CFPB Enters into Settlement with Funder of ITT Private Student Loans
A new (and perhaps final) chapter was added to the tale of ITT Educational Services, Inc. last week with the CFPB’s announcement that it had settled the lawsuit it filed against Student CU Connect CUSO, LLC (CU Connect), a special purpose entity company set up to fund, purchase, manage, and hold private student loans (CU Connect Loans) made to students enrolled in an ITT school.
In February 2014, the CFPB filed a lawsuit against ITT in which it alleged that ITT had engaged in unfair and abusive acts or practices through conduct that included strong-arming students into high-interest loans that ITT knew students would be unable to repay. After failing in its attempt to obtain a dismissal of the lawsuit based on a challenge to the CFPB’s constitutionality, ITT closed all of its campuses and filed for bankruptcy protection.
In its lawsuit against CU Connect, which was filed in an Indiana federal district court simultaneously with a proposed stipulated final judgment and order, the Bureau alleged that CU Connect provided substantial assistance to ITT’s unlawful conduct through its involvement in the creation of the CU Connect Loan program, by facilitating access to funding for the loans, by overseeing loan originations, and by actively servicing and managing the loan portfolio. The Bureau alleged that when providing this assistance, CU Connect knew, or was reckless in not knowing, that ITT was strong-arming students into the CU Connect Loans, that ITT’s financial aid practices left many students “unaware of the terms, conditions, risks, or even existence of their CU Connect Loans,” and that students were defaulting on the CU Connect Loans at high rates.
The proposed stipulated judgment and order requires CU Connect to (1) stop all activities to collect outstanding CU Connect Loans and stop accepting payments on such loans, (2) discharge and cancel all outstanding balances on CU Connect Loans, and (3) request that all consumer reporting agencies to which CU Connect furnished information about outstanding CU Connect Loans delete the trade lines associated with such loans by updating the trade lines with the appropriate codes to reflect that each trade line has been deleted and, if an explanation is required, with the codes referencing a negotiated court settlement. According to the CFPB’s press release, the total amount of loan forgiveness is estimated to be $168 million.
It bears noting that the proposed stipulated judgment and order does not require CU Connect to refund any prior loan payments and does not assess a civil money penalty. In addition, it recites that because CU Connect plans to cease its business operations once it completes its obligations under the settlement, the Bureau agreed to the limited injunctive relief and compliance and reporting requirements set forth in the proposed stipulated judgment and order.
44 states and the District of Columbia entered into a settlement with CU Connect on similar terms. The state settlement is contingent on the district court’s approval of the Bureau’s settlement with CU Connect.