The Consumer Financial Protection Bureau filed a complaint against Aequitas Capital Management, Inc., over its lending to students of Corinthian Colleges.
The bureau sued the for-profit college chain Corinthian Colleges in 2014 over its student loan lending practices, which it called predatory. The bureau alleged that it “lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services.” A judge ruled in the CFPB’s favor in 2015.
The Lake Oswego, Ore.-based Aequitas supposedly enabled Corinthian to make high-cost private loans to its students so it would seem as if the school was making enough outside revenue to meet the requirements for receiving federal student aid dollars.
Those loans “saddled students with high-priced debt that both Aequitas and Corinthian knew students could not afford,” the bureau said. Under the proposed settlement, if approved, about 41,000 Corinthian students could be eligible for approximately $183.3 million in loan forgiveness and reduction.
Aequitas 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 closed Aequitas down, alleging they had defrauded more than 1,500 investors.
The CFPB complaint alleges Aequitas violated the Dodd-Frank Act’s prohibitions against abusive acts and practices by funding and supporting the Genesis loan program. Specifically, Corinthian and Aequitas funneled students into the Genesis program although they knew students generally couldn’t afford the loans and would default on them.
The program was allegedly part of a larger plan by Corinthian to evade federal requirements that it receive at least 10 percent of its revenue from other sources in order to be eligible for federal student loan dollars.
Under the proposed CFPB settlement, Aequitas would forgive Genesis loans in connection with certain closed schools or those in default. Additionally, it would cut all other Genesis loans by 55 percent of the principal amount owed.
“Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare,” said CFPB Director Richard Cordray. “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.”
Corinthian Colleges isn’t the only for-profit college to come under fire from the CFPB for predatory lending. The bureau also filed a lawsuit against ITT Education Services for predatory lending in 2014.