CFPB Settles Latest Case Against Now-Defunct, Troubled For-Profit Chain
By Joelle Fredman, NASFAA Staff Reporter
The former for-profit chain ITT Educational Services, Inc. (ITT)—which abruptly closed in 2016 following a series of investigations that more than once found its institutions out of compliance with its accreditors’ standards—has been subject to multiple lawsuits alleging that it defrauded both the Department of Education (ED) about its financial health, as well as students seeking guidance on how to finance their education. On Monday, the Consumer Financial Protection Bureau (CFPB) reached a $60 million proposed settlement with ITT, after it sued the chain for engaging in “unfair and abusive practices in connection with its private loan program.”
ITT shut its doors two weeks after ED prohibited it from enrolling new students who receive federal financial aid—an action it called “unwarranted” and “taken without proving a single allegation”—leaving tens of thousands of students scrambling, and roughly 8,000 employees without jobs.
In CFPB’s case, which it filed two years before ITT closed, the agency argued that ITT encouraged students to enroll at the institution by offering them zero-interest loans called “Temporary Credit,” which had to be paid in full at the end of the first academic year, despite the fact that “ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund their next year’s tuition gap.” In 2011, CFPB wrote, ITT then pushed students to repay their Temporary Credit with high-cost private student loan programs.
“Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies,” according to CFPB. “However, ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s ‘plan all along.’”
While CFPB will not collect on the $60 million due to ITT’s limited funds after filing for bankruptcy in 2016, according to the settlement, ITT is prohibited from collecting on the loans of those students.
Earlier this summer, CFPB settled a separate lawsuit against the company set up to manage the loans of ITT students, Student CU Connect CUSO LLC, which resulted in 18,000 former ITT students receiving debt relief totaling more than $168 million.
Publication Date: 8/14/2019
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