The “law” of averages: FTC challenges SoFi’s student loan refinancing claims

Imagine a baseball scout is taking a look at a prospect. On paper, the slugger’s batting average seems impressive. But now imagine that, unbeknownst to the scout, those stats left out all the times the batter struck out. It’s an unrealistic hypothetical, of course, but it illustrates the principle that in compiling averages, removing certain categories of data can skew the results. The FTC’s action against California-based SoFi for allegedly deceptive claims about student loan refinancing makes a similar point.

According to the FTC, SoFi’s ads claimed that consumers who refinance their student loans with the company save, on average, large amounts of money over the life of the loan or each month. Here are just a few examples: “Refinancing student loans saves $22,359 on average,” “Saving our members on average of $316/month,” or “Start saving on your student loans. Average monthly savings: $292.”

But the FTC says that SoFi inflated those eye-catching averages by selectively excluding large categories of consumers from the total. The upshot: advertising claims that overstated the results consumers had received, sometimes even doubling the actual savings.

What did SoFi leave out? When touting lifetime savings, for example, the company excluded from its averages anyone whose loans had a longer term than the previous student loans they refinanced. Most of those people actually pay more money – thousands of dollars, on average – over the life of their new SoFi loan.

The FTC says in some instances, SoFi’s purported explanation of its pick-and-choose approach to “average savings” was included in dense blocks of hard-to-find fine print. One direct mail piece included this prominent claim on the first page: “How much can you save? SoFi customers average over $18,936^ in savings during the lifetime of their loan by refinancing. That’s cash in your pocket – available for investing, vacations, buying a home, whatever.”

But here’s what it said in a dense block of text at the bottom of the back page, buried beneath descriptions of the FAQs, terms and conditions, and the Fair Credit Reporting Act’s prescreen opt-out notices:

Translation: People, on average, didn’t really save the lifetime amount trumpeted on the front page because in calculating the so-called “average,” SoFi excluded refinancings in which the consumers chose loans longer than their existing loans – refinancings that would reduce the “average savings” SoFi advertised. (You’ll want to read the complaint for other examples, including online ads the FTC says buried similar information behind obscure hyperlinks.)

According to the complaint, consumers also were misled about their potential savings in SoFi’s “Find My Rate” feature on its webpage. To prequalify for a loan, consumers had to input a substantial amount of personal information. SoFi then directed them to a page that showed available loan options and their estimated individual savings for each. But for some options, consumers seeking a loan would actually pay more money over the life of the loan or per month. In those cases, rather than configuring the tool to tell consumers just how much more would be coming out of their pocket, Sofi simply listed the lifetime or monthly savings as “$0.00.”

The complaint charges SoFi with making false or misleading claims about how much people save by refinancing their student loans. To settle the case, the company has agreed to a proposed order that prohibits misrepresentations about what consumers have saved or will save over the life of a loan or on a monthly or other basis. If SoFi makes that kind of claim, the order also prohibits any other material misrepresentation. Those provisions apply not just to student loan refinancing, but to any credit product Sofi offers. The FTC is accepting public comments about the proposed order until November 28, 2018.

What does the case suggest for other companies?

When it comes to student loan refinancing claims, truth is not an elective. For many American families, the burden of student loan debt is the source of substantial tossing and turning. For companies that claim to offer relief, their ads, websites, and other promotional materials must meet the FTC’s established truth-in-advertising standards.

Don’t fidget with the digits when touting “average” savings. Selectively excluding relevant data may render ad claims about averages deceptive. Purported “explanations” about methodology – especially when they’re hard to find and even harder to understand – run the risk of confusing consumers even more.

Don’t depend on fine-print footnotes and obscure hyperlinks to cure deception. Burying material information in dense blocks of text or requiring consumers to hunt for facts hidden behind links are practices the FTC’s .com Disclosures publication cautions against. It’s also a risky strategy to highlight an ad claim up front and then put key limitations or conditions elsewhere in the promotional piece. .com Disclosures doesn’t mince words: “The closer the disclosure is to the claim to which it relates, the better.”