On March 28, 2024, four former Walden University students (“Plaintiffs”) filed a proposed settlement both individually and on behalf of a putative class of current and former Walden University (“Walden”) students with the Federal District Court for the District of Maryland to resolve allegations first raised against Walden in a complaint more than two years ago. The complaint alleged that Walden violated Title VI of the Civil Rights Act of 1964, the Equal Credit Opportunity Act (“ECOA”), and three Minnesota consumer protection statutes by targeting Black and female prospective students for its Doctor of Business Administration (“DBA”) program while hiding the program’s true cost. According to Plaintiffs’ allegations, Walden advertised that its DBA program could be completed with a certain number of credits, but then required students to complete additional credits (at additional cost) after they had enrolled and invested their time and money into the program. The complaint survived a motion to dismiss in November of 2022. The proposed settlement would require Walden to pay $28.5 million into a settlement fund and to provide disclosures about and make changes to its DBA program.

The theory under which Plaintiffs brought these claims is that Walden is a creditor because of the role it plays in arranging the extension and continuation of federal student loans, and that the alleged discrimination (i.e. the reverse redlining) in how it advertised its DBA program was tied to these credit transactions. Given that the loans in question were federal student loans, unlike cases involving private loans the complaint does not allege any discrimination in the pricing or underwriting of the loans, nor even in the way the loans were offered to applicants and prospective applicants. It only alleges discrimination in the way Walden recruited Black and female students into its DBA program.

This theory, which would represent a significant extension of ECOA (even beyond what the CFPB has thus far failed to achieve in Townstone), is reminiscent of the plaintiffs’ theory in Roberson v. Health Career Institute LLC, an ongoing case in federal court in Florida that prompted the Consumer Financial Protection Bureau (“CFPB”) to file a Statement of Interest supporting the merits of the plaintiffs’ claim. In fact, the CFPB cited with approval the court’s order denying Walden’s motion to dismiss in its Statement of Interest as support for its view that “ECOA violations are not necessarily restricted to consideration of the four corners of the paper bearing a student borrower’s signature” and that unfair, predatory, and discriminatory allegations related to a degree program that was largely funded by loans constituted allegations of discrimination with respect to an “aspect of a credit transaction.”

Reverse redlining differs from most fair lending theories in that it is not based on exclusion, but over-inclusion in a predatory loan product (or here, over-inclusion in an alleged predatory educational program that was funded by a non-discriminatory loan product). This results in what seems like praiseworthy statements being used to instead condemn Walden. For example, the complaint states that Walden’s doctoral student population was 41% Black and 77% female, more than seven times and 1.7 times the percentage of doctoral recipients nationwide who are Black and female respectively. The complaint also states that Walden conferred more doctoral degrees to Black candidates than any other institution over the five year period from 2016 to 2020. There is a genuine risk that a rise in reverse redlining claims could lead to fewer opportunities for individuals in protected classes.

As we await the Seventh Circuit’s decision in Townstone, this proposed settlement, which will likely conclude the dispute between Plaintiffs and Walden University, represents an important footnote in the battle over the reach of ECOA.