ALEXANDRIA, Va.–In response to a coalition of student groups that called on NCUA to investigate credit unions that allegedly made “predatory” loans to students at for-profit colleges affiliated with ITT Educational Services—loans that now have high default rates—the agency said it has no enforcement authority over some of the parties involved and that none of the CUs involved has funded such loans since Jan. 1, 2012.
In a letter to NCUA last week the consumer groups urged the agency 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 response letter from NCUA Chairman Debbie Matz to the 10 groups that called for the investigation stresses that NCUA has “no enforcement authority over credit union service organizations or other third parties, including those that initiated this allegedly predatory private student lending program: ITT Education Services, the Rochdale Group, and Student CU Connect.”
Matz wrote that the credit unions’ involvement in the private student lending program was limited to seven CUs that participated from 2009-2011, and that at NCUA’s instigation no further loans were made after the lead lender’s contract expired on Jan. 1, 2012.
Matz cited a December 2013 Supervisory Letter from NCUA that included detailed instructions for “monitoring graduation rates, income prospects, default rates, and performance of third parties. Our letter specifically addresses the need for credit unions making private student loans to plan ‘exit strategies’ and cease funding loans for ‘schools with high default rates and third parties that are not performing adequately’.”
Matz further wrote that any federally insured CU today engaging in any type of participation lending “must follow regulatory requirements designed to protect both the consumer and the safety and soundness of the credit union.”
The NCUA chairman used the letter to reiterate her support for obtaining authority to oversee third party providers, and told the groups that the agency does “actively issue” supervisory actions against federally insured credit unions with deficient lending operations.”
“NCUA shares your commitment to protect consumers from predatory lending,” Matz said.
Groups That Sent Letter, And What They Said
The letter was addressed to the Center for Responsible Lending, Consumers Union, Consumer Action Network, Center for American Progress, Higher Ed Not Debt, National Consumer Law Center, Student Debt Crisis, United States Student Association, and the Woodstock Institute.
In their initial letter, the consumer groups stated, “We are deeply disturbed about the role of credit unions and CUSOs that partnered with for-profit colleges to offer predatory student loans. 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.”
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