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CFPB's press release misleading, attorney says

By Tara Mapes | Sep 27, 2016

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WASHINGTON (Legal Newsline) – A recent press release from the Consumer Financial Protection Bureau doesn't represent the actual allegations to which a for-profit education company has settled, a Philadelphia attorney says.

The CFPB announced Sept. 12 it had entered into a consent order with Bridgepoint Education Inc., a for-profit, post-secondary education company based in San Diego, that does business as Ashford University and the University of the Rockies.

The consent order stems from an investigation conducted by the CFPB, California Attorney General Kamala Harris and the Department of Education that led to allegations that Bridgepoint deceived students into taking out private student loans that cost more than the college advertised.

The CFPB ordered Bridgepoint to discharge all outstanding private loans it made to students and to refund loan payments made by borrowers. In addition to more than $23.5 million in loan forgiveness and refunds, Bridgepoint must also pay an $8 million civil penalty to the CFPB.

John L. Culhane Jr., an attorney and partner with Ballard Spahr LLP, told Legal Newsline the amount of the penalty seems excessive.

“It's always hard to assess [the amount of the penalties] because the CFPB has said very little about how it determines the amount of any civil money penalty," he said.

"As is often the case with the CFPB, the press release doesn't line up with the allegations in the consent order. The press release implies that Bridgepoint deceived all of its student borrowers. 

"The consent order doesn't allege that the oral payment representations were made all of the time, or even most of the time. It doesn't even allege that any students relied on the representations. It only asserts that these oral representations happened ‘many’ times and that ‘many’ students ended up making payments in excess of $25.”

Culhane also emphasized that the CFPB’s consent order did not allege that Bridgepoint failed to provide truth-in-lending disclosure statements for the Bridgepoint loans, “so all of those students would have received a disclosure of their payment schedule before signing their loan documents,” he said.

For-profit colleges have become a focal point of CFPB investigations in recent years.

In February 2014, the CFPB filed a lawsuit against ITT Educational Services, Inc. for a host of allegations of engaging in illegal practices. ITT announced Sept. 6 it was closing its campuses and filing bankruptcy.

In September 2014, the bureau initiated an action against Corinthian Colleges alleging it was deceptive in its job placement rates and used illegal debt collection practices. The investigation ended with a $531 million default judgment and Corinthian’s subsequent bankruptcy and dissolution last year.

Culhane told Legal Newsline, “The CFPB clearly believes that deceptive marketing exists in the for-profit college industry and that careful scrutiny of the industry is necessary as a result. The CFPB appears to question the value of attending a for-profit college as well.”

The CFPB attempted to extend the reach of its arms last year in its efforts to regulate the for-profit college industry by going after an accrediting body. In August 2015, the CFPB issued a Civil Investigative Demand (CID) against the Accrediting Council for Independent Colleges and Schools (ACICS) for information relating to the approval of several for-profit colleges — some that had already been the target of the CFPB’s investigations and judgments.

ACICS refused to comply and argued the CFPB was exceeding its authority. The U.S. District Court for the District of Columbia agreed with ACICS and rejected the CFPB’s request, ruling that the CFPB did not have the authority to issue the request to the accrediting body. 

Judge Richard Leon wrote, “Although it is understandable that new agencies like the CFPB will struggle to establish the exact parameters of their authority, they must be especially prudent before choosing to plow headlong into fields not clearly ceded to them by Congress.”

On June 13, the CFPB appealed the district court’s decision to the D.C. Circuit Court of Appeals. Its appeal is still under review.

Culhane told Legal Newsline, accrediting agencies aren’t within the scope of the financial industry that the CFPB is authorized to regulate. The CFPB was created in 2010 by the Dodd-Frank Wall Street reform bill to oversee the financial services industry.

He said, “Accrediting agencies are not involved with, and do not assess, the private loan programs offered by the schools that they review. In seeking information about the accreditation process, the CFPB wrongly treated ACICS as if it were a secondary market, rating agency in a bond or securities transaction whose ratings would somehow affect the offering made to consumers. That is simply not the case.”

Culhane said he doesn’t expect the CFPB to be deterred by the district court decision in the ACICS case, but he doubts there will be any actions against other accrediting agencies in the near future. 

“The focus on ACICS was almost certainly due to its having been the accrediting agency for both ITT and Corinthian," he said. "However, unless overturned on appeal, the decision is certain to influence any CID that the CFPB might seek to serve on an accrediting agency in the future.” 

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Consumer Financial Protection Bureau