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Thursday, July 11, 2024 | Back issues
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SoCal Student Loan Company in Hot Water

LOS ANGELES (CN) - A Southern California student loan processor took millions of dollars with deceptive claims and by feigning a relationship with the federal government, the Consumer Financial Protection Bureau claims in court.

The Consumer Financial Protection Bureau sued IrvineWebWorks dba Student Loan Processing.US and its founder, owner and president James Krause, on Dec. 11 in Federal Court.

The company is wholly owned by Krause, according to the lawsuit. It is based in Laguna Niguel, and has offices in Lake Forest, Calif., and Dallas. It was founded in 2011.

The CFPB claims that the defendants "misrepresented to consumers, directly or by implication, that they were agents of the U.S. Department of Education or were affiliated with that agency in some capacity."

But they were not, and never have been, the bureau says.

Krause and his company also "misled consumers about the price of their services, including the fact that the quoted price included a recurring monthly maintenance fee," the complaint states.

They charged an "enrollment fee" of 1 percent of the student loan balance or $250, whichever was greater, plus a $39 "monthly maintenance fee," which increased to $54 if the borrower did not pay it by automatic debit.

They received "millions of dollars" in these enrollment fees, the CFPB claims.

Most of their pitches were made by direct mail and telemarketing, though some were made on the Internet.

The bureau seeks damages for four counts of deceptive trade and one count of abusive telemarketing.

It claims that Krause used a logo, or seal, on his mailers that "shared several similarities with the U.S. Department of Education seal ... including the outer spherical gold border, inner spherical gold border, tree 'growing' from a base, and medium blue shading between the borders with white text."

On Aug. 27, 2012, the U.S. Department sent the defendants a letter about their "use of a misleading seal, and certain misrepresentations on defendants' website," and asked them to "make changes to their website and insisted that a disclaimer be placed on the homepage."

Krause et al. modified the seal in September 2012, but it still resembled the U.S. Department of Education seal, the CFPB says, including its colors, design, gold border and use of two American flags.

Krause also misrepresented the recurring monthly fee, the CFPB says.

He claimed "that the recurring monthly fee was required because defendants have to 're-certify [the consumer's] eligibility for the [repayment] program every twelve months,' even though such recertification is not required for every repayment program," the bureau says.

The bureau seeks restitution, rescission of contracts, disgorgement of ill-gotten gains, fines and an injunction.

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