June 27 (Bloomberg) -- State officials have reached an agreement to shut down a website called GIBill.com that drives business to for-profit colleges, Kentucky Attorney General Jack Conway announced today.
The military-themed website collected contact information from veterans interested in using their post-service benefits for higher education and funneled it to the colleges. Conway said the site gave the misleading impression that it was run by the U.S. government.
“This company preyed on our veterans who received educational benefits as a result of their military service to our country,” Conway said at a news conference in Washington. “The actions were unconscionable and purposefully drove veterans to for-profit colleges who were perhaps more interested in getting their hands on the federal benefits than in educating our soldiers and their families.”
The site, operated by QuinStreet Inc., will be turned over to the U.S. Department of Veterans Affairs as part of the deal, Conway said. The company will also pay a $2.5 million fine, and include prominent statements on its other veteran-focused websites that it has no government associations.
QuinStreet, in a statement filed with the Securities and Exchange Commission today, said it “does not engage in deceptive marketing practices and does not believe that its websites were misleading prior to the agreement.” Company spokesman Jeffrey Scott declined further comment.
Federal regulators, particularly in housing, have recently focused on financial issues that affect the military. Last week, agencies put in place new rules to ease home sales by servicemembers who are ordered to move, and this week the Department of Defense said it is considering new rules on small-dollar loans to those in the service.
After September 11, 2001, veterans became a lucrative market for private-sector colleges with the passage of federal benefits, known colloquially as the “GI Bill” after similar post-World War II legislation.
Separately from today’s announcement, Conway is leading a 30-state investigation by attorneys general into for-profit colleges. He promised Kentucky will focus on issues related to the military, including outside the education industry.
“We are looking at all sorts of things with respect to consumers and the military,” Conway said.
Senator Richard Durbin, an Illinois Democrat, applauded the state attorneys general for looking into the for-profit colleges. He lamented that federal lawmakers have failed to crack down on abuses in the industry.
Congress has not passed proposals designed to limit the incentives for-profit colleges have to market to veterans. This category of schools received almost $32 billion in federal grants and loans in the 2009-2010 school year, according to the Department of Education.
“You can get little done on for-profit colleges in Congress,” Durbin said. “They have every lobbyist in town,” including many ex-lawmakers, he added.
Steve Gunderson, a former U.S. congressman who is now head of the Association of Private Sector Colleges and Universities, said in an e-mailed statement that the group’s members are “deeply proud” to help educate veterans.
“We condemn any activity by companies that mislead veterans, and we continue to work with our members and other stakeholders on initiatives designed to promote clear and unambiguous communications with students and prospective students,” Gunderson said.
The settlement emerged from work done by the Kentucky attorney general’s office and the Consumer Financial Protection Bureau beginning in August 2011, Conway said. The CFPB staff examined the website and its marketing to veterans, and Conway led the investigation for the states.
QuinStreet, which is based in Foster City, California, reported net income of $2.9 million on revenue of $93 million in the quarter ending March 31. Its shares were up 0.17 percent to $9.44 at 3 p.m.
The site GIBill.com “has never been a material contributor” to the company’s revenue, it said in a statement on its website.
Emails obtained by the Kentucky attorney general made clear that many people “thought they were communicating with the government” when they wrote to GIBill.com, Conway said.
Conway conceded that there are probably other similar sites on the Internet, and said only educating the public could reduce their impact.
Hollister “Holly” Petraeus, the head of the bureau’s Office of Servicemember Affairs, explicitly warned veterans against using sites that collect information but do not actually offer education services themselves.
“Using one of these lead-generator sites is extremely unlikely to assist veterans in making an informed choice between different types of schools where they might spend hard-earned GI Bill benefits,” Petraeus said.
The GIBill.com website will be redirected to the veterans’ affairs department within 10 days, its deputy secretary, Scott Gould, said at the news conference. The agency will use it to disseminate information about government benefits, Gould said.
Other states participating in the agreement with QuinStreet are Alabama, Arizona, Arkansas, Delaware, Florida, Idaho, Illinois, Iowa, Kentucky, Massachusetts, Mississippi, Missouri, New York, Nevada, North Carolina, Ohio, Oregon, South Carolina, Tennessee and West Virginia, according to Conway’s announcement.
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