On August 17, 2017, the Consumer Financial Protection Bureau (“CFPB”) announced that it filed a complaint and proposed settlement against an Oregon private equity firm and related entities for aiding a post-secondary education company and its school’s predatory lending scheme. The CFPB alleges that the private equity firm enabled the school to lend students high-cost private loans that both entities knew the students could not afford.
According to the complaint, the companies gave the impression that the school was making enough outside revenue to satisfy its obligations under the 90/10 rule, a federal law that requires that for-profit schools obtain at least 10 percent of their revenue from other sources in order to get federal loan dollars, when in reality the school was paying the private equity firm to support the loan program. According to the complaint, the private equity firm violated sections 5531(a) and 1036(a)(1) of the Consumer Protection Act (“CFPA”), which prohibit abusive acts and practices, by funding and supporting the predatory loan program.
If the CFPB’s proposed settlement is approved by the U.S. District Court in Oregon, the private equity firm and related entities would be required to forgive loans in connection with certain closed schools, forgive loans in default, and reduce all other loans by more than half. About 41,000 students could be eligible for approximately $183.3 million in loan forgiveness and reduction.
This action is the latest in a series of steps the CFPB has taken to in response to the school’s predatory lending scheme. In September 2014, the CFPB sued the school for allegedly scamming students into taking out private loans to expensive tuition costs by advertising fake job prospects. While the CFPB ultimately obtained a $530 million default judgment, the school could not pay the judgment.
Several state attorneys general have also reached proposed settlements with the private equity firm.