The Consumer Financial Protection Bureau (CFPB) recently announced that it had reached an agreement to give students of Corinthian College, Inc. at least $480 million in principal reductions on existing student debt. Former and current students will receive an immediate 40% reduction on existing principal balances of their loans with Corinthian. The agreement was struck between the CFPB, the Department of Education (DOE) and the ECMC Group, Inc., the new owner and operator of certain Corinthian schools. In return for the principal reduction and other requirements in the agreement, the CFPB granted ECMC a full release from any liability stemming from the allegations CFPB is pursuing against Corinthian in a separate lawsuit.
The CFPB’s lawsuit against Corinthian, which LenderLaw Watch wrote about when it was filed last fall, remains ongoing and stems from allegations that Corinthian 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 default; and threatened students who were unable to repay loans with expulsion, pulling them out of classes and withholding course materials. ECMC is not a party to the lawsuit.
The agreement also prohibits ECMC from offering any institutional lending to students for seven years, and requires ECMC to ensure that the third-party holder of the student loans follows certain guidelines when collecting on student debt, including a ban on implementing any lawsuit or threats of a lawsuit against borrowers. ECMC also agreed to certain conduct provisions for its operation of the former Corinthian schools, including having a DOE monitor to review all marketing, training and student disclosures materials over the next one to three years to ensure that they are fair, accurate and compliant with state and federal law. The agreement further requires ECMC to make certain disclosures concerning its placement rates of students in post-school employment, graduation rates and accreditation status.
The agreement demonstrates that the CFPB is not backing away from its pledge to pursue for-profit colleges for predatory lending practices in student lending. It also demonstrates the CFPB’s willingness to work with student lenders to reach creative solutions and forgo monetary penalties or fines in exchange for direct relief for borrowers. LenderLaw Watch continues to monitor developments in this area of the law and new CFPB activity against student lenders.