The Consumer Financial Protection Bureau today brought its first lawsuit against a for-profit college, charging ITT Educational Services Inc. with predatory lending.
Agency head Richard Cordray promised further scrutiny of the multibillion-dollar industry, which he said at a press conference too often “seems to care more about dollar signs than diplomas.”
Filed in Indianapolis federal court, the suit by the consumer agency alleges that ITT, which boasts 149 for-profit campuses in 38 states, pushed its students into high-cost private loans that it knew were likely to end in default.
“Although ITT marketed itself as improving consumers’ lives, it was really just improving its bottom line,” Cordray said. “The result was that while many of the students got poorer, the investors and shareholders got richer.”
ITT vice president Nicole Elam said, “We don’t comment on pending litigation, except to say that we believe the bureau’s claims are without merit, and we intend to vigorously defend ourselves against the charges.”
Elam declined to identify the company’s outside counsel in the matter.
The agency charged ITT with violating the Consumer Financial Protection Act and the Truth in Lending Act, and is seeking restitution for victims, a civil fine and an injunction against the company. The complaint charges ITT with conduct that is not just unfair and deceptive, but also abusive – a violation created by the Dodd-Frank Act that has been invoked sparingly by the agency in enforcement actions.
According to the CFPB, the company used high-pressure tactics to convince low-income consumers to enroll in its programs, steering them to borrow money, mostly federal loans, to pay for them. The programs are expensive – an associate’s degree can cost more than $44,000 and a bachelor’s degree can top $88,000.
The company offered new students short-term, zero interest loans, but if students couldn’t pay their loans off at the end of their first year, ITT “coerced them” into “high-interest, high-fee private loans payable over ten years,” the CFPB alleged. According to the agency, ITT projected more than 60 percent of students would default on the loans. The CFPB also said the company misled students with “selective data and incomplete information” about their post-graduation job prospects.
“Simply to enhance its financial statements and appearance to investors, ITT sacrificed its students’ futures by saddling them with debt on which it knew they would likely default,” the CFPB complaint states.
Attorneys general from New Mexico, Illinois, Kentucky and Iowa also spoke at the press conference, highlighting state-level enforcement efforts against for-profit colleges. “We have a terrific working relationship with the CFPB,” Iowa Attorney General Tom Miller said. “It’s been a partnership from day one.”