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CFPB Sues Private Equity Firm for Student Loan Scheme

Mon 11 Sep, 2017  /  by McIntyre & Lemon  /   Client Alerts

09/11/17 – Last month, the Consumer Financial Protection Bureau (“CFPB”) filed a complaint and proposed a settlement against a private equity firm for aiding in a for-profit college’s student lending program.

The private equity firm, based in Lake Oswego, Ore., purchased or funded about $230 million in the now-defunct college’s private loans. On March 10, 2016, the Securities and Exchange Commission took action against the firm, alleging they had defrauded more than 1,500 investors. A receiver was appointed to wind down the firm and distribute its remaining assets.

The CFPB’s complaint alleges that the private equity firm violated the Dodd-Frank Wall Street Reform and Consumer Protection Act’s prohibitions against abusive acts and practices by funding and supporting the school’s private loan program. The complaint alleges that both the school and the private equity firm knew most student borrowers would default on these loans. Under the scheme, the defaults would not affect the firm because the school was committed to buying back all delinquent loans.

The CFPB alleges that the firm enabled the school to make high-cost private loans to students so that it would seem as if the school was making enough outside revenue to meet the requirements for receiving federal student aid dollars.

The CFPB’s proposed settlement seeks $183.3 million in relief for borrowers. Under the proposed settlement, the firm would be required to:

  • Forgive the student loans in connection with the closed schools
  • Forgive the student loans in default
  • Reduce all other student loans by more than half

CFPB Press Release; Complaint; Proposed Settlement.