Groups Urge Federal Regulators to Investigate PayPal Credit’s Role in High-Cost Education Financing
August 21, 2020 | Washington, DC — Today, the Student Borrower Protection Center (SBPC), Americans for Financial Reform Education Fund, Allied Progress, and Student Debt Crisis sent letters to online payments company PayPal, Inc. and to the federal financial regulators overseeing the company, warning that the tech firm’s practices may cause significant harm to borrowers attending for-profit schools. An SBPC investigation found PayPal Credit, a high-cost, digital credit product, is offered by over 150 for-profit schools as a means for students to finance tuition. With exorbitant interest rates, fees, and other risky features, the groups warn of significant consumer harm that PayPal Credit may cause students and call for an immediate investigation into the company. The groups also call on PayPal’s CEO to abandon these practices and end the company’s role propping up the for-profit school industry.
Read the letter to federal financial regulators: https://protectborrowers.org/ppc-letter-regulators
Read the letter to PayPal CEO Dan Schulman: https://protectborrowers.org/ppc-letter-company
Background
PayPal Credit, a subsidiary of PayPal Holdings, Inc., works alongside Synchrony Bank, a federally chartered savings association, to provide consumers credit accounts. These accounts are typically used for shopping online; however, according to the SBPC investigation, PayPal is also marketing and providing its products as high-cost education financing options at for-profit schools—an industry notorious for borrower abuse.
According to the letter, over 150 colleges, career academies, certificate programs, and other educational institutions—most without accreditation—prominently advertise PayPal Credit as a preferred option for students to finance their educational expenses. Programs range widely to include classes on home inspection, makeup art, swordsmanship, hypnosis, veganism, and training for flight attendants or bodyguards. Schools are almost exclusively unaccredited and lightly or wholly unsupervised, despite driving students to take on thousands of dollars in high-cost, potentially predatory debt to finance programs with dubious value.
The advocates’ letter describes PayPal Credit and its partner, Synchrony Bank, engaging in harmful financial practices that pose risks to students who attend for-profit schools. This includes extending high-cost credit to borrowers attending the programs mentioned above, deploying misleading marketing materials, and engaging in aggressive collections practices.
View the list of over 150 schools as well as examples of for-profit schools’ marketing of PayPal Credit: https://protectborrowers.org/ppc-marketing/
Last month, the SBPC published a report examining the universe of often exploitative debt and credit products targeted toward students attending for-profit schools. The SBPC report found that millions of students have taken on billions of dollars in so-called “shadow student debt.” PayPal remains one of the prominent companies driving students to take on these debts.
The SBPC report, Shadow Student Debt, can be found here: https://protectborrowers.org/shadow-student-debt-report/
Borrower Alert: Beware of High-Cost ‘Shadow’ Education Financing Used to Pay for Unaccredited, Unverified Programs
As millions of Americans face job loss and furloughs, education programs and some employers increasingly tout going back to school or enrolling in training or certificate programs as a solution to an ailing labor market. Many of these short-term training programs are concentrated in the for-profit school sector, which saw rapid growth during the last economic downturn.
Prospective students should be extremely cautious of claims that schools make about future career and economic prospects, particularly during economically uncertain times. Additionally, students should keep in mind that these schools often partner with finance companies to peddle high-cost, risky debt for degrees or programs that may not pay off.
During that last economic recession, predatory for-profit schools engaged in egregious recruiting practices and outright fraud to convince new students to enroll and take on massive amounts of unaffordable student debt, only to leave them with worthless degrees and certificates. These schools often partnered with shady financial companies to create predatory loan products that were designed to fail the most vulnerable students.
Students should rigorously evaluate prospective educational programs to ensure they understand the total cost of the programs, understand the typical wages and career outcomes for graduates and non-completers, the rate of completion for past students, and what financial products are available to finance the cost of their programs. Not all student loans are created equally, and private student loans have fewer protections than federal student loans. Some programs also promote alternative lending options with even fewer protections and higher costs than traditional private loans. Borrowers should especially beware of programs lacking accreditation that drive students into high-cost debt products. Further, borrowers who believe they have been misled by a career program, should file a complaint with their state attorney general.
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The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.
Allied Progress, founded in 2015, is a watchdog organization that stands up for consumers by holding policymakers and predatory financial institutions accountable. Allied Progress is a project of Accountable.US, a nonpartisan watchdog group committed to making sure public officials are advancing policies in the public interest across a wide range of issues.
Americans for Financial Reform Education Fund (AFREF) is a nonpartisan, nonprofit coalition of more than 200 civil rights, community-based, consumer, labor, small business, investor, faith-based, civic groups, and individual experts. We fight for a fair and just financial system that contributes to shared prosperity for all families and communities.
Student Debt Crisis is a 501(c)(4) nonprofit advocacy organization with over 1,500,000 supporters calling for fundamental reforms to student loan policies. It is the goal of Student Debt Crisis to educate borrowers about their repayment rights while advocating for structural changes.