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  • FTC takes action against medical school for deceptive tactics

    Federal Issues

    On April 14, the FTC filed a complaint against a Caribbean for-profit medical school and its Illinois-based operators alleging the defendants violated the Telemarketing Sales Rule, Holder Rule, and Credit Practices Rule (CPR) in connection with its marketing and credit practices. According to the complaint, the defendants improperly marketed the school’s medical license exam pass rate and residency match success. In addition, financing contracts omitted a legally-mandated Holder Rule notice in their credit agreements, among other things. Under the Holder Rule, “any seller that receives the proceeds of a purchase money loan [must] include, in the underlying credit contract, a specific notice informing the consumer of their right to assert claims against any holder of the credit contract.” In addition to omitting the required notice, the defendants also allegedly attempted to waive consumers’ legal rights by inserting language in the credit agreements stating, “ALL PARTIES, INCL[U]DING BOTH STUDENT BORROWER AND COSIGNER. . .WAIVE ANY CLAIM OR CAUSE OF ACTION OF ANY KIND WHATSOEVER THAT THEY MAY HAVE WITH RESPECT TO [DEFENDANT]…” The FTC also contended that the defendants included a notice informing cosigners of their liability in the middle of the contract, instead of providing a separate document containing specific language required by the CPR.

    Under the terms of the proposed stipulated order, the defendants are required to pay a $1.2 million judgment that will go towards refunds and debt cancellation for affected consumers, and also cease collection of approximately $357,000 in consumer debt covered by the proposed order. Defendants are also required to notify each consumer that their debt is being cancelled and that consumer reporting agencies will be directed to delete the debt from the consumers’ credit reports. Additionally, defendants are prohibited from misrepresenting their pass rates and residency matches, and from making unsubstantiated claims or violating federal law. The order also provides Holder Rule protections, including prohibiting defendants from selling, transferring, or assigning any consumer credit contracts unless the recipient of such contract agrees, in writing, “that its rights are subject to the borrowers’ claims and defenses against [d]efendants” and requiring defendants to notify each borrower whose credit contract is sold.

    Federal Issues FTC Enforcement UDAP Deceptive Telemarketing Sales Rule Holder Rule Credit Practices Rule FTC Act

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