Frank, the college loan start-up JPMorgan is suing for fraud, was warned by the FTC for misleading students about Covid relief money

• JP Morgan Chase has accused the student loan platform Frank and its founder Charlie Javice of inventing millions of fake customers to juice its value.
• Frank has previously encountered government scrutiny for making misleading statements.
• In 2020, the Federal Trade Commission warned Frank that it "may be unlawfully misleading consumers" about student COVID relief.

Just one year before it was acquired by JP Morgan Chase for $175 million, the Federal Trade Commission warned student aid platform Frank that it "may be unlawfully misleading consumers" about student COVID relief. 

The warning letter is at least the second time Frank and its founder, Charlie Javice, have faced accusations of misrepresentation prior to the JPMorgan acquisition. These incidents now appear as potentially more serious red flags about operations at the company, after JPMorgan accused the startup in a lawsuit last month of inventing millions of fake customers to boost its value.

Frank also settled with the federal government in 2018 over accusations that the startup was misrepresenting its ties to the Department of Education, Insider previously reported.

Javice and her attorney, Alex Spiro, did not immediately respond to a request for comment.

At the time, Frank was a growing name in student loan services, promising to radically simplify the process of applying for financial aid – and, for a fee, to get students more money than they could obtain on their own. JPMorgan's 2021 acquisition of Frank further boosted the profile of Javice, who had been framing herself as part of a new generation of financial leaders.

The FTC's inquiry was preceded  by a July 2020 article written by then-New America Foundation advisor Wesley Whistle that accused Frank of collecting students' data to sell to third parties without offering students meaningful assistance in return. 

Frank was misleading students about how much financial aid was available under the March 2020 CARES Act, which had allocated about $7 billion for emergency grant aid to students due to the coronavirus pandemic, and how easy it was to access it, Whistle wrote. The company promised students help accessing the grant money, but all Frank was doing was generating a form letter students could send to university administrators. (Whistle is now a Department of Education appointee.)

The article prompted four members of Congress to request the FTC investigate Frank.

"We are concerned that Frank is creating false hope and confusion for students while contributing to unnecessary extra work for financial aid administrators," the representatives wrote. "We further suspect that the company may be using the data collected from misled students to make a profit by selling data to third party advertisers."

Four months later, in November 2020, the FTC issued its warning letter to Frank.

The company's website "makes some potentially misleading claims," the agency concluded, including that the process of applying for an emergency grant was simple and fast and that the eligibility criteria were the same for all schools.

Frank also advertised $5,000 cash advances to students waiting for their emergency grants. The advance wouldn't need to be paid back until "your aid comes in," the company wrote on its website. 

But the reality was that a close read of Frank's terms revealed students would need to pay back the advances within two months, the FTC wrote.

In a countersuit filed last month against JPMorgan, Javice maintained that the bank tanked Frank's value by "mining the personal information of Frank's legacy customers."

Do you have a tip or insights to share? Contact reporter Katherine Long via phone or the encrypted messaging app Signal (+1-206-375-9280) or email (klong@insider.com).