By Stephen Hayes and Andrea Lowe | December 4, 2020
For decades, for-profit schools have promised prospective students that enrollment will open the door to new careers and amplified earnings. But these promises are illusory. For-profit schools have a track record of misleading students using a range of tactics including deceptive advertising, misrepresenting graduation and employment prospects, aggressive recruiting tactics, and coercive and fraudulent financing practices.
This is a civil rights issue; Black and Latinx students are over-represented in for-profit schools and the harms from these schools fall disproportionately on communities of color.
Unfortunately, regulators have failed to curb these abuses despite years of public attention. It’s clear that historical approaches and tools aren’t sufficient, particularly when it comes to preventing and remedying the chronic discrimination involved. And without immediate action, these harms will increase. Economic downturns provide fertile ground for predatory practices: people are economically vulnerable, and job prospects and income opportunities are limited. The worst actors exploit these opportunities. There is evidence that for-profit schools are already doing so. Meaningful change requires different tools.
Civil rights laws can bridge this gap. As discussed in our latest report: Combating Exploitative Education: Holding For-Profit Schools Accountable for Civil Rights Violations, civil rights statutes and regulations must be strengthened and enforced to protect borrowers and hold for-profit schools accountable for their predatory practices towards communities of color and other student loan borrowers. In particular, the Equal Credit Opportunity Act (ECOA) and Title VI of the Civil Rights Act of 1964 (Title VI) prohibit reverse redlining, making it illegal to target predatory products to minority communities. Civil rights laws have been deployed in this way to combat discrimination across a number of markets, including mortgage, rent-to-own housing, and auto lending.
One case leveraging these laws, Morgan v. RSHT, illustrates how civil rights enforcement can achieve justice and compensation for victims of predatory for-profit schools. Plaintiffs alleged that Richmond School of Health and Technology (RSHT) targeted potential students from predominantly Black neighborhoods to take on tens of thousands of dollars in federal student loans on the basis of false and misleading promises about the terms of the loans and the benefits of the educational programs. The plaintiffs specifically alleged that students lacked teachers for weeks at a time, that RSHT enrolled students in programs for which there was no certification or licensing examination, and that the school falsified employment status reports, recorded graduates working administrative or janitorial jobs at healthcare facilities as being employed within their field of study, and committed fraud in the financial aid process.
The allegations in RSHT are not unique and mirror well-documented problems across the industry. This report lays out a roadmap for litigators looking to bring these cases and debunks common industry arguments meant to fend off civil rights relief. Increased enforcement against for-profit schools must include civil rights claims to fully address and remediate the injury inflicted on communities of color. These enforcement efforts should be driven not just by private parties but also by federal and state regulators like the Consumer Financial Protection Bureau (CFPB), the Department of Justice (DOJ), and the Federal Trade Commission (FTC).
Litigation alone will not solve this civil rights problem. It should be complemented and buttressed by legislative and regulatory action that broadens the civil rights tools available. To that end, policymakers should:
- Codify reverse redlining case law. The CFPB should amend Regulation B or issue guidance explicitly codifying well-established reverse redlining case law. Such guidance should highlight that: (1) schools and other entities that arrange for student loans are “creditors” under ECOA; (2) discriminatory targeting is illegal, and evidence that other groups were treated more favorably is not required; and (3) discriminatory schemes inducing applicants to finance predatory programs are illegal, regardless of whether the loan terms themselves are predatory.
- Require public data collection on student loan and student employment outcomes. For decades, the Home Mortgage Disclosure Act (HMDA) has provided critical data for regulators and the public to identify potential discrimination in the mortgage market. A new for-profit school public data collection mechanism would similarly support reverse redlining claims against predatory actors.
- Demand reporting by Title IV recipients of advertising materials, expenditures, and detailed demographic data. The Department of Education should require all schools that receive federal aid to report additional data, advertising materials, and metrics to facilitate more meaningful compliance reviews and help identify discriminatory practices.
- Reinstitute bans on mandatory arbitration. Borrowers should not be barred from pursuing their legal rights in court. For-profit schools, however, rely on mandatory pre-dispute arbitration agreements to prevent students from seeking effective relief. In the new administration, the Department of Education and CFPB should reinstitute their bans against class action waivers and mandatory pre-dispute arbitration. New Jersey recently advanced legislation to ban mandatory arbitration in school enrollment agreements; other states should follow suit.
- Broaden state credit discrimination statutes to codify coverage of for-profit schools and their predatory practices. Although many state fair lending statutes are modeled after ECOA and clearly prohibit reverse redlining practices by for-profit schools, some state statutes are more limited. States should update their credit discrimination laws to broaden protected classes and prohibited practices to curb abuses by predatory for-profit schools.
The Biden Administration has the opportunity to expand and leverage fair lending and consumer protection laws, empowering law enforcement and litigants to curb abuses by for-profit schools. Robust and rigorously enforced fair lending tools are critical to protect borrowers and communities of color that have been targeted for too long.
Stephen Hayes is a Partner at Relman Colfax. Stephen originally joined the firm in 2011 and returned in 2018 after several years at the Consumer Financial Protection Bureau (CFPB). Stephen was part of a team that successfully advocated on behalf of students in a reverse redlining class action against a for-profit school.
Andrea Lowe is an Attorney at Relman Colfax. Andrea joined the firm in 2018 after working on consumer protection issues at the CFPB. Andrea advises clients on compliance with the Fair Housing Act and the Equal Credit Opportunity Act and represents individuals and organizations in housing and lending discrimination lawsuits, including a challenge to predatory rent-to-own practices that are alleged to constitute reverse redlining.