Financial-Aid Billing Scheme Settled for $5.2M

SACRAMENTO (CN) - A national student loan consulting company agreed to pay $5.2 million to settle a federal complaint accusing it of illegally billing more than 100,000 consumers for recurring services fees.

In a complaint filed Thursday, the U.S. Consumer Financial Protection Bureau claimed Student Financial Aid Services has engaged in "unfair and deceptive" practices, including "engaging in deceptive telemarketing" by making recurring electronic funds transfers without permission from consumers' accounts.

Sacramento-based SFAS offers student financial-aid assistance, consultation, preparation and advice to students for a fee when they complete the Free Application for Federal Student Aid, known as FAFSA, so that students can get loans for college.

"Student Financial Aid Services made millions of dollars at the expense of consumers through its illegal recurring payment scheme," said CFPB Director Richard Cordray. "Our enforcement action will put money back in the pockets of consumers who were misled while seeking to access federal student aid."

In a release issued Thursday, SFAS said it "did nothing illegal or wrong - and the Consumer Financial Protection Bureau provided no evidence to support any of its claims regarding alleged illegal or unethical activity."

The company also said it "settled these unsubstantiated allegations to avoid protracted litigation" and "is not aware of a single consumer complaint about its services. In fact, the company has received overwhelmingly positive feedback."

The free federal financial aid application is available from the U.S. Department of Education, can be downloaded at the FAFSA.ed.gov website and is used to determine students' financial aid eligibility by many colleges and universities across the nation, the bureau says.

The Department of Education also offers free consultation for students through a telephone help line and an online chat forum.

In a complaint filed Thursday, the bureau said that since at least 2011, SFAS has operated a similarly titled website, FAFSA.com, SFAS.com and related call centers. The company charges a fee for its consultation and preparation services, which amounts to providing financial advisory services to help students obtain educational grants and loans.

SFAS charges $79.99 for online preparation services and $99.99 for its telephone preparation services, and offers up to three preparation plans that have recurring automated charges, the bureau said.

The preparation plans automatically charged between $67 and $85 for up to four years, and the recurring charges were not explained clearly or truthfully disclosed. Instead, the payment page only stated the customers would receive "'worry-free annual billing,'" the bureau said.

"Customers were placed on a 'negative option' renewal plan, meaning that their accounts were charged again, for subsequent years' FAFSA preparations, whether or not the customers made use of the company's services in future years, unless the customers took an affirmative action to avoid the charges or the charges were otherwise terminated by the company," the bureau's complaint said.

The bureau said SFAS does not distinguish between credit card and debit card transactions, did not have procedures designed to "avoid errors" and provides a terms-of-use page that is 6,500 words in length with automatic billing provisions located somewhere in the middle.

SFAS did not explain to users that the fees would be charged for an unspecified number of years, the bureau said.

The bureau sought $5.2 million in consumer relief, an end to illegal sales and billing practices and a $1 civil penalty for violations of the Consumer Financial Protection Act, the Telemarketing Sales Rule and Electronic Fund Transfer Act.

According to the bureau's statement, it did not seek higher civil penalties because of "the company's limited financial resources after repaying harmed consumers."

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