how is this an FAA infraction?

But realistically, you shouldn't have two instructors, it's confusing for them and for you on what you need to be taught. Just go with the guys you like and come back after your ticket and fly off the money.

Never prepay again.

This. Chase the legal thing to get your money back, or not... either way, but don’t mix instructors without notifying both.
 
That it's not their money to hold hostage
That they are flat out lying

And that any company that cheap, you probably don't want to trust their aircraft

They can go out of business any time and he loses all of his remaining deposit. Even if he could get a judgement against them he would not be able to collect.

Good points both. Hadn't thought of the second one at all, and that is a great reason to get it back now.
 
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