WASHINGTON—The CFPB has announced a $330-million settlement that means tens of thousands of former students of ITT Technical Institute will not have to repay their private student loans. Prosecutors called the loans “reckless” and “deceptive” in announcing the deal.
Officially, the Consumer Financial Protection Bureau has filed a proposed stipulated judgment against PEAKS Trust 2009-1, along with Deutsche Bank National Trust Co., Deutsche Bank Trust Company Delaware, and Deutsche Bank Trust Co. Americas, in their capacity as trustees to PEAKS Trust 2009-1.
In its complaint, filed in the District Court for the Southern District of Indiana, the Bureau alleged that PEAKS provided substantial assistance to ITT Educational Services, Inc. (ITT) in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act of 2010.
PEAKS owned and managed private loans for students at ITT Technical Institute. PEAKS allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them, the CFPB said.
The Requirements
If entered by the court, the proposed judgment will require PEAKS to forgive all of its outstanding loans—approximately $330 million in debt– for about 35,000 borrowers who currently have outstanding principal balances. Forty-seven states plus the District of Columbia have also settled with PEAKS, the CFPB said.
ITT operated ITT Technical Institute until it filed for bankruptcy and ceased operations in 2016. The Bureau filed suit against ITT in February, 2014, alleging that ITT engaged in unlawful acts and practices to push students into private student loans in a scheme to improve the appearance of ITT’s financial statements and its standing among investors.
“To this end, ITT developed two private loan programs, the Student CU Connect CUSO, LLC (CUSO) and PEAKS loan programs,” the CFPB said. “Despite knowledge that the default rate on these loans would be high–and in fact defaults reached in excess of 94% and 80% for the two private loan programs–ITT and its partners pressed on, issuing high cost loans to students in order to temporarily improve ITT’s balance sheet. In the end, while ITT’s partners were paid guarantee payments by ITT to cover much of their losses, ITT students were left saddled with high cost loans, derogatory information on their credit reports, or both.”
Additional Allegations
The Bureau’s complaint against PEAKS further alleged that ITT arranged for the PEAKS loans to be serviced and collected on after ITT had induced its students to take out the loans by a variety of unfair practices, including rushing students through financial aid appointments, using aggressive tactics, and in some cases, gaining unauthorized access to student accounts to sign students up for loans without permission. The Bureau alleged that PEAKS was actively involved in servicing and managing the PEAKS loan program, including the collection of the loans, and that PEAKS’s conduct constituted substantial assistance of ITT’s unfair acts and practices in violation of the CFPA.
If entered by the court, the proposed stipulated judgment would require PEAKS to stop collecting on all outstanding PEAKS loans, discharge all outstanding PEAKS loans, and ask all consumer reporting agencies to which PEAKS furnished information to delete information relating to PEAKS loans. The order would also require PEAKS to provide notice to all consumers with outstanding PEAKS loans that their debt has been discharged and is no longer owed and that PEAKS is seeking to have the relevant consumer reporting information deleted. The total amount of loan forgiveness is currently estimated to be $330 million, for about 35,000 consumers with outstanding balances owed on their PEAKS loans, the CFPB said.
Additional information about the CUSO settlement can be found here.