FTC Takes Student Debt Relief Company to Court

FTC wins restraining order against group it alleges portrayed itself as affiliated with the Department of Education before charging borrowers for services it misrepresented.

November 13, 2019
 
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The Federal Trade Commission has blocked the operations of a group of companies allegedly portraying themselves as being affiliated with the U.S. Department of Education, charging that they promoted student loan debt-relief services but did not follow through as promised.

Arete Financial Group and related companies violated the Telemarketing Sales Rule and FTC Act, the FTC said in a complaint filed under seal Nov. 4 in the U.S. District Court for the Central District of California. A temporary restraining order was granted, halting operations falsely promising student loan debt relief, the FTC said in a news release Tuesday. The order temporarily prohibits certain business activities, including misrepresenting facts about loan services, freezes the defendants’ assets and appoints a temporary receiver authorized to take control of the defendant companies.

Those actions and "other equitable relief [are] in the public interest," said an order signed by U.S. District Judge James V. Selna.

The defendants have been operating “an unlawful debt relief scheme” since at least April of 2014, the FTC said in its complaint. The defendants promised to enroll consumers in student loan forgiveness, consolidation and repayment programs, promoting such programs as reducing or eliminating monthly loan payments and principal balances, the agency said.

Instead of providing the promised benefits, the companies typically contacted borrowers’ loan servicers to place their loans into forbearance or deferment -- without consumer knowledge or authorization, the FTC said. The companies allegedly charged consumers $500 to $1,800 in up-front fees, as well as monthly fees between $19 and $49, and collected at least $43 million in revenue since beginning the operation, the FTC’s complaint said.

“Arete Financial Group charged illegal upfront fees and made false promises to consumers struggling with student loan debt,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, said in a statement. “To avoid scams like these, consumers should never pay an advance fee to a company promising to deliver debt relief.”

The companies pretended to be affiliated with the Education Department in telemarketing calls as well as radio, television and online advertisements, the FTC said.

Arete and its affiliates allegedly “induce consumers to sign a power of attorney form” when signing up for services, then changed consumers’ log-in names and passwords on the Federal Student Aid website. The companies also changed consumers' email addresses registered with loan servicers, according to the FTC complaint. The consumers would subsequently not receive correspondence and not have access to their own loan information.

“Consumers often discover that they have been scammed only after talking to their actual loan servicer and realizing that Defendants have been making no payments to the servicer, while pocketing consumers' payments for themselves,” the complaint said. “When consumers ask for their money back, Defendants often refuse to issue full refunds, and will only issue a partial refund or no refund at all.”

The defendants allegedly disclosed that they were not in fact affiliated with the Education Department in the middle of dense text in service agreements, the FTC complaint stated. Consumers were often unable to process the disclosure because they were rushed through the process of signing forms, it said.

Arete did not respond to a request for comment sent to its general email and legal department Tuesday afternoon.

The full list of corporate defendants is: American Financial Support Services Inc.; Arete Financial Group (also doing business as Arete Financial Freedom); Arete Financial Group LLC; CBC Conglomerate LLC (also doing business as 1file.org); Diamond Choice Inc. (also doing business as Interest Rate Solutions); J&L Enterprise LLC (also doing business as Premier Solutions Servicing); La Casa Bonita Investments Inc. (formerly known as La Casa Bonita Investments LLC, also doing business as Education Loan Network and Edunet); and US Financial Freedom Center Inc. Individual defendants are Carey Howe, Anna Howe, Shunmin “Mike” Hsu, Ruddy Palacios (also known as Ruddy Barahona), Oliver Pomazi and Jay Singh. The complaint also names MJ Wealth Solutions, LLC, as a relief defendant.

Tuesday’s temporary restraining order comes more than four years after the Consumer Financial Protection Bureau wrote to several search engine companies asking them to help prevent student debt-relief scams targeting borrowers. It comes about two years after the FTC and states started trying to crack down on student debt-relief schemes. The FTC has won settlements in its efforts, including a 2018 order approved by a judge that included an $11.7 million monetary judgment against Los Angeles-based Student Debt Relief Group. At the time, that company was said to not have funds to pay the bulk of the judgment and was expected to turn over almost all of its available assets, worth over $2.3 million.

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