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Scholarship Fraud Prevention Act of 2000

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The purpose of the act is to enhance protections against fraud in the offering of financial assistance for college education. It does so by three measures:

  • increasing the penalties for people who perpetrate scholarship scams,
  • eliminating a loophole in bankruptcy law that allowed the scam artists to retain their ill-gotten gains by exploiting the homestead exemption, and
  • requiring the US Department of Education, in cooperation with the Federal Trade Commission, to publish information about scholarship scams on its web site.

The increased penalties for people convicted of scholarship fraud include jail time and fines of up to $500,000. Previously, the Federal Trade Commission was limited to shutting down the company and seeking restitution for defrauded consumers. This should serve as an additional deterrent to perpetrators of scholarship fraud, and should increase the number of cases filed against scholarship scams.

The full text of the act appears below. A PDF version is also available.


AN ACT

To enhance protections against fraud in the offering of 
financial assistance for college education, and for other 
purposes.

Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `College Scholarship Fraud 
Prevention Act of 2000'.

SEC. 2. FINDINGS.

Congress makes the following findings:

(1) A substantial amount of fraud occurs in the offering 
    of college education financial assistance services 
    to consumers.

(2) Such fraud includes the following:

    (A) Misrepresentations regarding the provision of 
        sources from which consumers may obtain financial
        assistance (including scholarships, grants, loans, 
        tuition, awards, and other assistance) for 
        purposes of financing a college education.

    (B) Misrepresentations regarding the provision of portfolios of 
        such assistance tailored to the needs of specific consumers.

    (C) Misrepresentations regarding the pre-selection of students 
        as eligible to receive such assistance.

    (D) Misrepresentations that such assistance will be provided to
        consumers who purchase specified services from specified 
        entities.

    (E) Misrepresentations regarding the business relationships 
        between particular entities and entities that award or may
        award such assistance.

    (F) Misrepresentations regarding refunds of processing fees
        if consumers are not provided specified amounts of such
        assistance, and other misrepresentations regarding refunds.

(3) In 1996, the Federal Trade Commission launched `Project
    Scholarscam', a joint law enforcement and consumer education campaign
    directed at fraudulent purveyors of so-called `scholarship services'.

(4) Despite the efforts of the Federal Trade Commission, colleges and
    universities, and nongovernmental organizations, the continued lack of
    awareness about scholarship fraud permits a significant amount of
    fraudulent activity to occur.

SEC. 3. SENTENCING ENHANCEMENT FOR HIGHER EDUCATION 
FINANCIAL ASSISTANCE FRAUD.

Pursuant to its authority under section 994(p) of title 28, United
States Code, the United States Sentencing Commission shall amend 
the Federal sentencing guidelines in order to provide for enhanced
penalties for any offense involving fraud or misrepresentation in
connection with the obtaining or providing of, or the furnishing of
information to a consumer on, any scholarship, grant, loan, tuition,
discount, award, or other financial assistance for purposes of
financing an education at an institution of higher education, such
that those penalties are comparable to the base offense level for
misrepresentation that the defendant was acting on behalf of a
charitable, educational, religious, or political organization, or a
government agency.

SEC. 4. EXCLUSION OF DEBTS RELATING TO COLLEGE FINANCIAL 
ASSISTANCE SERVICES FRAUD FROM PERMISSIBLE EXEMPTIONS OF 
PROPERTY FROM ESTATES IN BANKRUPTCY.

Section 522(c) of title 11, United States Code, is amended--

   (1) by striking `or' at the end of paragraph (2);

   (2) by striking the period at the end of paragraph (3) and
       inserting `; or'; and

   (3) by adding at the end the following:

      "(4) a debt in connection with fraud in the obtaining or
           providing of any scholarship, grant, loan, tuition, 
           discount, award, or other financial assistance for
           purposes of financing an education at an institution
           of higher education (as that term is defined in
           section 101 of the Higher Education Act of 1965 
           (20 U.S.C. 1001)).".

SEC. 5. SCHOLARSHIP FRAUD ASSESSMENT AND AWARENESS ACTIVITIES.

(a) ANNUAL REPORT ON SCHOLARSHIP FRAUD-

    (1) REQUIREMENT- The Attorney General and the Secretary of
        Education, in conjunction with the Federal Trade Commission, 
        shall jointly submit to Congress each year a report on fraud 
        in the offering of financial assistance for purposes of 
        financing an education at an institution of higher education. 
        Each report shall contain an assessment of the nature and
        quantity of incidents of such fraud during the one-year period
        ending on the date of such report.

    (2) INITIAL REPORT- The first report under paragraph (1) shall be
        submitted not later than 18 months after the date of the
        enactment of this Act.

        (b) NATIONAL AWARENESS ACTIVITIES- The Secretary of Education
            shall, in conjunction with the Federal Trade Commission, 
            maintain a scholarship fraud awareness site on the
            Internet web site of the Department of Education. The
            scholarship fraud awareness site may include the following:

            (1) Appropriate materials from the Project Scholarscam
                awareness campaign of the Commission, including
                examples of common fraudulent schemes.

            (2) A list of companies and individuals who have been
                convicted of scholarship fraud in Federal or State court.

            (3) An Internet-based message board to provide a forum for
                public complaints and experiences with scholarship fraud.

            (4) An electronic comment form for individuals who have
                experienced scholarship fraud or have questions about
                scholarship fraud, with appropriate mechanisms for the
                transfer of comments received through such forms to the
                Department and the Commission.

            (5) Internet links to other sources of information on
                scholarship fraud, including Internet web sites of
                appropriate nongovernmental organizations, colleges
                and universities, and government agencies.

            (6) An Internet link to the Better Business Bureau in
                order to assist individuals in assessing the business
                practices of other persons and entities.

            (7) Information on means of communicating with the Federal
                Student Aid Information Center, including telephone
                and Internet contact information.

Passed the Senate November 4, 1999. 
Passed the House September 25, 2000.
Signed by the President November 1, 2000.
Became Public Law No: 106-420. 
 

 
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