FILED 16 JUL 26 PM 1:54 KING COUNTY SUPERIOR COURT CLERK E-FILED CASE NUMBER: 16-2-17718-2 SEA 1 2 3 4 5 6 7 STATE OF WASHINGTON KING COUNTY SUPERIOR COURT 8 9 STATE OF WASHINGTON, Plaintiff, 10 11 NO. COMPLAINT V. D.O.R.M GROUP INC. d/b/a 12 STUDENT LOAN SERVICE MANAGERS, NATIONAL SECURE 13 PROCESSING and SLS MANAGERS, 14 Defendant. 15 I. PLAINTIFF 16 1.1 The Plaintiff is the State of Washington. 17 1.2 The Attorney General is authorized to commence this action pursuant to 18 RCW 19.86.080, RCW 19.86.140, and RCW 18.28.200. The Attorney General brings this 19 action to address practices that violate the Consumer Protection Act and the Debt Adjusting 20 Act, including Defendant's charging of fees for debt adjusting that are well in excess of those 21 allowed under Washington law, failure to make required disclosures, false advertising, and 22 failure to deliver services it promised to Washington consumers. 23 24 II. DEFENDANT 2.1 Defendant D.O.R.M. Group, Inc., which does business as Student Loan Service 25 Managers, SLS Managers, and National Secure Processing ("Defendant") is a .California 26 company headquartered at 23172 Plaza Pointe Drive #138, Laguna Hills, California 92653. COMPLAINT - 1 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206) 464-7745 1 Defendant provides, or purports to provide, counseling, advice, management and assistance to 2 student loan borrowers applying ' for U.S. Department of Education federal student loan 3 repayment programs, including Direct Consolidation Loans and the Income-Based Repayment 4 Plana 5 6 7 8 9 III. JURISDICTION 3.1 The State files this complaint and institutes these proceedings under the provisions of the Consumer Protection Act, RCW 19.86. 3.2 The Defendant has engaged in the conduct set forth in this complaint in King County and elsewhere in the state of Washington. 10 11 IV. VENUE 4.1 Venue is proper in King County pursuant to RCW 4.12.020 and 4.12.025, and 12 Court Rule 82 because Defendant transacts business in King County — to wit: entering into 13 contracts with consumers located in King County. 14 V. FACTS 15 Federal Student Loan Repayment Programs 16 5.1 The U.S. Department of Education offers numerous repayment plans to eligible 17 borrowers with federal student loans, all which are designed to help borrowers manage their 18 student loan debt and/or make repayment of student loans more affordable. These plans include 19 its Graduated Repayment Plan, Income-Based Repayment Plan, and Pay As You Earn 20 Repayment Plan. The amount the borrower will pay and the repayment term can vary 21 22 depending on the repayment plan in which the borrower enrolls. 5.2 To access certain repayment plans, some borrowers will first combine their 23 multiple eligible federal student loans into a single Direct Consolidation Loan. Eligible 24 borrowers can apply electronically for a Direct Consolidation Loan through the U.S. 25 Department of Education's website at www.StudentLoans.gov or by mailing a completed 26 paper application to the U.S. Department of Education. COMPLAINT - 2 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 5.3 The process of federal student loan consolidation also involves paying off 2 multiple existing student loans — i.e., liquidating them — and replacing them with a new, single 3 federal student loan. This process may be used by borrowers to manage indebtedness, and is 4 available as a tool for defaulted federal student loan borrowers to become current on their loans 5 and escape default. 6 5.4 The U.S. Department of Education does not charge borrowers any fee to apply 7 for a Direct Consolidation Loan or any U.S. Department of Education repayment plan or 8 program. Additionally, its website includes numerous self-help materials and FAQs for use by 9 individual borrowers during the consolidation process. 10 5.5 Significant help with federal consolidation and other programs is available for 11 free. First, the government provides instructions for consumers looking to consolidate their 12 federal student loans and/or apply for an. income-driven repayment plan.' Borrowers with 13 questions can call 1-800-557-7392. Second, non-profit organizations such as the National 14 Consumer Law Center's Student Loan Borrower Assistance program also provide helpful 15 information and may also assist borrowers directly.2 Defendant's Debt Adjustment Services 16 17 5.6 Defendant has marketed and advertised for-cost services to advise and assist 18 student loan borrowers applying for U.S. Department of Education federal student loan 19 repayment programs, including the Income-Based Repayment Program, Direct Consolidation 20 21 Loans, and Loan Forgiveness. 5.7 Defendant operates a website to advertise its student loan adjustment services. 3 22 On its website, Defendant describes itself as a "guide" to consumers "financial freedom," who 23 t See hops://studentaid.ed.;;ov/sa/repay-loans/consolidation (last visited April 13, 2016); hqs://studentloans. o~yDirectLoan/whatYouNeed.action?page=ibr (last visited April 13, 2016). 24 25 26 2 See hM://www.studentloanborrowerassistance.or?/ (last visited April 13, 2016). 3 See h—q://www.slsmanagers.com/ (last visited April 13, 2016). COMPLAINT - 3 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206) 464-7745 1 will create "road map that's right for you," "lower your monthly payments or even qualify 2 3 4 5 [you] for loan forgiveness." 5.8 Defendant's "road maps" includes what it describes as "its" "Loan Forgiveness," "Income Based," "Fresh Start," and "Fixed Term" programs. 5.9 Defendant indicates that its "Income Based" program will "not only lower your 6 monthly payments instantly," but "also offer hardship assistance and a shorter term including 7 loan forgiveness, which you pay back within a time frame as low as ten years." 8 5.10 Defendant indicates that its "Fresh Start" program will assist borrowers who 9 "have fallen subject to default, wage garnishment and tax garnishment" in "getting back into a 10 positive status, fix their credit and qualify to go back to school in as little as 90 days." 11 5.11 Defendant's website also promotes its loan consolidation services, which it 12 explains will allow consumers to turn "several student loans into one bigger loan from a single 13 lender which is then used to pay off the balances on the other loans." 14 5.12 Defendant's website encourages consumers to call to "speak with a Loan 15 Manager" who will "from the start of your consolidation to your last payment" "guide you to 16 your financial freedom." 17 5.13 Upon information and belief, in exchange for a fee, Defendant counseled 18 Washington student loan borrowers regarding Federal loan repayment, consolidation, and 19 forgiveness programs, compiled borrowers' applications for such programs, and enrolled 20 21 borrowers in these programs. 5.14 Upon information and belief, Defendant collected all or part of its fee from each 22 of its Washington clients before those clients' federal student loans were consolidated, and j 23 24 25 before those clients' loans were enrolled into an alternative repayment plan. VI. COUNT I — VIOLATION OF WASHINGTON DEBT ADJUSTING ACT 6.1 The State incorporates Paragraphs 1.1 through 5.14 herein as if set forth in their 26 entirety. COMPLAINT - 4 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 RCW 18.28.010(2) provides that "` [d]ebt adjusting' means the managing, 6.2 2 counseling, settling, adjusting, prorating, or liquidating of the indebtedness of a debtor, or 3 receiving funds for the purpose of distributing said funds among creditors in payment or partial 4 payment of obligations of a debtor." The term "debt adjuster" is defined to include "any person 5 known as a debt pooler, debt manager, debt consolidator, debt prorater, or credit counselor, is any 6 person engaging in or holding himself or herself out as engaging in the business of debt adjusting 7 for compensation." RCW 18.28.010(1). 8 Upon information and belief, Defendant has liquidated the student loan debts of its 6.3 9 Washington clients by replacing their multiple federal student loans with a single consolidation 10 11 loan through the U.S. Department of Education. Upon information and belief, Defendant has managed the student loan debts of 6.4 12 Washington consumers by consolidating their loans and enrolling them in income-based 13 repayment programs, thereby altering their monthly loan payments, interest rates, and principle 14 balances. 15 Upon information and belief, Defendant counseled student loan borrowers by 6.5 16 identifying appropriate Department of Education loan repayment, consolidation, and forgiveness 17 programs for consumers' needs. 18 6.6 19 maintaining Defendant held itself out as engaged in the business of debt adjusting by a website which advertises its "Loan Mangers" creation of a "road map" for 20 consumers to manage their student loans and its promotion of its assistance in student loan 21 consolidation, repayment, and forgiveness. 22 6.7 Defendant is, therefore a "debt adjuster" as defined by the DAA. 23 6.8 The DAA places strict limits on the fees that a debt adjuster may charge for its 24 services. First, RCW 18.28.080(1) provides that "[t]he debt adjuster may make an initial charge 25 of up to twenty-five dollars which shall be considered part of the total fee." 26 COMPLAINT - 5 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 2 6.9 Upon information and belief, Defendant has entered contracts with Washington consumers with initial fees well in excess of $25. 3 6.10 RCW 18.28.080(1) also provides that "the fee retained by the debt adjuster from 4 any one payment made by or on behalf of the debtor may not exceed fifteen percent of the 5 payment not including fair share contributions to a nonprofit debt adjuster." 6 7 8 9 10 6.11 Upon information and belief, Defendant has retained more than 15% of payments made to student loan lenders on its customers' behalf. 6.12 The DAA includes strict consequences for those who violate the fee limitations. RCW 18.28.090 provides 12 [i]f a debt adjuster contracts for, receives or makes any charge in excess of the maximums permitted by this chapter, except as the result of an accidental and bona fide error, the debt adjuster's contract with the debtor shall be void and the debt adjuster shall return to the debtor the amount of all payments received from the debtor or on the debtor's behalf and not distributed to creditors. 13 6.13 As such, the State seeks a declaration that each and every contract between 14 Defendant and its Washington customers is void, and an order directing Defendant to return all 15 payments made to it by Washington consumers. 11 16 6.14 In addition to violating the fee limitations explained above, Defendant also failed 17 to comply with the requirements of RCW 18.28.100 that contracts between debt adjusters and 18 consumers contain notices that consumers should read the contract, that they are entitled to a copy 19 of the contract, and that the consumer has the right to cancel the contract within three days. RCW 20 18.28.100. 21 6.15 By leaving these important consumer notifications out of its contracts, Defendant 22 violated the Debt Adjusting Act and also prevented its customers from making informed decisions 23 regarding the services offered by defendant. 24 6.16 RCW 18.28.200 provides that "[n]otwithstanding any other actions which may be 25 brought under the laws of this state, the attorney general or the prosecuting attorney of any county 26 within the state may bring an action in the name of the state against any person to restrain and COMPLAINT - 6 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 prevent any violation of this chapter." Consequently, the State seeks an injunction prohibiting 2 Defendant from entering into or collecting fees on contracts with Washington consumers that 3 violate RCW 18.28. 4 VII. COUNT H — VIOLATION OF WASHINGTON CONSUMER PROTECTION ACT (Per se violation through the Debt Adjusting Act) 5 6 7.1 The State incorporates Paragraphs 1.1 through 6.16 herein as if set forth in their 7 entirety. 8 7.2 RCW 18.28.185 provides that "[a] violation of this chapter constitutes an unfair or 9 deceptive act or practice in the conduct of trade or commerce under chapter 19.86 RCW." As a 10 result, each of the acts or practices set forth above that violate the DAA are also violations of 11 RCW 19.86.020. 12 7.3 Defendant's acts or practices also took place in trade or commerce because they 13 advertised their services to, entered into consumer contracts with, and received fees from, 14 15 Washington residents. 7.4 Upon information and belief, Defendant contracted with and collected illegal fees 16 from numerous Washington consumers, advertised to additional Washington consumers in the 17 manner described above, and the acts and practices herein were undertaken as part of their regular 18 business practices. In addition, unless restrained, these acts have a substantial potential for 19 repetition and to injure additional Washington consumers. Defendant's acts or practices affect the 20 public interest. 21 22 23 7.5 The State requests that the Court declare the acts and practices described above are unfair or deceptive under RCW 19.86.020, and violate the CPA. 7.6 RCW 19.86.080(1) provides in relevant part that "[t]he attorney general may bring 24 an action in the name of the state, or as parens patriae on behalf of persons residing in the state, 25 against any person to restrain and prevent the doing of any act herein prohibited or declared to be 26 COMPLAINT - 7 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 unlawful." Accordingly, the State requests that the Court enjoin Defendant from entering into 2 contracts with Washington consumers without strictly complying with RCW 18.28. 7.7 3 RCW 19.86.080(2) provides that "[t]he court may make such additional orders or 4 judgments as may be necessary to restore to any person in interest any moneys or property, real or 5 personal, which may have been acquired by means of any act herein prohibited or declared to be 6 unlawful." Accordingly, the State requests that the Court issue an order requiring Defendant to 7 return to Washington consumers all sums obtained in violation of the DAA and the CPA, or 8 pursuant to void contracts. 7.8 9 RCW 19.86.140 provides "Every person who violates RCW 19.86.020 shall 10 forfeit and pay a civil penalty of not more than two thousand dollars for each violation." 11 Accordingly, the State requests that the Court impose a penalty of $2,000 per violation of the 12 CPA. 13 VIII. COUNT III — ALTERNATIVE VIOLATION OF THE CONSUMER PROTECTION ACT 14 15 16 (Deceptive Advertising and Systematic Failure to Perform Contractual Services) 8.1 The State incorporates Paragraphs 1.1 through 7.8 herein as if set forth in their. 17 entirety. 18 19 8.2 Notwithstanding its violations of the DAA and per se violations of the CPA, if Defendant did not act as a debt adjustor by liquidating, managing, or counseling consumers with 20 respect to their student loans, then Defendant has engaged in false advertising and systematic 21 failure to deliver the services it promised to Washington consumers and, therefore, has engaged in 22 unfair and deceptive conduct in violation of the CPA. 23 24 8.3 For example, Defendant's website represents that it offers student loan liquidation through consolidation of consumers' loans. If Defendant does not, in fact, assist consumers in 25 consolidating their loans, then it has engaged in false advertisement and systematic failure to 26 1 deliver the services it promised to Washington consumers. COMPLAINT - 8 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 1 8.4 Further, Defendant's website represents that it offers debt management and 2 counseling services through identifying income-based repayment plans, loan consolidation, and 3 debt forgiveness programs that will enable consumers to better manage their student loan debts. If 4 Defendant does not, in fact, offer debt management services then it has engaged in false 5 6 7 advertisement and systematic failure to deliver the services it promised to Washington consumers. 8.5 A business's practice of misrepresenting its services in advertisements, including on its website, is a deceptive act or practice. Such misrepresentations have the capacity to deceive 8 a substantial portion of the public because they are made publicly, and may lead potential 9 customers to misunderstand the service that they will receive if they become a client of 10 Defendant. Similarly, misrepresentations in the parties' contracts themselves about the nature of 11 services to be provided are also deceptive, and have the capacity to deceive a substantial portion 12 of the public because they are made to each and every one of Defendants' Washington clients. 13 14 15 16 17 8.6 A business's practice of systematically failing to deliver the goods or services it advertises or contracts to perform is an unfair act or practice. 8.7 Defendants' unfair or deceptive acts or practices were conducted in trade or commerce because they relate to the sale of Defendants' services. 8.8 Defendants' unfair or deceptive acts or practices affect the public interest because 18 they were distributed widely through advertisements, and numerous Washington consumers 19 20 engaged Defendants' services. 8.9 The State therefore seeks (1) a declaration that Defendant's acts or practices 21 described above are unfair or deceptive, in violation from RCW 19.86.020; (2) an injunction 22 prohibiting Defendant from engaging in these unfair or deceptive acts or practices; (3) a civil 23 penalty of $2,000 for each unfair or deceptive act or practice; and (4) the State's costs and 24 reasonable attorney's fees incurred in bringing this action. IX. PRAYER FOR RELIEF 25 26 Wherefore, the State prays for the following relief: COMPLAINT - 9 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206) 464-7745 9.1 1 2 A declaration that each and every contract between Defendant and Washington consumers is void, pursuant to RCW 18.28.090; 9.2 3 An order requiring Defendant to return to Washington consumers all funds 4 received from the consumers which were not forwarded on to the consumers' creditor(s), pursuant 5 to RCW 18.28.090; 6 9.3 An injunction against Defendant prohibiting it from entering into contracts that 7 require payments in excess of those allowed under RCW 18.28.080(1) or which violate any other 8 provision of the Debt Adjusting Act, RCW 18.28, pursuant to RCW 18.28.200; 9.4 9 A declaration that Defendant's acts described above are unfair or deceptive acts or 10 practices in trade or commerce, affecting the public interest, and in violation of the Consumer 11 Protection Act, RCW 19.86; 9.5 12 An injunction preventing Defendant or anyone acting in concert with them from 13 violating the Debt Adjusting Act and the Consumer Protection Act in the manner described above, 14 pursuant to RCW 19.86.080(1); 9.6 15 An order necessary to restore to any person an interest in any moneys or property, 16 real or personal, which may have been acquired by means of an act prohibited by the Consumer 17 Protection Act, pursuant to RCW 19.86.080(2); 9.7 18 19 of Washington's Consumer Protection Act, pursuant to RCW 19.86.140; 9.8 20 21 An award of a civil penalty in the amount of $2,000 for each and every violation An award of the State's reasonable costs and attorney's fees incurred in this action, pursuant to RCW 19.86.080(1); and 22 // 23 24 25 // 26 COMPLAINT - 10 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745 Any other award the Court determines is just and equitable. 1 9.9 2 DATED this 2— 6 day of July, 2016. ROBERT W. FERGUSON Attorney General 3 4 5 J"ELSON, WSBA #45724 BENJAMIN J. ROESCH, WSBA #39960 Assistant Attorneys General Attorneys for Plaintiff, State of Washington 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 COMPLAINT - 11 ATTORNEY GENERAL OF WASHINGTON Consumer Protection Division 800 Fifth Avenue, Suite 2000 Seattle, WA 98104-3188 (206)464-7745