CFPB Files Complaint Against Private Student Loan Lender

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The CFPB announced that it had filed a complaint against a nationwide for-profit college’s student lending program for unfair and abusive practices. According to the CFPB, the college’s lending program extended in short-term loan to fill the gap between students’ costs of attendance and their federal financial aid. This credit took the form of a zero-percent loan that came due, in full, nine months later. The complaint alleged that when students were unable to make these payments, the college “coerced them into paying off their [short-term loan] with high-interest, high-fee private loans payable over ten years.” Such coercion purportedly took the form of “pulling students from class or withholding course materials or transcripts” for students who did not accept the ten-year restructuring. According to the CFPB, the terms of these loans were not adequately explained to the students, who sometimes did not realize they had even agreed to take out a loan.

The complaint further alleges that the college’s financial aid programs were “ostensibly run by third parties, but in reality controlled by” the college, which guaranteed the third parties against loss. The college was allegedly aware that 60% of the loans in question would default, but nonetheless, as it reported to investors, the college turned a profit. The CFPB, based largely on mystery shopping reports, alleges students with “low earnings” and “poor credit” were targeted and misled about post-graduation salary and employment prospects.

The CFPB is seeking a range of remedies including restitution, injunctive relieve, disgorgement, rescission, and civil money penalties.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

Topics:  CFPB, Enforcement Actions, Student Loans

Published In: Consumer Protection Updates, Education Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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