The Consumer Financial Protection Bureau last week filed a lawsuit against ITT Educational services, which is based in Carmel, Indiana. The suit alleges that ITT steered its students into high-cost private loans with a strong probability of default. The CFPB has been looking for such predatory lending in the for-profit college world and is likely to stay on the aggressive with these actions.
This suit marks the CFPB’s first public enforcement action within the for-profit college world. The CFPB will seek restitution, fines and an injunction against ITT. The costly loans where pushed to increase the colleges’ bottom line.
The filing in U.S. District Court in Indiana represents a crack down by the federal regulators on for-profit colleges. At ITT the federal aid doesn’t cover the full tuition so students must find other funding. The CFPB lawsuit alleges that ITT incentivized new students by funding this gap with a zero-interest loan. However, many students didn’t realize this loan had to be paid at the end of the first academic year. These losses for ITT are offset by billions they receive in federal aid.
Director Cordray stated about the suit “Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”