(Adds details from complaint, comments, background about defendants and student loan industry, case citation)
By Jonathan Stempel
NEW YORK, Sept 20 (Reuters) - New York's attorney general on Thursday sued 10 companies and two executives over their alleged roles in a scam to induce thousands of struggling borrowers into buying student loan debt relief services that they could have received for free.
Barbara Underwood, the attorney general, said defendants typically charged more than $1,000 for their services, which often came with usurious interest rates, after luring borrowers with false claims such as being affiliated with the government, or that their help was needed.
"It strikes me that the lawsuit has merit," Mark Kantrowitz, publisher of Savingforcollege.com, said in an interview. "There are companies that can take advantage of borrowers' lack of awareness of what they can do."
The defendants include Debt Resolve Inc, of Hawthorne, New York, Chief Executive Bruce Bellmare, and his predecessor Stanley Freimuth.
Hutton Ventures LLC, a Santa Ana, California-based business partner of Debt Resolve, and Equitable Acceptance Corp, a Minnetonka, Minnesota-based financing company, are also among the defendants.
Debt Resolve, Hutton and Equitable did not immediately respond to requests for comment.
Underwood said about $1.34 trillion of federal student loan debt is outstanding, with one in five borrowers behind on payments.
She said the defendants targeted many of those borrowers with "deceptive, fraudulent and illegal conduct" since at least 2014.
"These companies sought to line their own pockets by taking advantage of students who were simply trying to pay for their education," Underwood said in a statement.
Underwood accused various defendants of violating state credit repair and telemarketing laws, and said the 20.99 percent interest rate on the "vast majority" of Equitable's loans exceeded New York's 16 percent civil usury limit.
Her complaint also spotlighted alleged deceptive marketing, including a Facebook ad touting the "breaking news" that the U.S. government had approved a graduated repayment plan.
"In fact," the complaint said, "the program became law a decade ago."
The lawsuit seeks civil fines, restitution and a permanent injunction against future wrongdoing.
According to the Federal Reserve, attendees of private for-profit schools face greater difficulties with loan repayments, possibly reflecting "the lower returns" on their degrees.
Last October, the Federal Trade Commission and 11 states announced their own crackdown on student loan debt relief scams, called "Operation Game of Loans."
Kantrowitz said many borrowers can arrange for free to make payments, change repayment plans, obtain forbearance or apply for loan forgiveness at a U.S. Department of Education website, (studentloans.gov).
The case is New York v Debt Resolve Inc et al, New York State Supreme Court, New York County, No. 451873/2018. (Reporting by Jonathan Stempel in New York; Editing by Dan Grebler, Tom Brown and Richard Chang)