The millions of consumers struggling to pay off student loan debt constitute a fertile field for unscrupulous scam artists, many peddling debt-relief schemes that do nothing but drain the victims’ checking account.
One such company, the Federal Trade Commission charges, is Automatic Funds Transfer Service, a payment processor that the FTC says facilitated a fraudulent student loan debt relief scheme, collecting at least $31 million from indebted former students.
The debt relief scheme used numerous names, including The Student Loan Group (SLG).
The FTC has obtained an order permanently barring Automatic Funds Transfer from processing debt relief payments. The order also requires the company and its owner to surrender $500,000 to the FTC to be refunded to consumers.
Student loans a massive burden
Even without fraudulent schemes, student loan debt remains a massive burden that is dragging down hundreds of thousands of former students.
Even those who are making payments on their debt are barely staying even in many cases, according to a recent study. The study found that nearly two-thirds of students who made payments during the pandemic pause were underwater on their loans – meaning they owe more than the original amount of the loan.
Democratic lawmakers, led by Sen. Elizabeth Warren (D-MA) have been pressing for action by the Biden administration and by Congress to forgive some student debt and reform the scandal-plagued system.
“Our broken student loan system continues to exacerbate racial wealth gaps and hold back our entire economy,” said Warren in a statement issued with Senate Majority Leader Chuck Schumer (D-NY) and Rep. Ayanna Pressley (D-MA) in August.
The Center for Responsible Lending (CRL) and the National Consumer Law Center (NCLC) issued the study. It found that the students who made payments during the payment pause have been unable to repay even $1 of their original loan balance because all of their payments have gone to paying interest.
Automatic Funds Transfer case
The FTC’s complaint against Automatic Funds Transfer Services, Inc. (AFTS) and its owner, Eric Johnson, alleges that AFTS processed at least $31 million in consumer payments for a fraudulent student loan debt relief scheme sued by the FTC in 2019.
“Firms that facilitate fraud—especially against struggling student borrowers—need to pay a price,” said Samuel Levine, Director of the FTC’s Consumer Protection Bureau. “Many of these firms may operate in the background, but they’re very much in our sights.”
AFTS and Johnson processed payments from tens of thousands of consumers deceived by SLG into paying illegal upfront fees with false promises to lower the consumers’ monthly student loan payments. The complaint cites correspondence showing that AFTS and Johnson were aware of numerous issues with the scheme.
The FTC alleges that the company and Johnson received complaints from, among others, consumers and banks; were aware that SLG had high return rates and was collecting illegal upfront fees from consumers; and knew that SLG kept changing company and brand names to, among other reasons, mitigate negative publicity. Despite numerous warning signs, AFTS and Johnson continued processing consumer payments for SLG right until the scheme was ultimately shut down following an enforcement action by the FTC.
The settlement permanently prohibits AFTS and Johnson from processing payments for debt relief or student loan companies. They will also be prohibited from processing payments indirectly for any merchant that does not have a signed contract with AFTS, and will be required to apply enhanced screening and monitoring of certain high risk clients to ensure such clients are not operating illegally.
The settlement includes a monetary judgment of $27,584,969, which is largely suspended due to an inability to pay. AFTS and Johnson will be required to surrender $500,000 to the FTC, and if they are found to have misrepresented their financial status, the full amount of the judgment would be immediately due.