The Consumer Financial Protection Bureau, 44 states and the District of Columbia announced a $168 million settlement with a credit union consortium over high-risk loans to students at the now-bankrupt ITT Technical Institute.
The CFPB alleged that Student CU Connect CUSO, made up of seven credit unions, engaged in unfair acts and practices that resulted in roughly 8,600 students taking out student loans "that they could not afford, did not want, did not understand, or did not even know they had.”
From 2009 to 2011, the consortium's loan program originated $189 million in loans for ITT students, the CFPB said. ITT filed for bankruptcy in 2016 after the federal government restricted the for-profit college from accessing federal student aid.
The CFPB described a typical 10-year loan from consortium as having interest rates from 10.5% to 16.25%, plus origination fees of 10%, “with few options to reduce monthly payments.” The
After ITT filed for bankruptcy, the consortium — known as a credit union service organization — projected a cumulative default rate of 94%, the CFPB said.
Deborah J. Caruso, the trustee of ITT, sued the consortium of credit unions — including Eli Lilly Federal Credit Union, Bellco Credit Union, Credit Union of America, Directions Credit Union, Veridian Credit Union, Workers Credit Union and Community America Credit Union — as well as the Rochdale Group, a consulting firm, in 2017.
Credit union service organizations are owned by credit unions but not directly overseen by the National Credit Union Administration. Problems with the organizations can affect the overall soundness of credit union owners.
The credit unions are expected to provide a total of $168 million in loan forgiveness.
The CFPB said the Student Connect must stop collecting loan payments and must write off outstanding loans. The order also requires the consortium to provide notice to all consumers with outstanding loans that their debt has been discharged.
