Monday, March 24, 2014

CFPB takes on Predatory Student Loan Practices

The Consumer Financial Protection Bureau (“CFPB”) recently filed a lawsuit against ITT Educational Services (“ITT”) for predatory student loan practices. See CFPB Press Release.  The CFPB complaint makes a number of allegations against ITT under the Truth in Lending Act ("TILA"), including:
  1. pressuring students into high interest loans without affording them the opportunity to understand their loan obligations;
  2. offering credits that are non-transferable to community or non-profit colleges;
  3. misleading students into thinking that they would be securing gainful employment after graduation in order to payoff their private loans; and
  4. knowing that a majority of the students would default on their private loans.
Apparently, the Securities and Exchange Commission ("SEC") is also looking into the practices of ITT and some of the state attorney generals are also investigating its practices.  See, WSJ Online

Investigation into ITT is hopefully just the beginning into the lending practices involving students.  It is not unusual that students have very high student loan balances that take a long time to pay or they struggle with at times.  This is especially true for graduates who are unemployed or underemployed.  See, American Student Assistance, Student Loan Debt Statistics. Yet, the protections afforded to borrowers under the Credit Card Responsibility and Disclosure Act ("CARD Act") in terms of account statement disclosures and loan transparency were not extended to student borrowers.  This is true in the face of complaints from consumers about receiving account statements and documentation upon request.  Moreover, students do not get regular billing statements while they are in school since they are not in repayment.  The same strong tabular disclosure that is the gold standard in other areas surely should apply in the student arena.  Plenty of fodder for the CFPB to tackle.

- JSM (with Ray Alvarez)

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