ALEXANDRIA, Va.–A coalition of consumer groups is calling on NCUA to investigate what it said are “harmful, predatory private student loans to students at for-profit colleges made by federally chartered credit unions, federally insured state chartered credit unions, and credit union service organizations.”
The group said the loans may constitute unfair and deceptive trade practices, and threaten the credit unions’ safety and soundness by posing serious credit, reputation, and compliance risks. The eight groups signing the letter include Center for Responsible Lending, Consumers Union, Consumer Action, Generation Progress, Higher Ed, Not Debt, National Consumer Law Center (on behalf of its low-income clients), Student Debt Crisis, United States Student Association, Veterans for Education Success and Woodstock Institute
“We are deeply disturbed about the role of credit unions and CUSOs that partnered with for-profit colleges to offer predatory student loans,” states the letter. “In particular, ITT Educational Services, the controversial for-profit college chain, allegedly developed a scheme to issue extremely high rates – demonstrating their fundamentally predatory nature, and their threat to safety and soundness.”
The groups state that Overland Park, Kan.-based credit union consulting firm Rochdale Group, through the CUSO Student CU Connect, recruited the credit unions that partnered with ITT Educational Services, but said that Rochdale Group is not subject to any enforcement actions. The CFPB has filed a suit against ITT for its SCUC loan program, claiming ITT pressured students into the loans by misleading them about the value of the degree, lying about their job prospects, rushing them through the loan originations using high-pressure and deceptive tactics, and take out loans that ITT knew they would never have the ability to repay with expensive loans that “they could not afford, did not want, did not understand, or did not want.”
The group’s letter cites the CFPB action that found $189 million in loans were made through the SCUC program to ITT students over a period of three years. Those ITT loans, the letter states, have a default rate of 60%.
“The CFPB suit alleges that “SCUC was the brainchild of ITT or its paid consultants, and ITT was actively involved in the creation and support of SCUC by developing the underwriting criteria, providing a credit facility, and paying the credit union membership fees,” the letter states. It notes the SEC is also investigating.
“Not only have students been harmed by the SCUC loans, but they might also present a risk to safety and soundness. The participating credit unions have faced serious losses. For example, Eli Lilly Credit Union recorded a loan loss reserve of 70% of total loans,” the letter states.
“We appreciate NCUA’s supervisory letter but remain concerned about the participation of credit unions in such harmful lending practices to students at for-profit colleges,” the letter, addressed to NCUA Chairman Debbie Matz, continues. “We urge you to, take into account the type of colleges with which credit unions partner to make private student loans and the increased risk posed by for-profit colleges during examination and supervisory activities. We also encourage you to consider whether the credit unions participating in the SCUC loan program observe requirements related to CUSOs and take enforcement action against credit unions that participated in ITT’s predatory lending scheme.”