FOR IMMEDIATE RELEASE:
February 26, 2014
CONTACT:
Office of Communications
Tel: (202) 435-7170
Prepared Remarks of Richard Cordray
Director of the Consumer Financial Protection Bureau
ITT Enforcement Action Press Conference
Washington, D.C.
February 26, 2014
Thank you all for joining us today. And thank you to Attorney General King, Attorney General Madigan, Attorney General Miller, and Attorney General Conway for being with us.
Financial products can be a way for Americans to achieve dreams: to buy a home, to start a small business, and importantly, to go to school. People from all walks of life go to college to climb the economic ladder and it is important that markets work properly to allow them the opportunity to realize their dreams.
But as we all know from the financial crisis, normal market forces do not always work. In those heady years, we saw how some lenders made money by setting up borrowers to fail with mortgages they could not afford. Recently, we are finding some of those same mismatched incentives when it comes to the for-profit college market, which saw huge gains in the lead-up to the financial crisis, with enrollment more than tripling between 1998 and 2008.
What kinds of people are these for-profit colleges recruiting? They seek aspiring leaders who are eager to be one of the first in their families with a college degree. They recruit single mothers in the midst of their careers looking to better their lives. And they recruit the newly unemployed who are looking to rejuvenate their employment prospects in a tough job market.
These consumers are exactly the types of people who might gain the most from quality programs in higher education. But the corporations that own these colleges often seem to care more about dollar signs than diplomas.
At the Bureau, we believe many for-profit colleges may be saying one thing to students as they load them up with debt but saying another thing to investors as they sell their business model. In the end, the outcomes for many of these students do not live up to the promises the schools made to them. According to the National Center for Education Statistics, for bachelor's degree students starting a four-year program in 2004, just 28 percent of students attending for-profit institutions graduated within six years. This was half the rate for students at four-year public institutions.
This is truly an American tragedy. Students may think they are climbing a ladder to success when instead they are getting knocked down, crushed by student debt that does not help them gain a better job or a better life. Because of these distorted incentives, we believe there may be significant consumer protection risks.
So we are looking at a wide range of the risks facing students, who are often pressured to use up valuable government benefits and then take out substantial federal and private loans. We have even heard troubling stories in this sector about high-pressure tactics that are employed to coax veterans to hand over their GI Bill benefits.
Today, we are taking our first public enforcement action against a for-profit college. We have filed a lawsuit against ITT Educational Services, one of the largest and most expensive for-profit chains in the country. Its schools are known by various names, such as ITT Tech and Daniel Webster College, and they have enrolled tens of thousands of students online or at about 150 institutions in nearly 40 states.
We believe this company misled students by overstating their job prospects and likely salaries upon graduation. Then it pushed them into high-cost private loans that were likely to end in default. Most of ITT’s students borrow large sums of money from the federal government to pay its high tuition costs. For many, though, federal loans do not cover the full costs. Students face a “tuition gap” that requires them to find other sources of funding.
To fill this gap, ITT set up its own private student loan programs. But these private loans were not available to students until their second year at ITT. To encourage new students to enroll and to bridge that tuition gap, ITT provided students with a zero-interest loan typically payable in full at the end of their first academic year through a program that it called “Temporary Credit.”
We believe ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund the next year’s tuition gap. ITT knew students would have to take out one of the high-cost private student loans it had set up for just this purpose. But ITT kept students in the dark about its lending model that it freely shared with investors.
In fact, we found that ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls.
For some borrowers, these loans came with interest rates of more than 16 percent over ten years, which is like financing your college education on your credit card. These expensive loans were often destined to default, and ITT knew that. In fact, its own analysis projected a default rate of 64 percent on these loans – key information that was never shared with the borrowers.
ITT students who wanted to transfer to a more affordable public or not-for-profit school would have found it very challenging to do so, as their ITT credits would not transfer.
Upon graduation, ITT students faced another sobering reality. ITT promised an education that would land students in a good job and increase their potential earnings. In reality, many students spent their time and money on programs that did not live up to those promises. So although ITT marketed itself as improving consumers’ lives, it was really just improving its bottom line. The result was that while many of the students got poorer, the investors and shareholders got richer.
Our action today is just the first step the Consumer Bureau is taking to address consumer issues in the for-profit college market. It builds on work that is already underway by a number of state attorneys general, and which we are undertaking in close partnership with them. California, Massachusetts, Colorado, New York, and Illinois are also litigating against various for-profit institutions, and I encourage you to take a closer look at their cases. As my colleagues from New Mexico, Illinois, Kentucky, and Iowa will be telling you today, they also have grave concerns about many of the schools operating in this sector.
Moving forward, the Consumer Bureau will subject the financial products and services offered by for-profit colleges and their partners to the same standards as any other consumer financial product or service. Consumers need to know what they are paying for and they need accurate and transparent terms. Unfair, deceptive, or abusive acts and practices will not be tolerated.
I would now like to turn it over to Attorney General King from New Mexico. Thank you.
###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visitconsumerfinance.gov.
MOREMOREMOREMORE!!! SEE BELOW!!!FOR IMMEDIATE RELEASE:
February 26, 2014
CONTACT:
Office of Communications
Tel: (202) 435-7170
CONSUMER FINANCIAL PROTECTION BUREAU SUES FOR-PROFIT COLLEGE CHAIN ITT FOR PREDATORY LENDING
ITT Pushed Consumers into High-Cost Student Loans Likely to Fail
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against ITT Educational Services, Inc., accusing the for-profit college chain of predatory student lending. The CFPB alleges that ITT exploited its students and pushed them into high-cost private student loans that were very likely to end in default. The CFPB is seeking restitution for victims, a civil fine, and an injunction against the company.
“ITT marketed itself as improving consumers’ lives but it was really just improving its bottom line,” said CFPB Director Richard Corday. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default. Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”
Like the mortgage market in the lead-up to the financial crisis, the for-profit college industry may be experiencing misaligned incentives. These colleges benefit when students take out large amounts of loans, regardless of the students’ long-term success. The CFPB is concerned that some of these corporations may be employing practices to coax consumers into taking out more federal and private student loans. Today’s announcement is the Bureau’s first public enforcement action against a company in the for-profit college industry.
ITT Educational Services, Inc. is an Indiana-based for-profit provider of post-secondary technical education. Tens of thousands of students are enrolled online or at one of ITT’s roughly 150 institutions in nearly 40 states. ITT’s tuition costs are among the highest in the country in the for-profit industry. Earning an associate’s degree at ITT can cost more than $44,000. Bachelor’s degree programs can cost $88,000. That is significantly higher than the cost of similar degrees at a community college or a public four-year institution.
Most of ITT’s students borrow large sums to pay the high tuition costs and the majority of this money is borrowed from federal student loan programs. But private student loans also provide critical revenue for ITT. Because most ITT students’ federal aid does not cover the full cost of an ITT program, most students face a “tuition gap” requiring them to find other sources of funding.
The CFPB’s lawsuit alleges that ITT encouraged new students to enroll at ITT by providing them funding for this tuition gap with a zero-interest loan called “Temporary Credit.” This loan typically had to be paid in full at the end of the student’s first academic year. But ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund their next year’s tuition gap.
The CFPB lawsuit alleges that between July 2011 and December 2011, ITT pushed its students into repaying their Temporary Credit and funding their second-year tuition gaps through high-cost private student loan programs. Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies. However, ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s “plan all along.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Specifically, in today’s lawsuit, the Bureau alleges the following conduct by ITT:
· Pressured into predatory loans: ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls. The loans were high-cost. For borrowers with credit scores under 600, for example, the costs of the private student loans included 10 percent origination fees and interest rates as high as 16.25 percent.
· Credits not transferable: ITT was accredited by a national organization that accredits many for-profit schools, but the credits that students earned typically did not transfer to local community colleges or other nonprofit schools such as public or private colleges. ITT used the prospect of expulsion and the loss of the money already spent during the student’s first year to coerce students into taking out the private loans.
· Misleading future job prospects: The Bureau believes that ITT’s representations led students to think that when they graduated they were likely to land good jobs and enough salary to repay their private student loans. In this way, ITT exploited student expectations while it knew that a majority of students would default.
· Loans likely to fail: ITT knew that most of its students would ultimately default on their private student loans; it projected a default rate for its students of 64 percent. Defaulting on private student loans can have grave consequences for consumers. It can make it difficult to get any kind of loan for years and even affect a borrower’s job prospects. And, because private student loans are difficult to discharge in bankruptcy, the debt can be very difficult to recover from.
The complaint against ITT can be found at: http://files.consumerfinance.gov/f/201402_cfpb_complaint_ITT.pdf
The Bureau’s complaint is not a finding or ruling that the defendant has actually violated the law.
To assist student loan borrowers who may be in delinquency or default, the CFPB recently launched an updated version of the Repay Student Debtinteractive tool.
The CFPB also recently finalized a rule allowing it to supervise certain nonbank servicers of federal and private student loans. The rule takes effect on March 1.
CFPB takes complaints about student loans. To submit a complaint, consumers can:
· Go online at www.consumerfinance.gov/complaint
· Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
· Fax the CFPB at 1-855-237-2392
· Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visitconsumerfinance.gov.
February 26, 2014
CONTACT:
Office of Communications
Tel: (202) 435-7170
Prepared Remarks of Richard Cordray
Director of the Consumer Financial Protection Bureau
ITT Enforcement Action Press Conference
Washington, D.C.
February 26, 2014
Thank you all for joining us today. And thank you to Attorney General King, Attorney General Madigan, Attorney General Miller, and Attorney General Conway for being with us.
Financial products can be a way for Americans to achieve dreams: to buy a home, to start a small business, and importantly, to go to school. People from all walks of life go to college to climb the economic ladder and it is important that markets work properly to allow them the opportunity to realize their dreams.
But as we all know from the financial crisis, normal market forces do not always work. In those heady years, we saw how some lenders made money by setting up borrowers to fail with mortgages they could not afford. Recently, we are finding some of those same mismatched incentives when it comes to the for-profit college market, which saw huge gains in the lead-up to the financial crisis, with enrollment more than tripling between 1998 and 2008.
What kinds of people are these for-profit colleges recruiting? They seek aspiring leaders who are eager to be one of the first in their families with a college degree. They recruit single mothers in the midst of their careers looking to better their lives. And they recruit the newly unemployed who are looking to rejuvenate their employment prospects in a tough job market.
These consumers are exactly the types of people who might gain the most from quality programs in higher education. But the corporations that own these colleges often seem to care more about dollar signs than diplomas.
At the Bureau, we believe many for-profit colleges may be saying one thing to students as they load them up with debt but saying another thing to investors as they sell their business model. In the end, the outcomes for many of these students do not live up to the promises the schools made to them. According to the National Center for Education Statistics, for bachelor's degree students starting a four-year program in 2004, just 28 percent of students attending for-profit institutions graduated within six years. This was half the rate for students at four-year public institutions.
This is truly an American tragedy. Students may think they are climbing a ladder to success when instead they are getting knocked down, crushed by student debt that does not help them gain a better job or a better life. Because of these distorted incentives, we believe there may be significant consumer protection risks.
So we are looking at a wide range of the risks facing students, who are often pressured to use up valuable government benefits and then take out substantial federal and private loans. We have even heard troubling stories in this sector about high-pressure tactics that are employed to coax veterans to hand over their GI Bill benefits.
Today, we are taking our first public enforcement action against a for-profit college. We have filed a lawsuit against ITT Educational Services, one of the largest and most expensive for-profit chains in the country. Its schools are known by various names, such as ITT Tech and Daniel Webster College, and they have enrolled tens of thousands of students online or at about 150 institutions in nearly 40 states.
We believe this company misled students by overstating their job prospects and likely salaries upon graduation. Then it pushed them into high-cost private loans that were likely to end in default. Most of ITT’s students borrow large sums of money from the federal government to pay its high tuition costs. For many, though, federal loans do not cover the full costs. Students face a “tuition gap” that requires them to find other sources of funding.
To fill this gap, ITT set up its own private student loan programs. But these private loans were not available to students until their second year at ITT. To encourage new students to enroll and to bridge that tuition gap, ITT provided students with a zero-interest loan typically payable in full at the end of their first academic year through a program that it called “Temporary Credit.”
We believe ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund the next year’s tuition gap. ITT knew students would have to take out one of the high-cost private student loans it had set up for just this purpose. But ITT kept students in the dark about its lending model that it freely shared with investors.
In fact, we found that ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls.
For some borrowers, these loans came with interest rates of more than 16 percent over ten years, which is like financing your college education on your credit card. These expensive loans were often destined to default, and ITT knew that. In fact, its own analysis projected a default rate of 64 percent on these loans – key information that was never shared with the borrowers.
ITT students who wanted to transfer to a more affordable public or not-for-profit school would have found it very challenging to do so, as their ITT credits would not transfer.
Upon graduation, ITT students faced another sobering reality. ITT promised an education that would land students in a good job and increase their potential earnings. In reality, many students spent their time and money on programs that did not live up to those promises. So although ITT marketed itself as improving consumers’ lives, it was really just improving its bottom line. The result was that while many of the students got poorer, the investors and shareholders got richer.
Our action today is just the first step the Consumer Bureau is taking to address consumer issues in the for-profit college market. It builds on work that is already underway by a number of state attorneys general, and which we are undertaking in close partnership with them. California, Massachusetts, Colorado, New York, and Illinois are also litigating against various for-profit institutions, and I encourage you to take a closer look at their cases. As my colleagues from New Mexico, Illinois, Kentucky, and Iowa will be telling you today, they also have grave concerns about many of the schools operating in this sector.
Moving forward, the Consumer Bureau will subject the financial products and services offered by for-profit colleges and their partners to the same standards as any other consumer financial product or service. Consumers need to know what they are paying for and they need accurate and transparent terms. Unfair, deceptive, or abusive acts and practices will not be tolerated.
I would now like to turn it over to Attorney General King from New Mexico. Thank you.
###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visitconsumerfinance.gov.
MOREMOREMOREMORE!!! SEE BELOW!!!FOR IMMEDIATE RELEASE:
February 26, 2014
CONTACT:
Office of Communications
Tel: (202) 435-7170
CONSUMER FINANCIAL PROTECTION BUREAU SUES FOR-PROFIT COLLEGE CHAIN ITT FOR PREDATORY LENDING
ITT Pushed Consumers into High-Cost Student Loans Likely to Fail
WASHINGTON, D.C. — Today the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against ITT Educational Services, Inc., accusing the for-profit college chain of predatory student lending. The CFPB alleges that ITT exploited its students and pushed them into high-cost private student loans that were very likely to end in default. The CFPB is seeking restitution for victims, a civil fine, and an injunction against the company.
“ITT marketed itself as improving consumers’ lives but it was really just improving its bottom line,” said CFPB Director Richard Corday. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default. Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”
Like the mortgage market in the lead-up to the financial crisis, the for-profit college industry may be experiencing misaligned incentives. These colleges benefit when students take out large amounts of loans, regardless of the students’ long-term success. The CFPB is concerned that some of these corporations may be employing practices to coax consumers into taking out more federal and private student loans. Today’s announcement is the Bureau’s first public enforcement action against a company in the for-profit college industry.
ITT Educational Services, Inc. is an Indiana-based for-profit provider of post-secondary technical education. Tens of thousands of students are enrolled online or at one of ITT’s roughly 150 institutions in nearly 40 states. ITT’s tuition costs are among the highest in the country in the for-profit industry. Earning an associate’s degree at ITT can cost more than $44,000. Bachelor’s degree programs can cost $88,000. That is significantly higher than the cost of similar degrees at a community college or a public four-year institution.
Most of ITT’s students borrow large sums to pay the high tuition costs and the majority of this money is borrowed from federal student loan programs. But private student loans also provide critical revenue for ITT. Because most ITT students’ federal aid does not cover the full cost of an ITT program, most students face a “tuition gap” requiring them to find other sources of funding.
The CFPB’s lawsuit alleges that ITT encouraged new students to enroll at ITT by providing them funding for this tuition gap with a zero-interest loan called “Temporary Credit.” This loan typically had to be paid in full at the end of the student’s first academic year. But ITT knew from the outset that many students would not be able to repay their Temporary Credit balances or fund their next year’s tuition gap.
The CFPB lawsuit alleges that between July 2011 and December 2011, ITT pushed its students into repaying their Temporary Credit and funding their second-year tuition gaps through high-cost private student loan programs. Students were left in the dark about the fact that taking out these high-cost loans would be required to continue their studies. However, ITT’s CEO revealed in investor calls that converting the temporary loans to long-term loans was the company’s “plan all along.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Specifically, in today’s lawsuit, the Bureau alleges the following conduct by ITT:
· Pressured into predatory loans: ITT used its financial aid staff to rush students through an automated application process without affording them a fair opportunity to understand the loan obligations involved. In some cases, students did not even know they had a private student loan until they started getting collection calls. The loans were high-cost. For borrowers with credit scores under 600, for example, the costs of the private student loans included 10 percent origination fees and interest rates as high as 16.25 percent.
· Credits not transferable: ITT was accredited by a national organization that accredits many for-profit schools, but the credits that students earned typically did not transfer to local community colleges or other nonprofit schools such as public or private colleges. ITT used the prospect of expulsion and the loss of the money already spent during the student’s first year to coerce students into taking out the private loans.
· Misleading future job prospects: The Bureau believes that ITT’s representations led students to think that when they graduated they were likely to land good jobs and enough salary to repay their private student loans. In this way, ITT exploited student expectations while it knew that a majority of students would default.
· Loans likely to fail: ITT knew that most of its students would ultimately default on their private student loans; it projected a default rate for its students of 64 percent. Defaulting on private student loans can have grave consequences for consumers. It can make it difficult to get any kind of loan for years and even affect a borrower’s job prospects. And, because private student loans are difficult to discharge in bankruptcy, the debt can be very difficult to recover from.
The complaint against ITT can be found at: http://files.consumerfinance.gov/f/201402_cfpb_complaint_ITT.pdf
The Bureau’s complaint is not a finding or ruling that the defendant has actually violated the law.
To assist student loan borrowers who may be in delinquency or default, the CFPB recently launched an updated version of the Repay Student Debtinteractive tool.
The CFPB also recently finalized a rule allowing it to supervise certain nonbank servicers of federal and private student loans. The rule takes effect on March 1.
CFPB takes complaints about student loans. To submit a complaint, consumers can:
· Go online at www.consumerfinance.gov/complaint
· Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
· Fax the CFPB at 1-855-237-2392
· Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
###
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visitconsumerfinance.gov.