolvency. Of the 722 financial penalties imposed by the Securities and Exchange Commission in fiscal 2019, the agency waived some or all of the financial penalty due to the poor financial condition of the defendants in six cases, according to an analysis by Urska Velikonja, professor at Georgetown. University Law Center.
In these cases, the defendants must prove not only that they have no money or property, but that they have no hope of making any money in the future, Velikonja said. “It’s more common for the SEC to launch fundraising efforts and then fail because they can’t find any assets than to say up front ‘we’re not even going to care’,” he said. she declared.
The conditional sentence approach is typical in certain types of Federal Trade Commission enforcement action, said Prentiss Cox, a University of Minnesota law school professor who has tracked these issues. These deals at CFPB are a signal to Cox that the agency is moving towards a more similar enforcement model to that of the FTC.
In 2014, the CFPB never agreed to suspend the sanctions to resolve the enforcement measures related to the law on unfair and deceptive practices, according to an analysis of the application of the UDAP in the agencies that year. published in 2017 by Cox and other authors. During this year, two of the FTC’s six cases with nominal civil penalties saw those penalties fully suspended and one was partially suspended.
“Tackling big entities is more the kind of thing you would see from an aggressive Democratic date, it is what you see most from an aggressive Democratic elected state. [attorneys general]”Cox said.” When you change direction which is generally more aligned with the industry, you tend to see the app disappear or move to smaller, more rogue entities. ”
Student Debt Relief Scams Have Been Hard to Eliminate
Student debt relief scams like the ones the subject of recent CFPB settlements have has been around for years and despite the efforts from a variety of government agencies, they have been difficult to eliminate. Even if some are closed, others appear. These companies charge borrowers for help managing their student loans, often providing services that borrowers can access for free.
In the case of one company, Timemark Solutions, with which the CFPB settled last week, the company and its executives allegedly used Google GOOGL,
advertisements, YouTube, and other resources to advertise services they believe would help federal student loan borrowers enroll in forgiveness and repayment programs – apps they can make for free by them – same.
When borrowers called to inquire about these services, representatives allegedly received some or all of Timemark’s payment amount, which ranged from $ 99 to $ 699, before the Department of Education approved the request. of a borrower for a change in payment plan or before a borrower pays on the modified debt. This is a violation of the telemarketing sales rule.
Timemark’s lawyers did not respond to a request for comment.
The CFPB announced on Monday an agreement with the actors of another student debt relief program. In this case, two companies, GST Factoring Inc. and Champion Marketing Solutions, allegedly orchestrated a program in which borrowers received flyers in the mail announcing debt relief assistance for federal student loans. If borrowers called the advertised phone number and said they had private student loans, they would be encouraged to register with a lawyer to alleviate their debt, according to the complaint.
These services generally did not require legal expertise and borrowers would be encouraged to stop paying their student loans to make lenders more likely to agree to a settlement, the CFPB alleged. The borrower would sign an agreement over the phone that typically required them to pay a fee upon enrollment or soon after, in other words, before the debt was settled in violation of the telemarketing rule. .
Three of the four people allegedly involved in the scheme who settled with the CFPB did not provide comments at press time. The fourth could not be reached.
Although CFPB regulations mean that these companies and individuals can no longer participate in debt relief activities, Dalié Jiménez, a professor at the University of California-Irvine School of Law, said this approach of performance does not deter other bad actors.
“It’s just sending a message of ‘you can do it, it’s going to cost you a few thousand dollars,'” said Jiménez, who was on the founding staff of CFPB. “It sounds like opening the box of worms to make people who do these kinds of scams get more daring.”