His companies allegedly cost borrowers $28 million in four years
In the summer of 2017, Beverly Sills, a Memphis, Tennessee Veterans Affairs Hospital employee, discovered she hadn’t made a payment on her student loans since December 2015, despite sending roughly $3,000 during that period to Ameritech, a company she believed was managing her debt, according to court documents.
About a year earlier, Craig Davis, of Erie Pennsylvania received a call from his bank reporting a bounced transaction. He discovered Ameritech had withdrawn $207 from his account a few weeks after a rushed conversation with a company representative who convinced him to electronically sign several documents based on the belief they would help reduce his student debt, according to court papers.
Meanwhile, Brandon Frere, the chief executive of Ameritech and two other companies engaged in the student debt relief business, was allegedly training his representatives to push customers to exaggerate their family size in the hopes of receiving more favorable student loan terms, a criminal complaint filed against him last week alleges.
Frere also allegedly attempted to withdraw money held in escrow by customers, transfer millions of dollars of the company’s money into his own accounts and spend hundreds of thousands of dollars of company money on travel, cars and other items, according to the complaint. All in all, prosecutors estimate Frere’s companies collected $28 million from student loan borrowers seeking relief over the course of four years. In some cases, borrowers never got the help they were seeking. In others, their balances grew during the time they were paying Frere’s companies, according to the Federal Trade Commission.
The FBI arrested Frere last week at San Francisco International Airport. He was on his way to Cancun, Mexico with $3,900 in cash, five blank checks from his businesses, two blank checks from his personal account, his Social Security card and 10 credit cards and gift cards, among other items, according to a memo filed by the FBI in support of detaining him.
On the same day Frere booked his ticket to Cancun, but a few days before he left, he withdrew $400,000 from accounts associated with the companies, according to the FBI memo. Of that, $179,000 was transferred to his personal account and the rest went to lawyers and family members, the FBI said. He was released from jail on a $3 million bail Monday, according to a local news report.
A few days before Frere attempted to leave for Mexico, a judge granted a motion for preliminary injunction filed by the Federal Trade Commission in a lawsuit the agency brought against Frere’s companies earlier this year. Frere’s companies were placed into a receivership — a situation similar to a bankruptcy where an outside entity manages a company’s finances.
One of the attorneys representing Ameritech and its associated companies in the FTC case declined to comment on pending litigation. One of the attorneys representing Frere in the criminal case didn’t immediately respond to a request for comment, but according to the Press-Democrat, a northern California news outlet, he argued in court that there was nothing untoward about Frere’s money transfers and that he was acting in good faith as the FTC’s case proceeded,
Though the circumstances of Frere’s arrest are exceptional, the scheme he and his companies allegedly perpetrated aren’t uncommon. Student loan scams, like the one described in the criminal complaint against Frere and the suit filed by the FTC, have proliferated over the past several years, as student debt continues to climb.
The FTC and some state attorneys general have worked to crack down on these companies, which often prey on struggling borrowers confused about their options. Though those efforts have managed to put many of these companies out of business, the industry continues to flourish, said Persis Yu, the director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.
“It really is a game of whack-a-mole,” Yu said.
In the case of Ameritech and Frere’s other companies, prosecutors and the FTC allege, they lured borrowers with mailers promising they were “prequalified” for debt-relief. They would allegedly collect advance fees of $600 to $800 to prepare and submit documents for borrowers interested in government repayment and forgiveness programs — something they can do for free, according to court documents.
The companies would also charge borrowers monthly fees ranging from $49 to $99 for a financial education membership program and often weren’t transparent about the fee structure, prosecutors and the FTC claim. In some cases, company representatives conflated borrowers’ student loan payments and the fees they would be charged by the companies, according to court documents.
The sheer magnitude of outstanding student debt — $1.5 trillion held by 44 million people — has created a population ripe for abuse by bad actors, Yu said. What’s more, the slew of options available to borrowers and the challenges they often face getting the information they need from their servicers, often means borrowers wind up drawn to scammers offering to help them reduce their payments.
For borrowers looking to avoid these types of scams, Yu advises they make sure they know who their servicer is. That way, borrowers can tell the difference between legitimate communications regarding their student loans and scams. “They’re definitely taking advantage of the fact that folks don’t who they should be communicating with,” she said.
“Hopefully this will have some kind of chilling effect,” Yu said of Frere’s case. “But we have to make sure that borrowers will have the help they need without going to scam artists.”
MarketWatch – Dec 11, 2018