MANHATTAN (CN) – Nine companies accused of preying on New Yorkers wracked with student loan debt were hit with legal firepower Thursday from the state attorney general.
The suit opens with a summary of the country’s student loan debt crisis, noting that such debt stands at $1.34 trillion, while over 19 percent of borrowers in the federal program are behind on their payments.
“Since at least 2014, Defendants have taken advantage of this student loan debt crisis by engaging in deceptive, fraudulent and illegal conduct targeted at consumers with student loan debt through their marketing, offering for sale, selling and financing of programs that purportedly provide student loan debt relief for a fee,” the complaint continues.
Filed in Manhattan Supreme Court by Assistant Attorney General Melvin Goldberg, the lawsuit accuses Debt Resolve Inc., the financing company Equitable Acceptance Corp., and various other people and entities of scamming vulnerable debtors.
While the businesses claim that they can reduce or eliminate debt, the victims wind up swindled out of thousands of dollars and in some cases their debts are worse, according to the complaint.
Goldberg says the defendants target borrowers on Facebook and other social media sites, through radio ads and mail solicitations. Some of these ads falsely claim to share “breaking news” that the federal government approved a graduated repayment plan, but Goldberg notes that this law has been on the books for a decade. The lawsuit also unmasks the so-called student-loan advisers boasted by one website as sales people earning commission.
The companies generally charge over $1,000 for their services and trick consumers into thinking they are affiliated with the federal government, according to the suit. Student-loan servicers and the federal government offer these services for free, and it is illegal to charge upfront fees for such services, according to the Attorney General’s Office.
“Many of the defendants hold themselves out as loan experts, when they are not, and provide advice to borrowers that can make them worse off in the end,” the complaint states. “In addition to charging over $1,000 for services that are available for free, they worsen some borrowers’ already precarious financial situation by providing incomplete and harmful advice.”
Some consumers, confused by the role of the fraudulent services, stop making payments on their actual loans because the companies claim payments made to them go toward their loan balances, according to the suit. The defendants also hold themselves out as the only solution for students drowning in debt, saying borrowers “cannot apply on their own” for consolidation help or other services or payment plans. In fact, the complaint notes, borrowers can do all of that and for free.
“New Yorkers are already struggling under a mountain of student loan debt,” Attorney General Barbara Underwood said in a statement Thursday. “These companies sought to line their own pockets by taking advantage of students who were simply trying to pay for their education. My office will continue to do everything in our power to protect students – and all New Yorkers – from predatory scammers.”
Underwood’s office seeks restitution for victims and a permanent injunction against the defendants.
Representatives at Debt Resolve Inc., Student Advocates, and Student Loan Care, all defendants in the suit, did not immediately return requests for comment Friday.