The Consumer Financial Protection Bureau (the CFPB) recently announced that it had reached an agreement with ECMC Group, the company that was purchasing a number of Corinthian schools. You may recall that, Corinthian was the subject of a massive lawsuit by the CFPB.
Essentially, ECMC was aware that as the new owners of the school, they could be liable for some of the bad student loans. They approached the CFPB to work out a deal. In return for a release from the CFPB, ECMC agreed to the following:
- $480 Million in Debt Relief to the Corinthian victims – This number works out to a 40% reduction on victimized borrower student loans. Borrowers will be notified of their reduced balance, and no action is required on their part.
- Not offer private student loans – Because Corinthian coaxed people into signing up for terrible loans that were extremely profitable to Corinthian, ECMC has agreed not to offer any private loans for seven years.
- End litigation and harassing calls – The original lawsuit alleged that Corinthian was engaged in a number of shady tactics to collect the debt. ECMC has agreed to “take steps to ensure” that borrowers with existing Corinthian loans are not sued. They also agreed to not disclose the debt to third parties. By not disclosing the debt to third parties, they should be prevented from hiring debt collectors to do their dirty work.
- Remove Negative Credit Reports – Many of the borrowers who were coaxed into taking the high interest Corinthian loans have had their credit trashed. As the new owner of these schools, ECMC has agreed to have the negative reporting removed from borrower credit reports.
- Better Information to Prospective and Current Students – Corinthian is accused of inflating job stats and misleading potential students. Per the new agreement, ECMC must provide clear information on job prospects as well as flexible withdrawal policies at the schools.
According to CFPB Director Richard Cordray, “Today’s action will provide substantial relief to current and past students who were harmed by Corinthian’s predatory lending scheme. These consumers were lured into high-cost loans destined to default, and then targeted with aggressive debt collection tactics. We will be vigilant to ensure that consumers receive this important relief and that others are protected in the for-profit college industry.”
Is this a good deal?
It is hard to say. Only the CFPB lawyers knew the strength of their case, so it is hard to tell if ECMC got an easy deal, or if the CFPB got everything the possibly could.
On one hand, this is a great outcome. Many borrowers have had massive loan reductions without having to even call a lawyer or file a complaint. In this sense it is a clear win. It also sheds some light on for profit college schemes and hopefully protects future students.
However, there is one thought that also comes to mind. If these loans are fraudulent, why is their only a 40% reduction in the debt? Were students 40% misled? A fraudulent loan seems as though it should be an all or nothing type scenario. That being said, 40% is better than nothing, and had this gone to court, there would have been no guarantees.