Student Loan Assistance Companies Sued

I heard Illinois Attorney General Lisa Madigan speak two years ago at NCLC‘s Consumer Rights Litigation Conference in Chicago.  It was obvious then that she was very protective of consumers.  So it comes as no surprise to me that she’s suing two student loan assistance companies.

Why Sue?

The claims against the two companies, Broadsword Student Advantage, LLC and First American Tax Defense, LLC, focus mainly around false advertising, charging for useless services, and deceptive marketing practices.  Anyone who didn’t see this coming hasn’t been paying attention.  This is simply a reincarnation of the debt settlement and foreclosure rescue scams.  Nothing new really.  Impossible dreams sold to those most desperate.

Case # 1: Broadsword

According to the complaint, Broadsword offered to help folks, “cut their payment in half, reduce their interest rate, or consolidate their outstanding loan.”  1 out of 3 ain’t bad, eh?  From the outset, there is an obvious lie to anyone who knows anything about student loans, because there is no way to alter the interest rate of a federal student loan.  Advertising to cut a payment in half is just stupid because there is no way to know the truth of that until one has spoken to a borrower and determined a host of factors.  Offering to consolidate a loan is fine, but this is a one-size-fits-all solution to a target market that is anything but one size.

What gets Broadsword in trouble is offering free information for the low up-front fee of $499 with a monthly fee of $49.  That’s not free in my book.  Worse, the funds were diverted to an affiliate “registered investment advisory firm”, with no disclosure to the victim…er I mean client.  There’s more to the complaint.  Read and enjoy.

Case #2: First American

While the Broadsword complaint was a mere 21 pages, the First American complaint is double at 48 pages.  This complaint alleges that First American offered to, “negotiate lower payments, remove wage garnishment, get loans out of default, and secure student loan forgiveness.”  They also advertised the ability to fix credit scores, a really big no-no, especially when it isn’t true.  The real issue is not just what was promised, but what First American does – complete consolidation applications for upwards of $1,199.  In truth, any borrower can do this for free.  Again, there is more to the complaint.  Enjoy the reading.

The Real Issue

Never mind the false advertising and deceptive marketing schemes.  There is something much more dangerous here – the lack of education.  The reason why many folks call companies like these is because the student loan servicers and debt collectors don’t do their job – they don’t tell borrowers what their options are.  Borrowers then get annoyed, confused, or outright frazzled and begin to not trust the industry.  Where can they turn?  How about to the guy on the radio or internet that promises appealing carrots – lower payments, lower interest, easy management, or potential forgiveness.  The things most folks are looking for as a way to afford their loan, or simply get out of it.  Unfortunately, many don’t know there is anything wrong with what is being offered by these scam artists because its better than what they were getting from the industry.  But it’s worse, far worse, and more costly.

Paying for Assistance

Attorney General Madigan and NCLC have both stated that these services are available for free.  They are right.  Simply do a Google search for whatever it is you want, and you’ll soon find lots of references.  The problem is, however, there is so much information, many folks can’t figure it out.  What gets student loan assistance companies in trouble, as it did for debt settlement and foreclosure rescue scams, is lack of transparency or disclosure, and lack of service.

Service doesn’t necessarily mean just solving the client’s problem.  Service means providing clarity in a way that allows the client to understand HOW their problem was solved, and in many cases, letting the client decide just how that solution occurs.  The difference between these companies and student loan lawyers (yes, you know I’d go there), is the delivered service.  Scamsters take the path of least resistance that works for most people.  In this case, consolidate everyone and hope they qualify for the income driven payment plans.  Lawyers, on the other hand, provide information on ALL available options to allow the client not just to make a choice, but an EDUCATED choice.  Clients then come to understand consolidation and the pros and cons.  For those who can’t consolidate (yes, there are reasons why some borrowers cannot consolidate), they understand why AND learn about other options.  They also learn about all repayment plans so they can decide what is best for them.  They learn how the forgiveness plans work so they can better prepare or qualify and know when to do what.  Even better, student loan lawyers can assist with all of these options.  And if something goes wrong, we do what lawyers do; we sue!  Many student loan lawyers help with much more than consolidation.  They help with administrative discharges and private student loans too!

It is also important to remember that the FDCPA (Fair Debt Collection Practices Act) applies to debt collectors working on student loans.  It’s not uncommon for a borrower to want or need legal protection from harassment and other forms of bullying.  Lawyers can protect borrowers from unscrupulous debt collection conduct.

Also, don’t forget that lawyers are highly regulated.  Egregious conduct by an attorney could get him/her disbarred.  Compare that to the lack of oversight and regulation regarding non-lawyer assistance companies.

Future

Student loan assistance can never be a one-size-fits-all approach.  It’s like any other LEGAL area.  Each client is unique.  Each situation is unique.  Each decision is unique.  As an attorney, I help each client, one at a time.

I admit, I’ve been approached by a few folks either in the student loan assistance business, or attempting to start such a company.  I ask if they’ll handle private loans.  They say, “No, of course not – there’s nothing for us to do.”  I ask if they administer any other options to cure federal loan default besides consolidation.  They say, “No, of course not.  It’s too complicated and not as profitable.”  I had one guy ask if he could refer me trouble cases.  My response, “Sure, as long as you don’t mind me suing you when I find all the violations you’re committing.”

Do I think non-lawyers can help with student loan assistance?  Yes and no.  Yes, as long as they comply with the many federal and state laws.  They don’t want to.  It’s not profitable.  And no, because there are legal issues that could arise if industry participants don’t do things properly.

If you’ve been victimized by a student loan assistance company, please contact the CFPB and your State Attorney General.  You also might consider contacting a student loan lawyer to assist you with your student loan issue.