Illinois Attorney General Files Lawsuits Against Scam Student Loan Debt Settlement Companies

In July of this year, Illinois Attorney General, Lisa Madigan, filed lawsuits against two debt settlement companies in connection with student loan scams.  The separate lawsuits, one against Illinois based First American Tax Defense and one against Texas based Broadsword Student Advantage, allege that the companies engaged in deceptive marketing practices and illegally charged student loan borrowers as much as $1,200.00 in upfront fees for bogus services or for government services that are already available at no cost.   Particularly, the lawsuits allege that the debt settlement companies advertised a wide-range of student loan relief services in Illinois, such as the ability to negotiate lower monthly payments, remove wage garnishments, get loans out of default, and secure student loan forgiveness. 

In truth, the defendants lacked any such capability and in fact do little more than complete applications to federal borrower assistance programs that are already available to consumers from the United States Department of Education at no cost.  The Complaints seek inter alia injunctive relief and civil penalties for violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organizations Act, and the Debt Settlement Consumer Protection Act, which Attorney General Madigan crafted to ban companies from charging upfront fees to consumers seeking debt relief assistance. 

Illinois is suspected to be the first state to bring legal action against debt settlement companies in connection with student loans.  In the past, debt settlement companies targeted those with large credit card debt or mortgage loans.  With more than half of recent graduates either unemployed or working low-paying jobs, however, debt settlement companies have found a new group of consumers to target. 

Student loans are the biggest source of consumer debt after mortgages.  American student loan debt currently exceeds $1 trillion dollars, with an estimated seven million Americans already in default on $100 billion in student loans and tens of thousands of additional borrowers defaulting each month.  Even before Illinois brought its lawsuits, the Federal Trade Commission was inundated with hundreds of thousands of complaints from consumers regarding debt settlement companies.  Consequently, it likely won’t be too long before we see other states following Madigan’s lead and bringing claims against debt settlement companies operating student loan scams in their respective states. 

For more information on the aforementioned complaints and/or the Illinois Consumer Fraud and Deceptive Business Practices Act, contact Katherine Olson at (312) 334-3444 or kolson@messerstrickler.com.