Earlier this month, an Illinois state court granted the motion of the state’s Attorney General to further amend her complaint in a lawsuit filed against a for-profit college and its owners to add new counts alleging that the defendants’ practices were unfair and abusive under the federal Consumer Financial Protection Act (CFPA) (Title 10 of Dodd-Frank). The AG’s amended complaint alleged that the defendants violated the Illinois Consumer Fraud Act (ICFA) by making various misrepresentations, including misrepresentations about the cost of a particular academic program, likely outcomes for graduates of such program, and the costs and terms of an in-house financing program for students.
Relying on the AG’s authority under Dodd-Frank Section 1042, the second amended complaint added an allegation that the defendants knew but failed to inform prospective students that a majority of students enrolled in the academic program default on the in-house financing. In three new counts, the second amended complaint alleges that, based on the misrepresentations and facts not disclosed to students and the financing program’s high default rate, the financing program is unfair under the ICFA and CFPA and is also abusive under the CFPA.
The motion was granted on the eve of trial. We understand that the AG decided to assert claims using her Section 1042 authority in order to seek relief on behalf of not only Illinois residents but also on behalf of residents of other states.
At the hearing on the AG’s motion to amend the complaint, the defendants indicated that they planned to file a motion to dismiss the complaint. The court has set a briefing schedule for the motion, with oral argument scheduled for July 2.
Defendants might attempt to remove the case to federal court. Federal law gives the defendants the right to remove the case within 30 days of the amendment date because the AG’s Section 1042 claims created a federal question in the case. Having told the state court judge that they intend to file a motion to dismiss and the judge having set a briefing schedule and argument date, however, it could be somewhat awkward for the defendants to now seek to remove the case.
In March 2014, the Illinois AG became the first state AG to use her Section 1042 authority when she filed a state court lawsuit against a small loan lender alleging violations of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices as well as state law violations.