The CFPB announced that it has entered into a consent order with Bridgepoint Education, Inc., the owner of two for-profit colleges, to settle charges that the company’s representatives engaged in deceptive acts or practices by misrepresenting the potential costs of loans offered directly by the company to students. The consent order requires the company to provide approximately $23.5 million in consumer relief in the form of loan forgiveness and refunds, and to pay an $8 million civil money penalty to the CFPB. In its press release, the CFPB stated that its investigation was assisted by the California Attorney General and the Department of Education.
According to the consent order (whose findings of fact or conclusions of law are not admitted or denied by the company), Bridgepoint deceived students about the total cost of the loans it offered by understating the monthly repayment amount. Specifically, the CFPB found that Bridgepoint told students that borrowers could pay off the loans with monthly payments of as little as $25, when “in many instances typical payments on [such loans] were greater than $25.”
The consent order requires Bridgepoint to refund all payments made by students on direct loans, including principal and interest, which total nearly $5 million. The company must also forgive all outstanding debt on its direct loans, which totals approximately $18.5 million, and remove all tradelines placed with any consumer reporting agency about any student loan debt.
Under the consent order, the company must require all entering and current students who are borrowing money to finance their education to generate a personalized disclosure using an “Electronic Financial Impact Platform” developed by the CFPB before enrolling in a program of study. The disclosure shows estimates of a student’s costs, total debt and corresponding monthly loan payments over a term of years based on current interest rates, the student’s income if he or she successfully graduates, and post-graduation expenses. The disclosure appears to be similar to information provided to users of the “Paying for College” tools available on the CFPB’s website.
Although the consent order also prohibits the company from making false, deceptive, or misleading statements regarding actual or typical monthly payments students are obligated to make in connection with its direct student loans, it is unclear whether the consent order permits Bridgepoint to make new direct student loans.
The CFPB’s finding that Bridgepoint’s “as low as” claims were deceptive because borrowers had higher monthly payments “in many instances” would appear to also have implications for advertisements of other credit products and “as low as” claims made as to other credit terms, such as interest rates. In addition, the finding suggests that the CFPB would apply the same standard to “up to” claims made as to credit terms such as credit limits or loan amounts. (The FTC has used a similar standard for “up to” savings claims in advertisements. The FTC has indicated that Section 5 of the FTC Act requires advertisers using such claims to be able to demonstrate that a consumer is “likely” to achieve the maximum claimed savings under normal circumstances.)
For-profit colleges have become a CFPB target. In September 2014, the CFPB commenced an action against Corinthian Colleges alleging misrepresentations regarding job placement rates and alleged improper debt collection practices. That action ended with a $531 million default judgment and Corinthian’s bankruptcy and dissolution. In February 2014, the CFPB filed a lawsuit against ITT Educational Services, Inc. in which it alleged that ITT misled student loan borrowers about job placement rates and salaries after graduation, misrepresented information about accreditation and the transferability of credits, and strong-armed students into high-interest loans that the company knew students would be unable to repay. In March 2015, the district court rejected ITT’s attempt to obtain a dismissal of the CFPB’s complaint based on a challenge to the CFPB’s constitutionality. In June 2016, ITT’s attempt to appeal the decision was rejected by the Seventh Circuit, which found that the denial did not qualify as an immediately appealable order. Earlier this month, ITT announced the closure of all of its campuses.