Predatory Lending/Consumer Protection Clinic

Job Announcement: LSC’s Project on Predatory Student Lending Hiring for a Clinical Attorney

The Project on Predatory Student Lending seeks an outstanding experienced attorney to join our team this summer. The Project is committed to building and maintaining a diverse staff and an inclusive environment.

This position presents an opportunity to join an exciting and innovative project that provides much-needed services, the benefits of which will extend beyond our local community, to work in a dynamic public interest and clinical teaching law office, and to advocate on behalf of consumers harmed by fraudulent and deceptive practices.

Candidates must have a J.D. and be admitted to the Massachusetts bar or have the ability to receive temporary admission pursuant to Massachusetts Supreme Judicial Court Rule 3:04. Minimum of 3 years litigation experience required.

For more information, please see the posting here.

LSC’s Project on Predatory Student Lending and Public Citizen Sue to Stop Education Department’s Illegal Regulatory Delay

The U.S. Department of Education broke the law when it announced a delay of a rule designed to protect students defrauded by predatory for-profit colleges and career training programs, two borrowers said in a lawsuit filed today in the U.S. District Court for the District of Columbia. The borrowers are represented by Public Citizen and the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School.

The lawsuit was brought by Meaghan Bauer and Stephano Del Rose, former students of the for-profit New England Institute of Art (NEIA) in Brookline, Mass. They allege that NEIA, which is owned by Education Management Corporation (EDMC), engaged in unfair and deceptive practices against them and other students that left them with a useless education, few job prospects and a mountain of debt. The students intend to bring suit against the school for its conduct in court, on behalf of a class. They also have asserted a federal right to have the Education Department cancel loans that the students obtained to attend the school based on the school’s unlawful conduct. The lawsuit seeks to invalidate the Department’s delay of the rule, and would allow the rule to take effect for all borrowers.

Bauer and Del Rose had been counting on an Education Department rule finalized in November by the Obama administration that prohibits schools receiving federal funds from relying on forced arbitration clauses and class action bans to prevent their students from bringing their claims together and in court. This Borrower Defense rule would ensure that Bauer and Del Rose have their day in court in a suit against NEIA. The rule also would provide Bauer and Del Rose with new protections and transparency when the Education Department considers their applications to have their federal student loans forgiven.

The Borrower Defense rule was slated to go into effect on July 1. In May, however, a trade group brought suit to challenge portions of the rule. And last month, the Department of Education announced it would delay key parts of the rule until that litigation is over. It also announced that it would begin a new rulemaking to reconsider the rule. Under the terms of the law that governs the rulemaking, a replacement could not take effect for at least two years.

In another lawsuit filed today, a group of state attorneys general also has argued that the Education Department’s delay of the rule is unlawful.

Read the complaint and visit this page for more information about the case.

 

Court Orders Department of Education to Consider Student Loan Relief Application, Calling Request for Further Delay “Frivolous and in Bad Faith”

The United States District Court for the Central District of California issued an Order today that directs the Department of Education to rule on the loan relief application of a former Corinthian student that has been pending for over two years.  To date, the Department of Education has not ruled on thousands of applications for loan relief submitted by borrowers whose federal student loans were originated by private banks under the Federal Family Education Loan Program.

The Plaintiff, Sarah Dieffenbacher, filed her first application for loan relief in March 2015. Her loans went into default while her application was still pending.  In late 2016, Sarah received a notice that her wages would be garnished. She works as a home health care phlebotomist to support herself and her four children. She objected to the wage garnishment because the terms of her loan and federal law both provide that Corinthian’s fraudulent actions render her loans unenforceable. She asked the Department to hold the hearing on her objections to which she was entitled.

After the Department of Education overruled her objection, citing the fact that her file included a signed loan contract, and ordered the garnishment to go forward, Sarah filed a lawsuit against the Department in March.  Represented by the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, she argued that the Department did not consider the arguments or evidence she presented before rejecting her claim. As the Court noted, her application was supported by 254 pages of exhibits, which included a sworn statement from Sarah as well as records from the Attorney General of California regarding documented misconduct on the part of Everest and its parent company.  The Department also did not provide Sarah with the requested hearing before issuing a summary denial.

In response to the lawsuit, the Department filed a motion asking that the Court refrain from examining the case altogether.  The Court ruled that this request was not based on a “substantial or legitimate concern” but rather was “both frivolous and in bad faith,” and “appears to be an attempt to evade judicial review so that it can retain the ability to garnish Plaintiff’s wages without a conclusive ruling as to the enforceability of her loans.”  Under the ruling, the Department now has ninety days to provide Sarah with a conclusive ruling on her application for loan relief.  Responding to the ruling, Sarah said, “I’m fighting for myself, but also for so many others who were defrauded by for-profit schools.  I hope this case will put pressure on the Department to do the right thing.”

This ruling comes amidst growing concern that the Department of Education is refusing to take actions required by law and its own regulations designed to wipe out student loan debts that are the product of fraud and illegal activity by predatory schools.  Tens of thousands of applications for relief based on the fraud of Corinthian and other for-profit schools have been pending with the Department for months and even years.  “Today’s ruling confirms that student loan borrowers have rights that exist independently of political winds and caprices.  It is inexcusable to delay and thereby deny Sarah and other borrowers in similar positions their contractual and statutory rights,” said Toby Merrill, director of the Project on Predatory Student Lending and one of the lawyers representing Sarah.

Additional Information

Ms. Dieffenbacher is also represented by Alec Harris, Eileen Connor, and Deanne Loonin of the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School, as well as Robyn Smith of the Legal Aid Foundation of Los Angeles.

Click here for a copy of the Court’s Order.

Click here for the Project’s press release about the Order.

ITT Trustee to Stop Collection on All “Temporary Credit” Accounts

MAY 19, 2017

On May 18, the court overseeing ITT’s bankruptcy case approved a motion to stop collection on all ITT “Temporary Credits.” ITT used unfair and deceptive tactics to get students to sign up for Temporary Credits, including by describing Temporary Credits as grants and threatening to expel students if they did not agree to the debt. Even after ITT filed for bankruptcy, its servicers and debt collectors continued to harass students to collect these Temporary Credits.

Former ITT students have consistently objected to ITT’s ongoing collection efforts. In January, the Project on Predatory Student Lending filed an adversary complaint in the bankruptcy case on behalf of hundreds of thousands of former ITT students, arguing that the debts were incurred as a result of ITT’s unfair and deceptive practices and asking the court to block the estate from collecting these accounts. The students then objected to the trustee’s request to hire more contractors to try to collect these Temporary Credits. The class of former students is currently represented by the Project on Predatory Student Lending and Jenner & Block LLP.

Former ITT students are gratified that the trustee has now decided to stop pursuing these accounts. Stopping collection on Temporary Credits is an important first step, but any ongoing collection on ITT-generated debt continues to harm students unjustifiably. Former ITT students continue to face collections on billions of dollars of federal and private student debts that the company generated by its unfair and deceptive practices.

For more information about students’ claims against ITT, click here.

FOR FORMER ITT STUDENTS:

As of yesterday, if you have Temporary Credits from ITT that were serviced by United Accounting Services (UAS), FirstSource/One Advantage or other collection agencies (Premiere Credit NA, General Revenue Corporation, and Security Credit Systems), you should no longer submit any payments. In the next few weeks, the trustee will send out a notice to those students who are affected. In the coming months, the trustee will calculate refund amounts for only those students who continued to make payments on their Temporary Credits after ITT filed for bankruptcy.

ITT issued Temporary Credits to students to pay tuition not covered by federal and private student loans. Many Temporary Credits were later converted to private loans, including Student CU Connect CUSO and PEAKS loans—these debts are no longer considered Temporary Credits. The debts that were not converted to private loans are still considered Temporary Credits, and have been serviced by UAS & FirstSource on behalf of ITT.

This ruling does NOT apply to other types of ITT-related debt, including federal loans, private bank loans, Student CU Connect CUSO loans, or PEAKS loans. This ruling also does not apply to any debt that is not ITT-related, even if UAS or FirstSource are collecting on those debts.

Stopping collection on Temporary Credits is an important first step, but it does not solve all of the problems ITT caused, including federal and private loan collections. The ITT trustee can stop collection on Temporary Credits because ITT’s estate still owns those accounts. The trustee does not own the federal loans or most private loans. Therefore, the trustee has less control over these loans. Below are updates on the status of a few other types of ITT loans:

  • Federal Loans. The Department of Education acknowledged that over $3 billion ITT-generated loans could be eligible for borrower defense discharges. The Department of Education has received over 2,000 applications from ITT students, but to date, we are not aware of any borrower defense discharges granted to ITT students. We will continue to advocate for the Department to grant borrower defense discharges to former ITT students.
  • Temporary Credits converted into accounts with Student CU Connect CUSO/PEAKS. These accounts are currently outside the control of the ITT trustee. These accounts are the subject of multiple investigations, and we are advocating on behalf of students to discharge these accounts.
  • All other private student loans are not part of ITT’s bankruptcy proceeding right now.

Click here to sign up for future updates.

 

 

Project on Predatory Student Lending Statement on Proposed Sale of EDMC to Dream Center Foundation

Last Friday, for-profit college giant Education Management Corporation (EDMC) announced the sale of many of its campuses to the Dream Center Foundation. The acquisition would convert three of the corporation’s chains—the Art Institutes, Argosy University, and South University—into nonprofits. EDMC will retain ownership of the Brown Mackie chain, which is shutting down most of its campuses, and the 19 Art Institute campuses the corporation is in the process of shutting down.

EDMC’s conversion to nonprofit status raises critical questions, including how the corporation intends to ensure positive student outcomes once it is no longer subject to gainful employment regulations. EDMC has more than 130 programs that the federal government has found to burden graduates with unmanageable student loan debt—programs that will be subject to even less federal oversight once they have been sold to a nonprofit. EDMC’s compliance with federal requirements attached to the receipt of federal Title IV funds will be even more critical once the corporation is no longer subject to the “90-10 rule,” which prevents for-profit colleges from receiving more than 90 percent of their revenues from such funds.

Like the last-ditch sale of many Corinthian campuses as that company failed, this sale leaves failing schools with EDMC, while selling off assets that may still have value to a new entity that may disclaim liability for the acts of its predecessors. This type of transaction leaves former students struggling with unmanageable debt even more completely without recourse.

Less than a year ago, EDMC tried to sell the New England Institute of Art, an Art Institutes campus in Brookline, Massachusetts, to a university based in India. The deal was scuttled after the corporations failed to obtain state approval. As EDMC’s equity holders continue to try to divest themselves of these assets, regulators should demand assurances that whoever owns the schools will operate them in the interests of students.

***
The Project on Predatory Student Lending represents a group of former students who attended the EDMC-owned New England Institute of Art. In September, these former students demanded that the companies remedy the harms they had caused to students and their families. The Project and Public Justice are currently challenging the federal government’s refusal to provide documents shedding light on EDMC’s recruiting practices.

Project on Predatory Student Lending Sues Federal Government For Withholding For-Profit College Corporation’s Recruitment Records

On February 14, the Project on Predatory Student Lending of the Legal Services Center of Harvard Law School filed a Freedom of Information Act (FOIA) lawsuit, challenging the government’s refusal to provide documents shedding light on for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

Months ago, the Project filed a FOIA request with the Department of Justice (DOJ), seeking access to these documents. DOJ claimed that it couldn’t release the documents (in part) because it said there was a court order preventing it from doing so. The Project disagreed. So, together with Public Justice, we asked the court that issued the order to clarify that the order does not, in fact, prevent DOJ from releasing the documents.

Soon after we asked the court for clarification, however, DOJ changed its tune entirely. It now claims that the public has no right to access these documents, even though they were produced to the government by a corporation the government alleged defrauded it of billions of dollars, and would enable the public to evaluate the government’s decision to settle its claims for less than one percent of what it had originally said they were worth.

The lawsuit challenges the government’s assertion that the public has no right to these important documents.

Two Federal Lawsuits, Still No Documents

Federal regulations allow student loan borrowers to seek cancellation of their federal student loans by showing that their school violated state law. Former students of the Art Institutes and other EDMC-owned chains thus want the documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to support their claims of misconduct.

The Attorney General of Minnesota—one of the states that participated in the case—expressed support for the Project’s efforts, stating that the information requested by the Project “could aid students in their efforts to obtain loan forgiveness from the United States Department of Education, which would unburden them from thousands of dollars of debt.”

The Project has made a significant effort to obtain these documents—filing a freedom of information request, litigating the government’s denial of that request, and moving to intervene to challenge the government and EDMC’s efforts to keep the documents secret—because the documents are critical to the Project’s advocacy on behalf of low-income student loan borrowers. The documents will help the Project seek relief for former students of EDMC-owned schools; inform the public about the practices of for-profit education companies and the government’s oversight of those companies; and advocate for policies that will protect low-income student loan borrowers.

Background: Government Lawsuit Against EDMC

EDMC, a corporation that has been closely associated with Goldman Sachs for years, runs four large chains of for-profit schools, including the beleaguered Art Institutes. In 2011, the federal government, along with several states, sued EDMC, alleging that it violated state and federal law and then lied about it to get government funding. The government claimed that, to maximize enrollments, EDMC illegally paid its “admissions employees” based on the number of students they could enroll; “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up; taught its recruiters to exploit prospective students’ vulnerabilities; and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, less than one percent of the more than $11 billion in taxpayer-funded federal student grants and loans that the government alleged EDMC received between July 2003 and the suit’s filing. The settlement did not relieve students of any of the federal student loan debt they took on to attend EDMC-owned schools.

Documents Related to This Case

  • Freedom of Information Act Requests, Appeal, and Complaint:
  • Intervention (Dec. 2016):

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.

National Association of Consumer Advocates elects Bertling to serve as co-chairman of the Massachusetts NACA chapter

The Board of Directors of the National Association of Consumer Advocates (NACA) recently announced that it had elected Roger Bertling, Director of the Predatory Lending and Consumer Protection Clinic of the Legal Services Center of Harvard Law school,  to serve as co-chairman of the Massachusetts NACA chapter.

NACA is a nonprofit association of more than 1,500 attorneys and consumer advocates committed to representing consumers’ interests. Its members are private and public sector attorneys, legal services attorneys, law professors, and law students whose primary focus is the protection and representation of consumers. They have represented hundreds of thousands of consumers victimized by fraudulent, abusive, and predatory business practices. As a national organization fully committed to promoting justice for consumers, NACA’s members and their clients are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of consumers, particularly those of modest means.

The Massachusetts chapter of NACA is one of the largest and most active in the country.

For more information on NACA, please visit: http://www.consumeradvocates.org/about-naca

For more information on the Predatory Lending and Consumer Protection Clinic, please visit: http://www.legalservicescenter.org/about-the-legal-services-center/our-clinics/

Update: January 30th ITT Bankruptcy Hearing

On Monday, January 30, the judge in ITT’s bankruptcy granted former ITT students’ request that they be recognized as having filed a group claim despite the trustee’s objection, and recognized the Legal Services Center of Harvard Law School as students’ counsel for this initial stage of their case. Former ITT students requested this group recognition as part of their initial filing on January 3. Although the trustee for ITT’s estate filed a vigorous objection to the former students’ request, Judge Carr agreed with the former students that it was unquestionably appropriate to permit former students to file their claims as a group, rather than individually.  The judge ordered the trustee to meet with the students’ lawyers to begin discussing the issue of class certification in students’ adversary proceeding against ITT’s estate.

The judge also denied—for now—the trustee’s motion to hire a company as a “master servicer,” to supervise ongoing collections by UAS and FirstSource, and to begin collecting on more accounts. Former students objected to this request, arguing that, by undertaking a broad new debt collection campaign on fraudulently-incurred and otherwise poorly-documented debts, the trustee would confuse former students and expose ITT’s estate to liability for collecting bad debts. The Trustee disclosed that the Consumer Financial Protection Bureau had also warned that collecting on ITT’s accounts was likely to cause future legal problems, and acknowledged that many of the accounts were likely not collectible. The trustee argued that the estate should nonetheless be allowed to hire the firm as master servicer, but Judge Carr denied the request for now, ordering the lawyers for the trustee to meet with lawyers for former students to discuss their positions on continuing debt collection against former ITT students.

The court scheduled a status conference with former students and the Trustee on February 9 to discuss both of these topics.

For more information about students’ claims against ITT, click here.

New York Times Calls Former ITT Students’ Legal Action ‘Gratifying’

“It seems only right that victims of predatory for-profit education companies should have their student loans forgiven,” the article begins. It goes on to discuss the validity of students’ claims, their difficulty in getting debt relief, and the thousand of pages of “powerful testimony” submitted with the students’ complaint. As the article explains, the evidence shows “a pattern of practice that dispels any notion that bad behavior harmed just a handful of ITT students.”

Read the full article: Student Victims Seek to Become Creditors in ITT Bankruptcy

Challenge to Secrecy of Recruitment Records from For-Profit Education Company

The Project on Predatory Student Lending of the Legal Services Center of Harvard Law School and Public Justice asked a federal judge on Friday, December 16, for access to documents that are likely to reveal for-profit college giant Education Management Corporation (EDMC)’s recruitment practices.

A few years ago, the federal government, along with several states, sued EDMC, whose four large chains of for-profit schools include the beleaguered Art Institutes, alleging that it violated state and federal law and then lied about it to get government funding.  The government claimed that EDMC illegally paid its recruiters based on the number of students they could enroll, a practice prohibited by federal law.  EDMC, the government alleged, “created a ‘boiler room’ style sales culture,” the “relentless and exclusive focus” of which was “the number of new students” each recruiter could sign up. To maximize enrollments, the lawsuit alleged, EDMC taught its recruiters to exploit prospective students’ vulnerabilities, and rewarded those who recruited the most students with bonuses, extra time off, vacations, and gifts.

The lawsuit eventually settled in 2015 for $95.5 million, much less than the $1.47 billion the company received in taxpayer-funded federal student grants and loans in the 2014-2015 year alone.  But as part of discovery in the suit, EDMC produced a lot of documents that we believe will shed light on their recruitment practices. “The documents from this lawsuit are likely to strengthen claims for relief of hundreds, if not thousands, of former EDMC students,” said Amanda Savage, one of the attorneys representing the debtors.

Former students of the Art Institutes and other EDMC-owned chains want these documents to help prove that they were defrauded, and are entitled to relief on their student loans. Because these documents have so far been kept secret—and because EDMC uses forced arbitration clauses to drive students out of the public court system—borrowers seeking debt relief often have little but their own personal experiences to corroborate their claims of misconduct.

“While taxpayers spent hundreds of millions of dollars funding what the Department of Justice has called EDMC’s ‘recruitment mill,’ the borrowers who attended these schools have yet to obtain federal debt relief,” said Public Justice attorney Jennifer Bennett.

Before filing this lawsuit, the Project tried to get these documents showing EDMC’s predatory recruitment practices through federal and state freedom of information requests, but its request was denied in part because of a protective order in the case. The Project asked a federal judge to rule that the protective order does not shield the documents.

Documents Related to This Case

About the Project on Predatory Student Lending

The Project on Predatory Student Lending fights for low-income borrowers, representing students and families who have experienced unfair, deceptive, and illegal conduct at the hands of for-profit colleges. In addition to litigating on behalf of its clients, the Project has advocated for policy reforms to increase accountability in the for-profit industry.

About Public Justice

Public Justice pursues high impact lawsuits to combat social and economic injustice, protect the Earth’s sustainability, and challenge predatory corporate conduct and government abuses. For two decades, Public Justice has been exposing and preventing excessive secrecy in our nation’s courts. Public Justice has unsealed evidence of dangers to public health and safety, helped injury victims oppose over-broad protective orders, and educated the public about the dangers of litigation conducted behind closed doors.