Home / Compliance / FTC Accuses Student Loan Debt Relief Operation of Scamming $23 Million From Duped Consumers

FTC Accuses Student Loan Debt Relief Operation of Scamming $23 Million From Duped Consumers

The Federal Trade Commission has filed a complaint in federal court against a student loan debt relief company, alleging it bilked $23 million from consumers by demanding illegal upfront payments and not remitting all of the funds consumers gave to the company to be paid toward their outstanding balances.

A copy of the complaint can be accessed by clicking here.

The operators behind Mission Hills Federal and Federal Direct Group are accused of violating the FTC Act and the Telemarketing Sales Rule. Consumers who signed up for the defendants’ services were told to make payments directly to the defendants and stop making payments to the student loan servicer. The defendants would then enter into forbearance, deferment or other programs with the servicers, ensuring that the servicers would not have a need to contact consumers. The defendants were also accused of obtaining the individuals’ personal identification numbers and changing their contact information to keep servicers from contacting consumers.

“Debt relief companies can’t collect advance fees or masquerade as federal student loan servicers,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, in a statement. “Anyone asking for upfront fees to help with student loan debt is likely a scammer, and consumers should hang up and alert the FTC.”

In some cases, consumers made payments for years to the defendants without knowing that the defendants were keeping most or all of the money for themselves. Some of those consumers now owe more than they did when they signed up for the debt relief services. When confronted about why their payments were not being applied to their student loan debts, the defendants “informed consumers that their entire payments had been collected as ‘handling’ or ‘management’ fees,” according to the complaint.

When contacting individuals to get them to enroll in the relief program, the defendants would quote monthly payments that were half as much as the individuals were currently paying.

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