It wasn’t too long ago that the Consumer Financial Protection Bureau (CFPB) was empowered by Congress to take on colleges and student loan servicers like veritable financial super heroes. And they’re not resting on their laurels – they’re rapidly evolving into the tough cops on the student loan block, most recently by filing a lawsuit against private for-profit college franchise ITT accusing them of predatory lending.
If you’ve got a TV, no doubt you’ve seen their ads promising to change your life by giving you a world-class education and incredible job opportunities. Even if this was the typical outcome, the costs to attend are prohibitive. Bachelor’s degrees from ITT can cost $88,000 and Associate’s an incredible $44,000. Pricing your educational programs this high is objectionable, but not legally actionable. But it’s how ITT urged students to finance these astronomical tuition rates that’s the subject of the lawsuit.
This is not the first time ITT has been on the legal hot seat – several ITT students in Kentucky filed a class action suit accusing the tech school of fraud. This case is still pending (see details in the video below). CFPB’s suit focuses on student finance, but also touches on the same allegations the class action students make. The consumer bureau beleives ITT pushed students into high-cost private student loans the school knew had a high probability of default. The lawsuit accuses the private school of unfair, deceptive, and abusive acts and practices and of violations of the Truth in Lending Act. The lawsuit has four main premises:
#1 High pressure predatory loans – They accuse ITT of rushing prospective students through the lending process with automated applications. Many didn’t know they had even taken out loans until they were past due and collections activity had begun. The loans had insanely high 10% origination fees (by comparison, federal loans range from 1%-4.3%). Interest rates were as high as 16.25%, which is drastically higher than federal interest rates and much more than other private student loan interest rates.
#2 Non-transferable credits – ITT – and other private schools of that ilk – are accredited through an organization that specializes in accrediting private schools. This is not good and, in a way, could be construed as not being accredited at all since credits typically won’t transfer to most other schools, leaving students with few (or no) options. This forces students to stick with ITT since they can’t transfer out, and perpetuates the costly private student loan cycle.
#3 Overly ambitious job placement – ITT ads clearly lead prospects to think they’ll be sitting pretty in the job market with an ITT degree or certificate but this is not how the results play out for many. A quick Google search churns up a number of dissatisfied former ITT students. Career prospects are not nearly as lucrative as promised and this, combined with overwhelming student loan balances, makes life hard on grads.
#4 Lending with default in mind – According to CFPB, ITT made loans knowing there was a 64% likelihood of default. The high price tag is almost an assurance that students will have to borrow to attend and loan revenue is ITT’s bread and butter. The high prospect of loan default can affect a grad’s credit reports, cost them job opportunities, ruin their credit, make it difficult for them to get competitive rates for car loans and other financing and, in general, make life drastically harder on them.
When announcing the lawsuit, CFPB Director Richard Cordray said, “We are taking our first public enforcement action against a for-profit college.” They key word in that sentence is “first,” as in: there will be more. For those that run for-profit colleges, this is tantamount to an utterance that “winter is coming” and, if CFPB has its way, it may be a nuclear winter. But if ITT is truly preying on students desperate to improve their lot in life through education, then they should be subject to corrective action at an atomic level.
In the suit, CFPB is seeking:
Equitable relief – This is when the court orders a business or person not to do something.
Restitution – This would mean money back to affected students (the suit is targeting a period in 2011, but this may not be the only eligible period for relief).
Injunctive relief – This attempts to make the affected parties whole again by putting an end to something.
Disgorgement – This means giving back profits obtained illegally or unethically.
Rescission – This is the unmaking of a contract (meaning predatory private student loans would be unmade).
Civil money penalties – This is self-explanatory and these funds would go to the government, rather than the loan victims.
Plaintiff’s costs – This would cover the costs of CFPB pursuing the litigation.
Additional relief at the court’s discretion – This means CFPB is inviting the court to hit ITT with other penalties.
You can read the entire complaint here. ITT released a response to the lawsuit saying, “It never should have been filed.” They said some more, but this was the underlying premise. I can’t imagine this statement will get the CFPB to back down, particularly when they’ve indicated that this is the first of several planned law suits.
If you were or are a student at ITT and feel you’ve been a victim of predatory lending practices, now is the time to alert the CFPB to your circumstances. Although they obviously have ammunition, or else they would never have filed the suit, more is always helpful and may go a long way to slapping the private for-profit educational industry into behaving better.
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