CFPB Takes Action to Shut Down Student Debt Relief Scam

The Consumer Financial Protection Bureau on Tuesday asked a federal court to shut down a California company accused of running a student debt relief scam that allegedly charged borrowers millions in illegal fees.

The CFPB's complaint, filed in California's Central District Court, seeks to ban James Krause, the owner of Student Loan Processing.US in Laguna Nigel, Calif., and the company from any future involvement in debt relief and student loan services. The company also would have to refund thousands of customers and pay a civil penalty.

"The bureau is taking action to shut down the unlawful operation permanently and to prevent the company and its owner from participating in the student lending and debt relief industries ever again," CFPB Director Richard Cordray said in a press release.

Reached at his office in Dallas, Krause said he had agreed to a settlement.

"There has been a settlement on it and it will be recorded in the next couple of days," said Krause, whose company also operates under the name IrvineWebWorks Inc. and runs websites at StudentLoanProcessing.us. His company has been in operation since May 2011.

The CFPB filed a lawsuit against Krause in late 2014, claiming that his company falsely led consumers to believe it was affiliated with the Department of Education. It charged borrowers an enrollment fee of 1% of the borrower's federal student loan balance plus a monthly $39 fee for the entire repayment term of the loan, the complaint said.

The CFPB alleges that the company failed to disclose the total costs to purchase or receive student loan services before the consumer agreed to pay for them.

While the Department of Education offers many plans to borrowers with federal student loans, it does not charge any fees to apply for or enroll in such plans.