First FTC Impersonation Rule case: Why it matters to 43 million consumers – and to your business

In finalizing the Trade Regulation Rule on Impersonation of Government and Businesses earlier this year, the FTC said, “This rule banning government and business impersonation will allow us to more vigorously and effectively protect Americans from fraudsters.” The Impersonation Rule enforcement effort on behalf of America’s consumers starts here and now with an action against purported student loan debt relief outfit Prosperity Benefit Services and related companies and individuals that have allegedly taken consumers for more than $20 million by falsely promising debt relief and faking an affiliation with the U.S. Department of Education. Here’s what your business needs to know about the new Rule – and what the FTC is doing to protect consumers from deceptive student loan debt relief claims.

According to the lawsuit, the defendants behind the operation have sent mailers using urgent phrases like “FINAL NOTICE” and “Time Sensitive” to catch the eye of the millions of Americans struggling with student loan debt, often making promises about “complete loan forgiveness.” When consumers call the number on the mailers, the defendants’ telemarketers amp up the hard sell. The FTC says consumers are told that by paying for the defendants’ services, they would get guaranteed loan forgiveness, they would be enrolled in a repayment program that would substantially reduce their loan payments, and the defendants would assume responsibility for servicing their loans. To add false frosting on the already deceptive cake, the defendants have claimed to have an affiliation with the federal government – specifically the Department of Education.

You’ll want to read the complaint for details about the defendants’ alleged business practices, but here’s the short version of what the FTC says is going on behind the scenes. As part of the enrollment process, the defendants tell consumers to log into their Federal Student Aid (FSA) accounts, download their data, and email it to the defendants, along with their Social Security numbers and income information. That meant the defendants had access to highly sensitive financial information about each person.

The next step in the scheme: the defendants email consumers an electronic contract with a payment authorization form that allows the defendants to dip into their bank accounts and access their debit cards. Once in possession of consumers’ financial data – but before securing the promised debt relief – the defendants help themselves to six “initial” monthly payments of approximately $290, sometimes followed by additional monthly dips into consumers’ accounts. According to the FTC, the defendants often mislead consumers into believing most of those payments are going toward paying off their student loan debt or otherwise securing loan forgiveness. But in many cases, the FTC says the defendants simply take the money without delivering on the promise of debt relief – in other words, no repayment renegotiation, no reduction in what people owe, and no relief for many people already struggling financially.

Filed in federal court in California, the five-count complaint alleges violations of the FTC Act, the Telemarketing Sales Rule, the Gramm-Leach-Bliley Act, and the new Impersonation Rule. The lawsuit names a network of related companies and individuals, including Panda Benefit Services, Clarity Support Services, Pacific Quest Services, Prosperity Loan Services, Public Processing Services, Quick Start Services, Select Student Services, Signature Processing Services, Eduardo Martinez, Emiliano Salinas, Christopher Hanson, and Melissa Salinas.

At the FTC’s request, the court has temporarily halted the operation and frozen assets. Even at this preliminary stage, the case stands for key FTC principles all businesses and consumers should care about.

The FTC places a high priority on actions against companies that allegedly exploit consumers struggling with student loan debt. With more than 43 million borrowers owing over $1.7 trillion, roughly one in ten Americans have defaulted on a student loan and nearly a quarter of borrowers default within their first five years of repayment. That means people you know – including family members, friends, and colleagues at work – are struggling to make their payments and would benefit from helpful advice about addressing debt. In addition to sharing FTC resources about protecting themselves from deceptive practices, suggest they visit StudentAid.gov/repay for free help managing their federal loans. For private loans, they should go straight to their loan servicer. Scam Prevention Tip #1: Never share your FSA ID login information with anyone.

Is it time for a TSR and GLB compliance check? In addition to prohibiting misrepresentations about debt relief, the Telemarketing Sales Rule makes it illegal to collect advance fees for debt relief services. Period. Reread the TSR to make sure your practices are compliant. Furthermore, the Gramm-Leach-Bliley Act protects consumers’ financial privacy by making it illegal to make false statements to consumers to get their “customer information of a financial institution” – for example, credit or debit card numbers, bank account numbers, and routing numbers. Violations of the TSR and GLB can result in substantial civil penalties.

The FTC means business when it comes to Impersonation Rule enforcement. Reported losses to impersonation scams topped $1.1 billion in 2023 and as of April 1, 2024 – the effective enforcement date of the Impersonation Rule – the FTC has additional tools in the fight against this form of deception. Business should celebrate this development because the Rule doesn’t just to prohibit false claims of a government affiliation. It also makes it illegal to misrepresent an “affiliation with, including endorsement or sponsorship by” a business – a provision that addresses those scammers who use your company name to rip off consumers.