Among the report's other key findings:
- A Lack of Fee Disclosure: The NCLC found fees to be excessive, including initial fees up to $1,600 in some instances; ongoing monthly fees can be between $20 and $50. The monthly fees are particularly suspect since it is unclear what services, if any, the consumer is getting.
- Debt Relief Agencies Provide Faulty Intel on Student Loans: The report cites what it calls "a shocking number of inaccuracies about consolidation, garnishment, rehabilitation, [and] bankruptcy," relating to student loans, which flies in the face of any claims to expertise.
- There are numerous potential legal violations of consumer protection laws, including the federal Credit Repair Organizations Act (CROA), Federal Trade Commission (FTC) Telemarketing Sales Rule, state debt settlement and debt management laws, and unauthorized practice of law provisions.
Abuses by the debt relief industry became so severe in the credit card counseling, mortgage foreclosure and debt settlement industries that the federal government and many states passed laws to stop abuses. The report stated, "Most of these laws should apply to student loan debt relief companies
. Many of these companies appear to be routinely violating all or some of these consumer protection laws.
Some potential violations: not including a three-day cancellation right in contracts, requiring payment before initiating services and false and deceptive advertising.
- Students are forced to give powers of attorney to counselors.
- Disclosure of Personal Data is Required
Some debt relief companies request or require borrowers to provide PIN numbers for the National Student Loan Data System (NSLDS)effectively giving the debt counselor access to their accounts, a practice reminiscent of Internet payday lenders that require borrowers to provide their bank account information as a condition of getting a loan.
The NCLC concluded that the numerous misrepresentations it uncovered increase the likelihood that these companies are not providing quality services, stating in a press release, "Such practices severely compound the pain of vulnerable consumers." As with payday lenders and other subprime lending operations, they may in fact seek the most vulnerable people as customers.
Among its recommendations, the NCLC wants state and federal regulators to increase their investigations of these companiesto the extent that they existand enforce consumer protection laws.
The report also suggests that commissions paid to counselors should not be based on the number of borrowers enrolled in the program, potentially leading to customer churn. Misleading advertisements and representations should also be prohibited.
The NCLC believes schools should do more to assist borrowers when they begin to struggle in paying off their student loans.
--Written by John Sandman for MainStreet