Federal law bars debt relief services from receiving upfront fees before they’ve even renegotiated a single debt for a customer. But one student loan debt relief operation allegedly took in nearly $3.6 million in illegal fees, only to enroll borrowers in programs that are already available for free.

The Consumer Financial Protection Bureau announced today that it has taken action against Student Aid Institute and CEO Steven Lamont for illegally demanding hundreds of dollars in upfront fees to help borrowers enroll in federal income-driven plans and misrepresenting that the company had an affiliation with the Department of Education.

According to the complaint [PDF], beginning in 2012 the company began to market, sell, and administer student-loan debt relief services to consumers through telemarketing calls and direct mail.

To entice borrowers to enroll in the program, telemarketers and mailings implied that the organization was endorsed, sponsored by, or affiliated with the Department of Education.

Additionally, employees of SAI told potential customers that they were “eligible to reduce your current payment of $595 to $63 which may save you $63,900 over the term of your student loan.” In reality, the CFPB says the company had no basis to make these claims.

The company typically charged consumers an upfront fee of $395 or $495 as well as a $39 per month maintenance fee once enrolled.

Immediately after consumers signed contracts with SAI, the company withdrew funds from the borrowers’ bank accounts and charged their credit cards for the illegal upfront fees.

Additionally, the Bureau claims that SAI failed to provide customers with privacy notices as required by law.

In all, the CFPB investigation found the alleged scam affected 4,300 borrowers, and collected $3.6 million in illegal fees.

Under the CFPB’s proposed order, SAI must shut down its relief operations, cancel all contracts with customers, and stop charging them.

The company and its operators are also barred from offering, or receiving any payments from, debt relief services, and pay a civil penalty of $50,000 to the Bureau’s Civil Penalty Fund.

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