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Domino: A Blog About Student Debt ED, the CFPB, and Borrowers Can All Hold School and Creditors Accountable for Predatory Lending Schemes

ED, the CFPB, and Borrowers Can All Hold School and Creditors Accountable for Predatory Lending Schemes

By Ben Kaufman | August 19, 2021

In June, the Student Borrower Protection Center released an investigative report documenting a scheme by American colleges and universities to boost revenues by driving students toward expensive, risky private credit. 

In particular, we found that schools ranging from local community colleges to flagship state institutions of higher education are working alongside contractors known as Online Program Managers (OPMs) to push students toward dubious short-term, non-degree granting “bootcamp” programs—and to drive them to take on massive private loans by shady private creditors in the process. As we wrote then, schools’ and lenders’ actions appear to run afoul of key consumer protections and to put students at risk. Moreover, these actions are all the latest outgrowth of the market for “shadow student debt,” an umbrella term for various expensive, misleadingly marketed, and lightly underwritten credit products usually used to prop up abusive for-profit colleges.

Luckily, it is clear that policymakers, law enforcement agencies, and even individual borrowers already have tools at their disposal to hold the various companies involved in this scheme accountable.

Today, we are releasing a new legal memo authored by Sabita Soneji and Leora Friedman of Tycko & Zavareei, LLP—a leading national law firm working on issues related to consumer financial protection—that provides a roadmap to ensure these companies are held accountable for unlawful practices. 

The new memo is available here: Legal Analysis, and Need for Increased Enforcement, of the Student Loan Sunshine Act

In particular, this memo shows how the Department of Education (ED), the Consumer Financial Protection Bureau (CFPB), and even individual borrowers all have legal tools available to address the extensive harm that our June report uncovered. The memo points to the following key steps forward to put an end to these dangerous practices:

  • ED must wield its power over schools and OPMs under the Higher Education Act and its implementing regulations, including by enforcing restrictions around arrangements between schools and creditors, weeding out existing violations of consumer protections, stating with the force of law that gamesmanship around non-degree granting programs will not be tolerated, and where necessary removing particularly malfeasant schools from accessing federal student aid programs.
  • The CFPB must utilize its authority over lenders under consumer protection statutes like the Truth and Lending Act to hold companies across the market accountable for deceptive lending practices, including for violations of the Truth in Lending Act’s ban on the use of school branding by private student loan companies—a practice rampant among OPM-backed bootcamps. 
  • Individual borrowers can access an extensive array of avenues for litigation against schools, OPMs, and lenders under state and federal law, including pursuing potential claims under the federal False Claims Act, lawsuits under state consumer protection statutes, breach of contract action as an intended third-party beneficiary of a school’s program participation agreement with ED, and several other available mechanisms for recourse.

When our report came out in June, administrators from at least one college claimed that because this scheme involved third-party contractors and non-degree granting programs, key consumer protections for student loan borrowers didn’t apply. This is wrong as a matter of law. This argument also shows that the actors involved in the racket we uncovered in June intend to point fingers, attempt to dodge blame, and hide behind spurious legal claims. Today’s memo makes clear that policymakers, state and federal law enforcement, and even borrowers all have the power to make sure that those who skirt responsibility for their actions don’t succeed.

It’s time to hold schools accountable for profiteering off of dangerous debts at students’ expense, and to break up the scheme empowering them to do so.

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Ben Kaufman is the Head of Investigations and a Senior Policy Advisor at the Student Borrower Protection Center. He joined SBPC from the Consumer Financial Protection Bureau where he worked as a Director’s Financial Analyst on issues related to student lending.

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