New York Governor Andrew M. Cuomo recently announced the establishment of the Student Protection Unit (SPU) within the state Department of Financial Services (DFS) to serve as a consumer watchdog for student borrowers. Among other things, consumers can file a complaint with the SPU against any lender, servicer, or debt relief company that has allegedly violated consumer financial laws or engaged in abusive practices. In light of this initiative, it is imperative that student debt relief providers—and all companies servicing student loans made to New York residents—ensure that they are in full compliance with both federal and state consumer financial law.

The SPU wasted no time exercising its authority by serving subpoenas on 13 student debt relief providers, which allegedly charged borrowers high enrollment fees for services that were available free of charge through the U.S. Department of Education. The Governor warned that “any company trying to sell students a raw deal using misleading or deceptive practices should know that we’ll continue to work vigilantly to root out consumer abuse.” Among the materials sought in the subpoenas were contracts, consumer disclosures, fee schedules, and marketing materials.

Just recently, the National Consumer Law Center (NCLC) announced the results of its extensive investigation into the student debt relief industry. Among its findings, the NCLC claimed that student debt relief providers consistently mischaracterized government programs as their own, charged high fees for relief programs that are freely provided by the federal government, and are not transparent in disclosing the fees assessed for their services. The SPU has likely reviewed the NCLC report and consequently was aware of what documents to request in the subpoenas.

We anticipate a flurry of activity by the SPU in 2014. Student lending is a clear focus of the DFS, and as we saw in 2013 with the payday lending industry, the agency is extremely aggressive at regulating an industry where it suspects widespread abuse against consumers. It would not surprise us if the investigation into the student debt relief industry culminates with significant monetary and non-monetary penalties against one or more of the providers.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). Our attorneys, including the attorneys who joined us from the New York City litigation firm Stillman & Friedman, P.C., to form Ballard Spahr Stillman & Friedman LLP, have substantial experience in handling litigation with DFS and the New York Attorney General.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, John L. Culhane, Jr. at 215.864.8535 or, Justin Angelo at 212.223.0200 x8012 or, James A. Mitchell at 212.223.0200 x8006 or, or Marjorie J. Peerce at 212.223.0200 x8039 or

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