Fraud rampant among debt relief companies

Firms targeting student loans are outwitting regulators, probe finds.

Fraudulent “debt relief ” companies are preying on the most vulnerable of the 44 million people with student loans, as federal officials dispute who’s to blame and what to do, a NerdWallet investigation has found.

U.S. enforcement agencies — the Consumer Financial Protection Bureau and the Federal Trade Commission — in recent years have closed only seven companies that lured consumers with rosy promises to reduce or forgive student loan debt.

But more than 130 student loan debt relief businesses operating during the period had records of questionable or illegal behavior, according to a NerdWallet review of public records. The search of state and federal documents nationwide identified companies hit by lawsuits, court actions or negative Better Business Bureau ratings — or had owners who couldn’t manage their own debts.

Many of the businesses continue fleecing borrowers, NerdWallet found. Some charge illegal upfront fees and monthly dues for debt consolidation, then hijack debtors’ accounts and let payments lapse, leading to garnished wages, seized tax refunds and ruined credit.

CFPB officials defend their scant enforcement record. Consumer advocates largely agree with them, saying that playing Whac-A-Mole with debt-relief scammers is a costly, fruitless game.

State prosecutors are trying to fill the void, closing nearly three dozen companies in individual states, but many of those remain free to operate in the other 49 states.

The consumer agency and advocates fault the U.S. Education Department for enabling what they identify as the root cause of the scams — bad practices of loan-servicing companies such as Navient. Those loan servicers are failing to help debtors struggling to make their payments, driving them into the arms of dishonest companies, critics say.