It appears that the final chapter of the ITT Educational Services, Inc. (“ITT”) story was written last week with the CFPB’s announcement that it entered into a stipulated settlement with PEAKS Trust 2009-1 (“PEAKS”), a special purpose entity created in 2009 to purchase, own, and manage certain private student loans with students enrolled at ITT. The settlement with PEAKS marks the CFPB’s third settlement related to ITT’s private loan programs.
The tale began in February 2014, when the CFPB filed a lawsuit against ITT in which it alleged that ITT had engaged in unfair and abusive acts or practices through conduct that included coercing students into high-interest loans that ITT knew students would be unable to repay. The complaint alleged that ITT knew students did not understand the terms and conditions of the loans and could not afford them, resulting in high default rates. After failing to obtain a dismissal of the lawsuit based on a challenge to the CFPB’s constitutionality, ITT closed all of its campuses and filed for bankruptcy protection.
On June 14, 2019, the CFPB entered into a settlement with Student CU Connect CUSO, LLC (“CUSO”), another company that had been set up to hold and manage a separate portfolio of private loans for ITT students. The settlement stemmed from the CFPB’s lawsuit against CUSO, wherein the CFPB alleged that CUSO provided substantial assistance to ITT’s unlawful conduct through its involvement in the creation of the CU Connect Loan program, by facilitating access to funding for the loans, overseeing loan originations, and actively servicing and managing the loan portfolio. Under that settlement, CUSO was required to discharge approximately $168 million in loans.
On August 12, 2019, the CFPB announced a settlement with ITT. Under the terms of the settlement, a judgment was entered against ITT for $60 million. ITT was also prohibiting from offering or providing student loans in the future.
In its complaint against PEAKS, the CFPB alleged that PEAKS, as owner and manager of certain ITT student loans, knew or should have known that many student borrowers did not understand the terms and conditions of those loans and could not afford them, and therefore provided substantial assistance to ITT in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act. The proposed stipulated judgment and order would require PEAKS to: (1) cease collecting on all outstanding PEAKS loans; (2) discharge all outstanding PEAKS loans; (3) request that all consumer reporting agencies delete information relating to PEAKS loans; and (4) provide notice to all consumers with outstanding PEAKS loans that their debt has been discharged. The total amount of loan forgiveness is currently estimated by the CFPB to be $330 million.
In addition to the CFPB’s lawsuit and settlement with NDG Financial Corp. and related investors in connection with offshore payday lending, the ITT-related cases are among the rare CFPB actions involving investors. These actions are reminders that Section 1036 of Dodd-Frank gives the CFPB UDAAP authority over “any person” who knowingly or recklessly provides substantial assistance to a covered person or service provider.