In the aftermath of the subprime loan crash of 2008, Congress enacted the Dodd-Frank Act in 2010. With that Act, the Consumer Financial Protection Bureau (CFPB) was created. Senator Elizabeth Warren (D-MA), who was a law professor at the time, conceived the idea for the bureau and compared the need for such an agency to the Consumer Product Safety Commission (CPSC), which helps protect consumers from dangerous products. In the Bureau’s case, she argued, the new entity would help guarantee the safety of financial products. The National Consumers League (NCL) strongly supported the CFPB’s launch and its value is demonstrated with every passing day.
Most recently, the Bureau cracked down on companies that prey on college-aged adults mired in student debt. Believe it or not, these companies convince borrowers that their paid services are needed to help reduce or eliminate their loan burdens–when those services are actually available for free elsewhere. These shady debt relief companies require upfront fees to handle student debt, which can be as much as $495. They also imply that they are connected to the Department of Education, which they are not.
The CFPB’s latest target is a San Diego firm called Student Aid Institute. The Bureau found that SAI violated the law that requires that at least one debt be renegotiated before any fees can be demanded up front for debt relief services. The company also charged a $39 maintenance fee per month!
The Bureau, in a consent order with the company, required SAI to stop all debt relief activities and that its CEO pay a $50,000 fine. Our colleagues at the National Consumer Law Center have long identified these phony student loan-servicing firms as a big problem, and has called on the CFPB to shut them down.
The requirement that these sleazy companies negotiate at least one debt before taking an upfront fee is relatively new and very helpful. But, like other scam artists who take an upfront fee to reduce tax or mortgage liability, SAI managed to collect millions before being stopped.
NCL applauds the CFPB for its critically important work in stopping companies that prey on consumers facing debt, whether it is student loans, back taxes, or mortgages. We are reminded daily of the value of the CFPB’s work.