Fed. Trade Comm'n v. Am. Fin. Benefits Ctr.
| Decision Date | 08 August 2018 |
| Docket Number | Case No: C 18-00806 SBA,Related to Case No: C 17-04817 SBA |
| Citation | 324 F.Supp.3d 1067 |
| Parties | FEDERAL TRADE COMMISSION, Plaintiff, v. AMERICAN FINANCIAL BENEFITS CENTER, a corporation, also d/b/a AFB and AF Student Services, et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Boris Yankilovich, Evan Rose, Roberta Diane Tonelli, Sarah Elizabeth Schroeder, Federal Trade Commission, San Francisco, CA, for Plaintiff.
James Harold Vorhis, Jill Nicole Jaffe, Nossaman LLP, San Francisco, CA, Nicole Suzanne Healy, Ropers Majeski Kohn & Bentley, Redwood City, CA, for Defendants.
ORDER DENYING DEFENDANTS' MOTION TO DISMISS
The Federal Trade Commission ("FTC") brings the instant consumer fraud action against Defendants American Financial Benefits Center ("AFBC"), Ameritech Financial ("Ameritech"), Financial Education Benefits Center ("FEBC"), and Brandon Frere ("Frere") (collectively, "Defendants"). The matter is presently before the Court on Defendants' motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. 117. Having read and considered the papers filed in connection with this matter, and being fully informed, the Court hereby DENIES the motion, for the reasons stated below.1
The FTC is an independent agency of the United States government. Compl. ¶ 4, Dkt. 1. The FTC is charged with the enforcement of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 41 et seq. , which prohibits, inter alia , "unfair or deceptive acts or practices in or affecting commerce." Id. § 45(a)(1). The FTC is also charged with the enforcement of the Telemarketing and Consumer Fraud and Abuse Prevention Act (the "Telemarketing Act"), 15 U.S.C. §§ 6101 et seq. Pursuant to its authority under the Telemarketing Act, the FTC promulgated the Telemarketing Sales Rule ("TSR"), 16 C.F.R. pt. 310, which prohibits deceptive or abusive telemarketing acts or practices. See 15 U.S.C. § 6102(a) ; 16 C.F.R. pts. 310.3 - 310.4. A violation of the TSR constitutes a violation of the FTC Act. See 15 U.S.C. §§ 57a, 6102(c).
AFBC was incorporated in California in February 2011. Compl. ¶ 6. Ameritech and FEBC were incorporated in California in October 2015. Id. ¶¶ 7-8. Frere is the founder, CEO, and majority owner of AFBC, Ameritech, and FEBC (collectively, "the Companies"). Id. ¶ 9. Defendants transact or have transacted business in this district and throughout the United States. Id. ¶¶ 6-9. Specifically, the Companies have "advertised, marketed, distributed, or sold student loan debt relief services to consumers throughout the United States." Id. ¶¶ 6-8. In conducting the business practices at issue in this action, the Companies have operated as a common enterprise. Id. ¶ 10. Frere "formulated, directed, controlled, had the authority to control, or participated in the acts and practices" of the Companies that constitute the common enterprise. Id.
To address elevated levels of distressed student loan debt, the Department of Education ("DOE") and state government agencies administer a limited number of loan forgiveness and discharge programs. Compl. ¶ 15. These programs include Public Service Loan Forgiveness ("PSLF") and income-driven repayment ("IDR"). Id. ¶¶ 16-17.
IDR programs enable borrowers to reduce their monthly payment and have portions of their loans forgiven. Id. ¶ 17. Specifically, IDR allows eligible borrowers to limit their monthly payments based on a percentage of their discretionary monthly income. Id. To remain in an IDR program, borrowers must recertify their income and family size annually. Id. Because a borrower's income likely fluctuates over the life of the loan, monthly payments under an IDR program can vary considerably from year to year. Id. ¶ 18. If a borrower's income increases over the repayment period, for example, monthly payments can correspondingly increase, such that the loan is paid off before any amount can be forgiven. Id. Obtaining loan forgiveness through an IDR program requires a minimum of 20 or 25 years of qualifying payments. Id. ¶ 17. As of September 2017, no loans had been forgiven under an IDR program. Id.
Consumers can apply for the PSLF, IDR, and other loan repayment and forgiveness programs through the DOE or their student loan servicer at no cost; these programs do not require the assistance of a third-party company or the payment of application fees. Id. ¶ 19. The DOE will grant forbearance while processing applications for an alternative repayment plan and in some cases of hardship. Id. ¶ 20. During forbearance, unpaid interest is added to the principal balance. Id.
It is alleged that, since 2014 and continuing thereafter, Defendants have operated a "debt relief enterprise that has tricked consumers out of millions of dollars." Compl. ¶ 12. Defendants distribute mailers claiming that consumers are eligible for federal loan assistance programs that would permanently reduce their monthly loan payments to a fixed amount or result in total loan forgiveness. Id. Defendants collect an advance fee of $600 to $800, purportedly to enroll consumers in these programs. In numerous instances, the consumer was not enrolled in the promised program. Id. In some instances, not only was the consumer's loan balance not reduced, but it also continued to accrue interest. Id. In addition to advance fees, Defendants also collect and retain monthly fees that consumers believe are applied to pay down their loans, but actually go toward membership in a "financial education" program that includes access to various services unrelated to their student loans. Id. ¶ 13. Defendants have collected over $28 million from consumers. Id.
In marketing their services, Defendants have disseminated, or caused to be disseminated, personalized mailers to consumers throughout the United States. Compl. ¶ 22 & Exs. A-E (mailers). According to the FTC, the mailers contain many deceptive statements. Id. For example, many mailers state that the consumer has been "pre-qualified" to reduce their payments through the "Student Loan Document Preparation and Processing Services Program." Id. Mailers also include specific dollar amounts for the reduced payments, payoff amount, and total loan savings. Id. Mailers do not advertise or describe a monthly membership to any service. Id. ¶ 23.
As alleged by the FTC, the mailers "create a sense of urgency" by indicating that the offers are available for a limited time. Id. ¶ 24, e.g., Ex. C ("Failure to respond to this letter may cancel the offer for services. "). Mailers often do not include the Companies' names. Id. ¶ 25. Instead, they purport to be from the "Student Loan Department" or the "Student Loan Payment Reduction Dept." Id. Mailers include a toll-free phone number where consumers can reach Defendants. Id. ¶ 26. The recorded message that consumers hear while waiting to be connected to a sales agent has stated: "You have reached the program enrollment department," and "[T]o speak with an account specialist regarding an important notice you've received, please stay on the line." Id.
Defendants advise consumers that their new monthly payment amount will apply for 10 or 20 years, after which time their remaining loan balances will be forgiven. Id. ¶ 27. Defendants also advise consumers that they will save a specific amount of money, usually in the thousands of dollars. Id. According to the FTC, any representation that Defendants are able to procure a permanent reduction in monthly payments is false or unsubstantiated because IDR programs do not guarantee a fixed payment amount for more than one year. Id. ¶ 31. Further, given that IDR payments fluctuate over time based on income, any representation as to the specific amount that consumers will save is misleading. Id.
It is further alleged that Defendants make false or unsubstantiated representations to consumers about their eligibility for IDR programs based on inaccurate family size and income information. Id. ¶ 28. For example, Defendants counsel consumers to inflate their family size on the IDR application. Id. In a recorded call, one sales representative stated:
Now, support includes any kind of money - gifts, loans, housing, food, clothing, car, medical or dental, payment of college costs. Do you help anybody - if you have somebody on your cell phone plan; if you have somebody on your gym membership, they're considered part of your family. And we just had Christmas. You know, if you bought presents, clothes, watch, earrings, toilet paper, they're a part of your family.
Id. In reality, however, "family size" is determined "by counting the borrower, the borrower's spouse, and the borrower's children ... if the children receive more than half their support from the borrower." Id. ¶ 29 (quoting 34 C.F.R. § 682.215(a)(3) ). It may also include "other individuals if, at the time the borrower certifies family size, the other individuals - (i) Live with the borrower; and (ii) Receive more than half their support from the borrower and will continue to receive this support from the borrower for the year the borrower certifies family size." Id. (quoting 34 C.F.R. § 682.215(a)(3) ). As a result, consumers may be enrolled in programs for which they do not qualify. Id. ¶ 30.
After consumers agree to enroll in a program and turn over their payment information, Defendants email a link to a lengthy contract that consumers are required to sign electronically. Id. ¶ 32. As consumers remain on the phone, Defendants pressure them to quickly click through the documents and electronically sign multiple pages. Id. In some instances, Defendants represent that the consumer not need read the agreement carefully because the information contained in the contract was already discussed in the call. Id. At...
To continue reading
Request your trial
-
United States v. MyLife.com, Inc., Case No. 2:20-cv-6692-JFW (PDx)
...were aware"); see also FTC v. Publishers Bus. Servs., Inc. , 540 F. App'x 555, 558 (9th Cir. 2013) ; FTC v. Am. Fin. Benefits Ctr. , 324 F. Supp. 3d 1067, 1080–81 (N.D. Cal. 2018) ; FTC v. Wellness Support Network, Inc. , No. C-10-04879 JCS, 2011 WL 1303419, at *10 (N.D. Cal. Apr. 4, 2011) ......