Home > News > CFPB Sues Corinthian Colleges for Predatory Lending

Comments 0 Comments

One of the nation’s largest for-profit schools engaged in a lengthy series of deceptive acts to entice poor students to enroll and take out pricey student loans, the Consumer Financial Protection Bureau alleged Tuesday, saying the school had a “pervasive culture…that allowed employees to routinely deceive and illegally harass” student borrowers.

Corinthian Colleges, Inc., which had 74,000 students in March of this year, went so far as to create sham jobs to artificially inflate job placement rates, the CFPB said. It also encouraged students to take out 15% interest rate loans to pay tuition that ranged from $33,000 to $75,000; forced students to pay back the loans while in school, an unusual practice; and “shamed” some by pulling them out of class if they were behind on payments. The CFPB is suing Corinthian, seeking more than $500 million in relief for borrowers.

The CFPB estimates that 130,000 private student loans were initiated by Corinthian students from July 2011 to the present, with an outstanding balance of $569 million. Meanwhile, 60% of those loans landed in default within three years.

“For too many students, Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” said CFPB Director Richard Cordray. “We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school. We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans.”

Student loans can have a huge impact on your credit standing, especially if you miss payments or default on your loans like many Corinthian borrowers did. (You can see how your student loans are affecting your credit scores for free on Credit.com.)

Corinthian did not immediately respond to a request for comment.

Most Corinthian students come from “economically disadvantaged backgrounds,” the CFPB said, with many being the first in their families to attend college.

The school is no stranger to controversy. In June, the U.S. Department of Education delayed Corinthian’s access to federal student aid dollars because of reports of misconduct. In July, the school announced it had accepted a “monitor” appointed by the Department of Education to oversee the company’s compliance with an operating agreement it had signed with the agency.

The publicly traded company has more than 100 school campuses across the country. It operates schools under the names Everest, Heald and WyoTech.

Allegations in the CFPB lawsuit include:

  • Sham job placement rates: The CFPB alleges that this included creating fictitious employers and reporting students as being placed at those fake employers.
  • One-day long “careers”: Corinthian promised students rewarding careers, but counted a “career” as a job that merely lasted one day, with the promise of a second day.
  • Pay for placement: The CFPB alleges the school inflated advertised job placement rates by paying employers to temporarily hire graduates.
  • Craigslist career counseling: Students failed to get the career counseling they expected, the CFPB said. The limited career services included distributing generally available job postings from websites like Craigslist.
  • Tuition at the school could be five times the price of similar degrees at other institutions, the CFPB said. To pay for it, the schools encouraged students to take out what it called “Genesis Loans.” The Genesis loan interest rate was about 15% with an origination fee of 6%.
  • Students who fell behind on loan payments while in school were blocked access to school computer terminals and other academic resources; some were prevented from receiving their books for their next classes.

The CFPB is seeking court relief for students who owe the school money, and issued a special note with instructions for them, which can be found here.

More on Student Loans:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team