On September 16, the CFPB filed suit against Corinthian Colleges, Inc. in the Northern District of Illinois for engaging in alleged predatory student lending. This is the CFPB’s second predatory student lending suit against a for-profit college; the first being against ITT (reported by LenderLaw Watch here).
The allegations and relief sought in both the ITT and Corinthian cases are very similar.
Both ITT and Corinthian were alleged to have:
- Lured students into enrolling by misrepresenting placement statistics and the extent of career placement services offered;
- Pressured students into accepting high-cost loans that were likely to lead to default; and
- Threatened students who were unable to repay loans with expulsion, pulling them out of classes and withholding course materials.
In Corinthian’s case, the CFPB further alleges that Corinthian tried to increase the amount of federally funded student loans it could receive under the “90/10” rule by increasing the amount (and number) of private student loans. The “90/10” rule states that federally-funded student loans can make up a maximum of 90% of a for-profit educational institution’s revenue stream. See 34 C.F.R. § 668.14(b)(16). To achieve its objective, Corinthian purportedly worked with a third-party originator to maximize private loans; resulting in 130,000 student loans totaling USD 568.7 million in just under three years.
The Corinthian suit is a reminder of CFPB Director Richard Cordray’s statement earlier this year, that the action against ITT “should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics,” and may signal the start of a new enforcement trend against for-profit colleges. LenderLaw Watch continues to closely follow developments in this area.
As of the date of this post, Corinthian has yet to appear, and ITT has a fully-briefed motion to dismiss pending in its case in the Southern District of Indiana.