Student Financial Aid Services Inc. (SFAS), known for operating the website FAFSA.com, has been charged with illegally billing students and families millions of dollars in unauthorized service fees.
The Consumer Financial Protection Bureau (CFPB) filed a complaint with a federal court in California on Thursday, claiming that company engaged in “deceptive telemarketing acts,” as well as “initiating recurring, preauthorized electronic fund transfers from consumers’ accounts without the required written authorization.”
Student Financial Aid Services until recently operated FAFSA.com as well as related call centers offering fee-based assistance to consumers filling out the federal government’s Free Application for Federal Student Aid.
According to CFPB’s complaint, when consumers entered their payment information for certain financial advisory services on FAFSA.com, they were unknowingly charged for an annual subscription to the site, costing between $67 to $85. The subscription was automatically renewed each year even if no assistance was requested.
Users were told that these plans were available to them for “no additional cost,” when really they were being placed in what the site calls “negative option” renewal subscription plans that continued to charge the credit card or bank account on file for up to four years, unless the subscriber specifically told the company to halt the subscription.
The company was also charged with engaging in deceptive telemarketing practices.
CFPB proposed a $5.2 million settlement that will be used to repay the 100,000+ consumers who were illegally charged for the unauthorized service fees.
“Student Financial Aid Services, Inc. made millions of dollars at the expense of consumers through its illegal recurring payment scheme,” said CFPB Director Richard Cordray. “Our enforcement action will put money back in the pockets of consumers who were misled while seeking to access federal student aid.”
In a statement released on Thursday, SFAS said it settled with CFPB in order to avoid protracted litigation, but claims it "did nothing illegal or wrong."
On July 13, the company announced that it would transfer the website over to the U.S. Department of Education. When users visit FAFSA.com they can now choose to be redirected to either the Department of Education site or the SFAS site.
“Students and families applying for federal student aid shouldn’t have any confusion about whether they’re on the official FAFSA website or a commercial website,” said United States Secretary of Education Arne Duncan. “This transfer will help provide clarity for parents and students.”