New York’s financial regulator said last month that it has launched an investigation into companies offering student loan borrowers debt-relief services, examining whether the companies are engaging in misleading advertising practices and charging improper fees.
Subpoenas were issued to eight companies by the New York State Department of Financial Services, companies that reportedly vow to find debt reduction or debt forgiveness for borrowers who are struggling to repay their student loan debts. According to the agency, the investigation focuses on whether the companies charge “hefty, improper fees structured as monthly subscriptions” without letting borrowers know that those same programs are available free of charge through the U.S. Department of Education.
The regulator didn’t name the companies under investigation.
The Department of Education offers a number of free federal programs for student-debt relief, reduction or forgiveness for qualifying borrowers, such as those who work for the public-sector and those who are struggling financially.
A record $89.2 billion of student loans was in default at the end of June, according to New York Federal Reserve data. As student debt has soared in recent years, reaching $1.457 trillion by the middle of 2019, according to federal government data, businesses offering debt-relief services have in turn been on the rise.
New York’s probe of these companies comes as some federal regulators have eased their enforcement against financial companies, including student-debt relief companies, leaving state regulators with the opening to increase vigilance and enforcement to ensure the protection of consumers.
This change in the loosening of enforcement by the Consumer Financial Protection Bureau has been especially significant. The agency was established under the Obama administration but now is being modified under the Trump administration, which emphasizes consumer education over enforcement.
As a result of this change, the initiation of new CFPB investigations has clearly lessened. As of early September, the CFPB had initiated 20 investigations in this fiscal year. The number of new enforcement investigations fell to 15 in the fiscal year that ended in September 2018, down from 63 in 2017 and 70 in 2016, the CFPB said in response to a Freedom of Information Act request in August.
The New York’s Department of Financial Services said that the latest probe into these eight companies is a part of the agency’s increased focus on the student loan industry.