Listen to this post

On June 28, the FTC announced it had filed an action in federal court against a California-based student debt relief enterprise for deceptive practices, including unlawfully obtaining advance fees for debt relief, and pretending to be affiliated with the Department of Education for engaging new customers. The U.S. District Court for the Central District of California entered a temporary restraining order on June 24 against the defendants.

According to the complaint, the defendants deceived low-income borrowers into paying hundreds of dollars for services that were “made up, not as described, or simply never materialized.” The FTC claims that the defendants falsely told consumers that they: (1) will secure forgiveness of their student loan debt; (2) can obtain repayment plans that will lower their monthly payment amounts; (3) are loan servicers who will take over servicing their federal student loans; and (4) “work with” or are affiliated with the Department of Education. By falsely claiming they worked with the Department of Education, the defendants were able to obtain consumers’ bank account information, and collect hundreds of dollars in illegal advance fees. 

According to the complaint, the debt relief enterprise unlawfully obtained more than $20 million from consumers. The FTC is alleging violations of the FTC Act, the Telemarketing Sales Rule, the Gramm-Leach-Bliley Act, and the Trade Regulation Rule on Impersonation of Government and Businesses (“Impersonation Rule”), 16 C.F.R. Part 461. The Commission seeks injunctive relief, monetary relief, revision or reformation of contracts, and disgorgement of ill-gotten monies, among other forms of relief.

Putting it into Practice: This is the FTC’s first action under the Impersonation Rule, which went into effect this past April. The rule makes it an unfair or deceptive act or practice for “materially and falsely pos[ing] as directly or by implication,” a government entity or business; and “materially misrepresent[ing], directly or by implication, affiliation with, including endorsement or sponsorship by,” a government entity or business. In addition, the Commission has proposed an amendment to the rule that would prohibit the impersonation of individuals as well and create third-party liability for companies that have reason to know their technology is being used to defraud consumers through impersonation. The FTC has stated that impersonation-based fraud is one of the more common types of fraud; accordingly, we expect similar enforcement actions in the near term.