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WBK Industry News - Federal Regulatory Developments

CFPB Settles with CUSO for Providing Substantial Assistance to Unfair Acts and Practices

On June 14, 2019, the CFPB settled with a credit union service organization (CUSO) over allegations that the CUSO provided substantial assistance to the operator of a for-profit technical college that allowed its students to take out loans that they could not afford.

According to the complaint, the CFPB first brought suit against a corporation that operated the for-profit technical college.  The initial suit alleged that the technical college operator engaged in unfair and abusive acts and practices and violated the Truth in Lending Act (TILA) by offering students short-term loans, in rushed financial aid meetings, without providing them complete and accurate information about the loans.  Moreover, the students did not know the terms of the loans or that the loans would have to be repaid.  Further, the CFPB alleged that the technical college operator knew that the vast majority of the students who received the student loans did not and would not have the resources or access to credit to make the lump sum payments the loans required.  The technical college operator then used the same tactics to refinance the students’ short-term loans into CUSO funded loans.

The CFPB filed a separate suit against the CUSO, alleging that the CUSO provided substantial assistance to the technical college operator in running the program.  Specifically, the CFPB alleged in its complaint that the CUSO helped create the CUSO loan program, raised money for the CUSO loan program, ratified the loan criteria, and oversaw the origination and servicing of the CUSO loans.  Importantly, the CFPB alleged that the CUSO knew, or was reckless in not knowing, that the majority of student borrowers were likely to default on their loans because the technical college operator pushed students into CUSO loans that they “did not understand the terms of … or did not realize they had taken loans out at all.”  The CFPB’s complaint further concluded that despite these red flags, the CUSO participated in the program, which “ensured” that the students faced harmful consequences of the high cost debt.

The CUSO settled the CFPB allegations through a proposed stipulated final judgement and order (Order) in which the CUSO agreed to, among other things: (1) cease all collection activities and cease accepting payments from consumers related to any affected consumer loans; (2) discharge and cancel all outstanding balances of the affected consumer loan accounts, including associate fees, charges, and interest; (3) submit written requests to all consumer reporting agencies to which the CUSO or its servicer has reported information, with directions to delete the consumer trade lines associated with the affected consumer loans; and (4) cease all business upon completion of its obligations set out in the Order.  

It is important to note that the CUSO was created solely to assist the technical college operator’s loan program.  Therefore, since the CUSO agreed to cease its duties associated with the loan program, the CUSO’s dissolution after it complies with the CFPB Order is not a surprise.