July 27, 2015

CFPB Targets Illegal Billing Practices in the Student Financial Aid Industry

2 min

On July 23, 2015, the CFPB took action against Student Financial Aid Services, Inc. for illegal sales and billing practices. The CFPB filed a complaint and proposed consent order in federal court, which alleged that the company lured consumers with misleading information about the total cost of its subscription financial services and then hit them with undisclosed and unauthorized automatic recurring charges. Under the proposed consent order, the company would be enjoined from continuing its illegal billing practices, and would be required to pay $5.2 million, to be distributed to the CFPB and injured consumers.

Student Financial Services, Inc. (SFAS) is based in California, and until recently operated the websites FAFSA.com and SFAS.com, through which it offered fee-based assistance to consumers seeking help filling out the federal government's Free Application for Federal Student Aid (FAFSA). According to the CFPB's complaint, when consumers entered their payment information for certain financial advisory services, the company began to bill them for an annual subscription without the consumers' knowledge or consent. The recurring charges ranged from $67 to $85 per year, and were renewed annually. The CFPB alleges that Student Financial Aid Services, Inc. violated the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibitions against unfair and deceptive acts and practices by misleading consumers about the recurring charges, and violated the Electronic Fund Transfer Act by failing to get authorization for future electronic withdrawals from consumers' accounts. The CFPB's complaint specifically alleges that the company:

  • Misled consumers by using deceptive sales tactics through its websites and through its call centers when it advertised certain service plans as "upgrades" at "no additional cost," when, in reality, the consumers who signed up for the upgraded services were automatically charged fees that ranged from $67 to $85 each year.
  • Enrolled consumers in an unlawful recurring payments scheme without consumers' knowledge or consent.
  • Charged consumers' accounts without their authorization and without providing consumers a copy of that authorization as required by law.

Under the Dodd-Frank Act, the CFPB has the power to take action against institutions or individuals engaged in unfair, deceptive, or abusive acts or practices. Pursuant to this authority, the CFPB's proposed consent order would require Student Financial Services, Inc. to:

  • Pay $5.2 million in consumer relief to the CFPB to repay consumers who were illegally charged for unauthorized, recurring service fees.
  • End its illegal sales and billing practices, which include cancelling all recurring, automatic charges.
  • Pay a civil monetary penalty.