The Consumer Financial
Protection Bureau filed a complaint and proposed settlement in an Oregon
federal court, against Aequitas Capital Management, Inc. and related entities,
for aiding the Corinthian Colleges’ predatory lending scheme.
Aequitas Capital
Management, Inc. was a private equity firm that purchased or funded about $230
million in Corinthian Colleges’ private loans, branded by the school as
“Genesis loans.” On March 10, 2016, the Securities and Exchange Commission took
action against Aequitas, alleging Aequitas, and related entities, had defrauded
more than 1,500 investors. A receiver was appointed to wind down Aequitas and
distribute its remaining assets.
Abusive acts and practices. The Bureau’s complaint alleged that Aequitas violated the Dodd-Frank
Act’s prohibitions against abusive acts and practices by funding and supporting
Corinthian’s predatory Genesis loan program. Specifically, the CFPB claimed
that Aequitas and Corinthian plotted to make it seem as if the school was getting
outside revenue in the form of the Genesis loans, when in reality Corinthian
was paying Aequitas to support the loan program. Corinthian and Aequitas
engaged in this arrangement to satisfy Corinthian’s obligations under the 90/10
rule, a federal law requiring for-profit schools to obtain at least 10 percent
of their revenue from other sources in order to get federal loan dollars.
Loan forgiveness and reduction. Under a settlement agreement, that the federal court approved, Aequitas and related entities would be required
to:
·
forgive Genesis loans in connection with certain
closed schools;
·
forgive Genesis loans in default; and
·
reduce all other Genesis loans by more than
half.
By the settlement’s terms, about 41,000 Corinthian students could be eligible for approximately $183.3
million in loan forgiveness and reduction.
Another step. Commenting on the Bureau’s action, CFPB Director
Richard Cordray said, “Tens of thousands of Corinthian students were
harmed by the predatory lending scheme funded by Aequitas, turning dreams of
higher education into a nightmare.” He added, “Today’s action marks another
step by the Bureau to bring justice and relief to the borrowers still saddled
with expensive student loan debt. We will continue to address the illegal
lending practices of for-profit colleges and those who enable them.”
In September 2014, the
CFPB filed a lawsuit against Corinthian
Colleges, Inc., alleging that it used fraudulent statistics and false
promises to enroll students, induced students to take out predatory loans to
pay inflated tuition, and then used illegal tactics to collect the loans.
Following the Corinthian Colleges lawsuit, Zenith Education Group
and its parent, ECMC Group, Inc., reached a settlement with the Bureau and
Department of Education that released the two companies from any possible
liability for the actions of Corinthian Colleges,
Inc., a for-profit education company from which they purchased a number of
schools. As part of the settlement, Zenith and ECMC were to provide more than $480
million in loan forgiveness to Corinthian’s borrowers.
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