Predator Loan Company to be Sued by New York City
You are at a baseball game, arms loaded up with bags of peanuts, sodas, hot dogs and maybe a couple of beers. While you are fumbling with your tickets and juggling your All-American snacks, a person approaches you and asks if you want to get a free towel or blanket with the home team on it.
With fall fast approaching, the weather has cooled off considerably and a blanket would be perfect to throw over your legs to keep warm and a great addition to your sports gear. If you are interested, it is easy to get one - you just have to sign up for a credit card.
It's a ploy that many companies use to get you to buy into their brand, but it's also a marketing tool that is starting to get student loan companies in trouble.
The Deceptive Practices of Student Loan Companies
According to The New York Times, the attorney general of New York is planning to launch a lawsuit against Goal Financial, a student loan company.
The company is being charged for breaking state and federal laws by enticing consumers to choose their products with iPods, cash and other incentives, which mislead borrowers on the terms and benefits of the loan.
Student Marketmeasure, a company that tracks the industry, reported that by 2006, Goal Financial was one of the top 10 companies in loan consolidation in the U.S. With loan consolidation, borrowers are able to combine several federal loans. According to the report, Goal Financial made 111,426 loans in 2006 for $2,494,856,673.
In 2007, New York Attorney General Andrew M. Cuomo started investigating the student loan industry, discovering some troubling facts about the business. A senior official in the office, who could not be identified because of the investigation and pending lawsuit, told The New York Times that besides dealing with the lawsuit, Goal Financial is in the process of closing agreements with other loan companies on what marketing tactics are appropriate. The official added that Goal Financial is being sued because it has not being willing to change its practices.
In July, the attorney general's office sent a letter to Goal Financial to tell the company that the office was planning to sue them and outlining the problems with the company's marketing tactics. The New York Times reported that the practices the attorney general didn't approve of included gifts to tempt borrowers, incentives for students who convinced classmates to apply, and deceptive advertising.
The letter also addressed eStudentLoan.com, a Goal Financial subsidiary. The tool helps students choose the loan that is best for them; however, the site does not say anything about being a part of Goal Financial or that loans from other lenders on the site were included after paying a commission to the company.
According to The New York Times, Goal Financial did not return any phone calls and their lawyer, Lewis Rose, refused to comment. The company has published a statement on their Web site saying that they are no longer accepting applications for new loans because of the recently passed College Cost Reeducation and Access Act of 2007. It informs customers who are still in the repayment process that this decisions does not affect their status and payments should still be made according to plan.
The Model Code of Conduct
In 2007, the attorney general's office completed a similar investigation on the link between student loan companies and college financial aid offices. The loan companies were sending gifts to college aid officials to encourage them to steer students to particular lenders. Some of the nation's largest lenders ended up signing a code of conduct, which was later adopted by New York and Washington lawmakers.
As of Tuesday, September 9, The New York Times reported that seven student loan companies
agreed to follow a code of conduct with their marketing.
The companies that agreed to invest $1.4 million into a fund set aside to educate students and families about financial aid were Campus Door, EduCap, GMAC Bank, Graduate Loan Associates, Nelnet, NextStudent and Xanthus Financial Services. Although the attorney general's office did not find fault with My Rich Uncle's marketing, the company also agreed to the code.
The code is an expansion on the agreement that was reached with Student Financial Services after the attorney general's office found that the companies were giving kickbacks to colleges and athletic departments who were encouraging students to fill out loan applications and putting college logos on loan forms.
The new code will ban loan companies from using logos and return addresses that look like the ones the federal government uses. It will also ban companies from sending false checks and rebate offers, giving out free gifts, making misleading statements about term and benefits, and giving examples of loan costs that are only available to only a few borrowers.
The companies that have signed the agreement have sent solicitations to students that were designed to look like they came from the government, advertised interest rates not available to most borrowers or offered prizes to lure students. The attorney general's office is hoping that more companies will agree to the marketing code of conduct.
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