Illinois Suing Student Loan Settlement Companies

Illinois Attorney General Lisa Madigan has launched lawsuits against two debt-settlement firms she says engage in predatory practices and scam people trying to get control of their student loan payments.

The lawsuits are the first ever launched by a state against firms that specialize in assisting with student loan repayment. The targeted firms are First American Tax Defense LLC of Park Ridge, Illinois, and Broadsword Student Advantage LLC, based in Frisco, Texas.

Madigan’s lawsuits accuse the two companies of violating anti-fraud laws, and say the companies do little more than apply for free federal programs that borrowers could access on their own at no cost. For this service, they charge as much as $1199 up front, and in Broadsword’s case may also charge a monthly fee of fifty dollars.

“Employing high-pressure sales tactics, Defendants target financially vulnerable consumers with student loan debt in Illinois, and throughout the United States,” reads the case against First American Tax Defense. “Despite wide-ranging student loan relief services, such as the ability to secure lower student loan payments, remove wage garnishments, negotiate student loan debt forgiveness, and improve credit scores, Defendants do not have such capabilities.”

The company is also accused of offering to help navigate a new program “just approved” by Congress called the “Obama Forgiveness Program,” which does not currently exist.

The suit also claims that while First American represents itself as “a dedicated group of attorneys,” the company in fact only employs a single licensed attorney, who rarely if ever interacts with customers.

Broadsword, meanwhile, is accused of having sales representatives tell consumers that they could eliminate all their student loan debt by paying a few hundred dollars up-front and then a $50 monthly fee for ten years, when there was no basis for such an offer. Instead, monthly fees were allegedly redirected into an investment advisory firm called Affordable Life Plans, allegedly for financial planning services customers did not know they were signing up for.

The lawsuits seek to have the companies’ contracts canceled and fines in excess of $10,000 for each discovered violation of Illinois law.

The volume of student loans has risen enormously in the past decade, recently passing $1 trillion and beating out credit card debt as Americans’ second largest source of debt behind home loans. Thanks in part to rising college tuition and a laggardly economy, about seven million people have defaulted on their student loans, and the number is rising. Unlike other debts, student loans cannot be discharged in bankruptcy except for particularly severe circumstances, meaning their burden can be particularly oppressive for those struggling to pay.

With so much money at stake and so many people falling behind on loans, scams have the opportunity to flourish. According to the Federal Trade Commission, complaints about abusive business practices by credit-services firms numbers in the hundreds of thousands every year, and several such companies, have been sued by the FTC itself. Madigan’s lawsuits, however, appear to represent the first effort by a state to specifically reign in abuses related to student loans.

Representatives for the two accused companies could not be reached immediately for comment.

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