For-Profit Colleges Face Consumer Bureau Probe on Lending Roles
The U.S. Consumer Financial Protection Bureau is investigating at least two for-profit colleges over potentially abusive practices in marketing and originating student loans.
The CFPB, which is studying and preparing to directly supervise the entire private student loan industry, is examining potential illegal practices by Corinthian Colleges Inc. (COCO) and ITT Educational Services Inc. (ESI), according a document posted on the agency’s website and securities filings.
The CFPB is looking into whether for-profit educational firms “have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans,” according to the document.
Richard Cordray, the CFPB’s director, has vowed to focus on the private student loan industry as the total U.S. student debt burden, which is overwhelmingly government credit, has surpassed $1 trillion. One area of interest is student loan refinancing.
“Many consumers seek to negotiate for a more affordable payment plan on their loan obligations, only to find themselves stymied, even when a modification would make sense for all concerned,” Cordray said on Feb. 20.
The CFPB has proposed a regulation to supervise major non-bank student lenders. It already supervises banks with assets above $10 billion.
Corinthian Colleges, based in Santa Clara, California, received a request for information, called a civil investigative demand, from the bureau on Sept. 13, the company said in a Nov. 6 securities filing. Corinthian said in the filing that it “believes that its acts and practices relating to student loans are lawful and essential.”
The document on the CFPB website is an objection from Corinthian to the scope of the agency’s demand for information from the company. Attorneys for Bloomberg News wrote a letter on June 28 arguing that the CFPB was failing to abide by its own disclosure rules by withholding such documents.
Carmel, Indiana-based ITT Educational said on Oct. 29 that it had received a second demand for information from CFPB about “private education loans made to our students and certain other aspects of our business.” The demand replaced a similar one from earlier this year, ITT said.
Kent Jenkins, a spokesman for Corinthian, declined to comment. ITT didn’t immediately respond to requests for comment.
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