INDIANAPOLIS–Seven credit unions that have already suffered more than $150 million in losses from loans made to students of the former ITT Technical College have now agreed to pay more than $7 million to bring the painful ordeal to a close.
The credit unions owned a CUSO named CU Student Connect that in 2009 began making loans to the for-profit ITT Technical Institute. As CUToday.info reported here, in 2016, ITT’s parent, Carmel, Ind.-based based ITT Educational Services Inc., filed for bankruptcy, with the bankruptcy trustee eventually filing suit against the credit unions and one other CUSO.
The credit unions involved said in court statements they are owed $157 million as the result of “unfulfilled commitments by ITT to step in and make payments itself if losses surpassed certain thresholds,” according to the Indianapolis Business Journal.
The Defendants
Named as defendants in the lawsuit were Elements Financial Federal Credit Union (formerly known as Eli Lilly FCU), Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and CommunityAmerica Credit Union. The Rochdale Group was also named in the suit.
ITT has also been named in dozens of lawsuits, including by former students and others, over a number of allegations, including inflating job placement statistics and expected earnings and for overstating the qualifications of its instructors, and more. Fraud charges were also filed against top executives.
When ITT closed its 130 campuses in 2016, it eliminated 8,000 jobs, left in limbo 40,000 students who were then enrolled, and further left another 750,000 students with debt.
Coming to An End?
Now, according to the Indianapolis Business Journal, the legal odyssey may be coming to an end with the credit unions/CUSO agreeing to pay an additional $7.5 million they had been holding in a collateral account. The IBJ noted that payment is “modest compared to what bankruptcy Trustee Deborah Caruso originally sought in her 2017 suit—which charged that the credit unions must pay back tens of millions of dollars in ‘fraudulent transfers’ from ITT and must pay tens of millions of dollars in additional damages for aiding and abetting fraud and breaches of fiduciary duty by ITT’s top brass…”
The IBJ added that according to the 76-page complaint, the fraudulent-transfer claims stem from a former executive’s charge that payments the lenders received occurred at a time ITT already was insolvent or the payments made it so.
Painful & Ongoing
Losses to the credit unions have been painful and ongoing. The Indianapolis Business Journal noted that in 2012, for instance, the then Eli Lilly FCU recorded a $26 million loan loss allowance—which represented 70% of the loans it issued under the program—resulting in a $14 million overall loss for that year.
The credit unions have argued the case is entirely without merit and that the CUSO is among the victims of ITT. “The CUSO—which embarked on the loan program with the best of intentions, and neither knew of, nor participated in, any wrongdoing by [ITT]—has been left with substantial losses in excess of $150 million,” the credit unions said in their filing, according to the IBJ.
In 2018, a bankruptcy judge approved a settlement that erased more than $600 million they owed ITT. It further validated a $1.5 billion unsecured claim the students asserted on the grounds that the company violated consumer protection laws, the IBJ reported.
Last In Line
The judge’s ruling also validated an unsecured claim filed by the credit unions in the bankruptcy case, but reduces its size to $128 million, 15% less than they pursued, according to documents.
As unsecured creditors, the credit unions are last in line for any payment.