CFPB Sues Online Lender of Student Loans for Alleged Violations of Federal Lending Laws

On October 17, 2024, the Consumer Finance Protection Bureau (CFPB) announced that it had filed an action in the U.S. District Court for the Southern District of New York against an online lender of student loans, its wholly-owned subsidiaries, and the owners and operators of those entities (collectively, the Company) for allegedly violating the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA).  According to the complaint, the Company falsely induced borrowers to take out loans by making representations about the outcomes that had been achieved by graduates of short-term vocational programs at the Company’s partner schools, including full-time employment rates for graduates and the average salaries of graduates in certain programs. 

In its complaint, the CFPB alleged that since 2017 the Company made false representations to consumers in its online marketing materials in an effort to maximize its return on investment.  Those representations included statements that the Company used a proprietary calculation process to measure factors such as tuition, graduation rate, and post-graduate income, in order to measure the benefits of attending programs at particular schools; that the Company would only fund a program if it passed the Company’s standards under that calculation; that the Company vetted schools and programs for outcome and value; and that the Company would only partner with properly vetted schools. 

In contrast, according to the CFPB, the Company actually funded programs that either failed the Company’s return-on-investment analysis or for which that data analysis was not even performed; that the Company applied outcomes from one program at a school to different, unassociated programs at that school; that the Company used unsupported assumptions to justify its data inputs in its proprietary analysis; and that the Company relied on information obtained from partner schools which it could not independently verify or for which it believed was not reliable.  According to the complaint, by providing this misleading information it was able to establish itself as a trusted intermediary in the vocational student loan market, thereby profiting by increasing its loan volume and generating millions of dollars in revenue, despite the false or misleading nature of its promotional claims. 

The CFPB further alleged that the Company manipulated the results of a customer survey that it had provided to past borrowers of the Company’s loans to suggest outcomes concerning increases in borrowers’ salaries post-graduation, and the percentage of graduates who obtained full-time employment post-graduation, which were not statistically supportable by the data derived from that survey, which could have further misled potential consumers.  The complaint additionally alleged that the Company violated Regulation Z of TILA by disclosing inaccurate finance charges to consumers, misrepresenting the interest rate of its loans in its advertising, and by suggesting in its promotional materials that certain educational institutions supported the Company’s products without furnishing an appropriately placed disclaimer to the contrary.

The CFPB seeks to enjoin the defendants from committing similar future conduct, monetary relief including a refund of monies or other compensation for unjust enrichment, and civil money penalties, among other related relief.