WASHINGTON — Student Financial Aid Services is facing more than $5.2 million in charges after the Consumer Financial Protection Bureau alleged the company illegally signed up consumers for student financial assistance and proceeded to automatically bill them annually.

The CFPB filed a proposed consent order and complaint in federal court Thursday against the firm alleging that it used one of its websites, FAFSA.com, to lure consumers into a fee-based service in order to get advice on a federal student loan program that has a free application process.

The CFPB claims that Student Financial did not properly disclose that consumers were signing up for a subscription and the fees that would be charged, nor did it get authorization to perform automatic recurring charges. Student Financial has agreed to pay $5.2 million to the CFPB, which will distribute the funds to affected consumers, as well as a $1 (yes, a single dollar) civil money penalty because the company could not afford more. Though the company has agreed to the proposed order without confirming or denying wrongdoing, it has since publically denied the CFPB's allegations.

"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 in a press release. "Our enforcement action will put money back in the pockets of consumers who were misled while seeking to access federal student aid."

Sacramento, Calif.-based Student Financial operates call centers and websites such as FAFSA.com and SFAS.com to offer fee-based assistance for consumers who want to apply for the Federal Student Aid called FAFSA. At the time, the websites were not directly affiliated with that government program but the CFPB said consumers were unknowingly billed for an annual subscription when they signed up for the service and put in their payment information yet did not authorize a transaction. The recurring charges typically ranged from $67 to $85 per year, according to the CFPB.

"Thousands of consumers were victimized by these unlawful practices," the agency said. "The company also failed to explain the amounts and dates of those future charges, or how consumers could avoid those charges."

The CFPB also alleges that Student Financial used misleading ads by telling consumer they could "upgrade" at "no additional cost" for certain service plans.

Following the CFPB's announcement, the company issued a statement firmly denying the charges.

"SFAS did nothing illegal or wrong — and the CFPB provided no evidence to support any of its claims regarding alleged illegal or unethical activity," the company said in an emailed statement. "SFAS settled these unsubstantiated allegations to avoid protracted litigation. SFAS is not aware of a single consumer complaint to the CFPB about its services."

Student Financial announced July 13 that it would transfer its FAFSA.com Internet domain name to the U.S. Department of Education.

"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 the U.S. Secretary of Education Arne Duncan, within the CFPB's press release. "This transfer will help provide clarity for parents and students."

The company's old website now gives visitors the option of either going to the Department of Education's website or the company's other domain page that still offers its fee-based consultant services.

"The company has received overwhelmingly positive feedback that its services have helped secure the financial aid necessary for more than 2.2 million students to pursue the dream of college. The company's commitment to this goal is reflected in its decision to transfer the FAFSA.com domain to the Department of Education after more than a year of collaborative discussions," said Student Financial. "In addition, SFAS has helped tens of thousands of low-income students on a pro bono basis with services that help navigate government applications that are every bit as complicated and confusing as tax forms."

The CFPB's proposed consent order and complaint were filed in the U.S. District Court for the Eastern District of California.

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