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  • Massachusetts AG sues Department of Education for failure to discharge loans

    Courts

    On October 22, the Massachusetts attorney general filed an action in the U.S. District Court for the District of Massachusetts challenging the U.S. Department of Education’s (DOE) continued collection of federal student loan debt incurred by over 7,000 individuals to attend a now closed for-profit college. The complaint alleges that, in 2015, the attorney general submitted an application to the DOE on behalf of the individuals who attended the for-profit school to have their federal loans forgiven due to the institution’s allegedly fraudulent conduct. The attorney general asserts that its application for loan discharge was supported by evidence of the institution’s various wrongful conduct towards Massachusetts students, and its submission established a defense to the enforceability of the underlying federal student loan debt. However, the complaint asserts that the DOE did not grant the requested loan relief and instead has continued collection efforts on debts subject to discharge under the attorney general’s application. The attorney general is seeking an order to set aside the DOE’s decision to continue collection efforts as “arbitrary and capricious” in violation of the Administrative Procedure Act and to declare that Massachusetts borrowers have established a defense to repayment of their federal student loans.

    Courts State Issues State Attorney General Department of Education For-Profit College Student Lending

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  • CFPB settles with defunct schools’ student loan management company

    Federal Issues

    On June 14, the CFPB announced a settlement with a company that manages student loans for a defunct for-profit educational institution resolving allegations it provided substantial assistance to the institution in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act (CFPA). As previously reported by InfoBytes, the Bureau filed suit against the now-defunct for-profit institution in February 2014.  The Bureau’s complaint against the institution alleged that the institution offered first-year students no-interest short-term loans to cover the difference between the costs of attendance and federal loans obtained by students. The complaint asserts that the institution then forced borrowers into “high-interest, high-fee” private student loans without providing borrowers an adequate opportunity to understand their loan obligations, when their short-term loans became due. In the complaint in the current matter, filed the same day as the proposed stipulated judgment, the Bureau alleges that the management company: (i) was substantially involved in the creation and operation of the loan program, including raising money and overseeing the origination and servicing of the loans; and (ii) knew, or was reckless in not knowing, the risks associated with the loan program. The stipulated judgment requires the company to (i) cease enforcement and collection efforts on all outstanding loans associated with the program; (ii) discharge all outstanding loans associated with the program; and (iii) direct credit reporting agencies to delete consumers’ trade lines associated with the loan program. The company must also provide notice of these actions to affected consumers. The proposed judgment does not include a monetary penalty or require refunds to consumers.

     

    Federal Issues Courts Settlement CFPA Unfair UDAAP For-Profit College Lending Student Lending CFPB

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  • New Jersey Attorney General seeks to partner with Department of Education on for-profit investigations

    State Issues

    On May 17, the New Jersey Attorney General, Gurbir Grewal, sent a letter to the Secretary of Education, Betsy Devos, regarding concerns that the Department of Education (Department) is no longer investigating fraudulent activities at for-profit colleges. Grubir cited work that State Attorneys General did with the Department during the previous administration regarding these investigations and noted that the cooperation between his office and the Department has “ground to a halt.” The letter concludes with Grubir requesting the Department continue several investigations that are in progress and offers to assist in sharing information and supplementing resources or, if the Department chooses not to pursue the investigations, to allow the New Jersey Attorney General to “pick up where [the Department] leave[s] off.”

    State Issues State Attorney General Department of Education For-Profit College Student Lending

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