Restitution and Forgiveness Helps Consumers

By Charlene Crowell

The struggle to eliminate high-cost predatory debt is a daunting one – particularly for Black America. As access to affordable credit, loans and mortgages seem ever elusive across the country, lying in wait are countless predatory lenders eager to fill the personal finance void.

But in recent days, two unrelated developments awarded consumers more than $200 million in victories against high-cost private student loans and restitution for triple-digit interest payday loans. Together, the two developments illustrate how freedom from debt burdens can lifted and erased.

The work of 44 attorneys general in states and the District of Columbia and the Consumer Financial Protection Bureau (CFPB) together secured $168 million in private student loan relief for former students of the now defunct ITT Technical College. In a second development, private legal advocates secured $39.7 million in restitution and cancelled high-cost loans that tried to evade state laws.

Readers may recall that following ITT Tech’s closure in 2016, the institution promptly filed for bankruptcy, stranding an estimated 35,000 students enrolled at one of 150 campuses in 38 states. Due to its high cost of enrollment, most students financed their studies by using a combination of federal and private student loans. ITT targeted low-income students for its private label loans known as CUSO. These loans came with fees and interest rates as high as 16.25%.

In response to the closure, the Department of Education forgave federal student loans incurred as part of enrollment. But that action still stuck student borrowers with costly private loans that the schools and lenders pushed to finance promised educations that rarely were delivered.

Now through intergovernmental cooperation, over 18,000 former ITT Tech students are freed from high-cost loans that were prone to default by as much as 90%. Lenders must now cease collections, discharge all debts, and notify the former students that the debts are cancelled.

Texas Attorney General Ken Paxton, whose share of the national settlement returns $13 million to 1,430 borrower students spoke to the importance of the settlement.

“Students who attended ITT Tech are burdened with unpayable debts they received while pursuing an honest education,” noted AG Paxton. “This college and loan program have failed them tremendously.”

A similar reaction came from North Carolina where the settlement will bring $4.2 million to 412 former ITT Tech students.

“As Attorney General, it’s my job to protect students and ensure they can safely invest in their futures,” said North Carolina Attorney General Josh Stein in a news release issued on June 14. “Today’s settlement will give these students the debt relief they need for a fresh educational start and a future unhindered by these debts.”

By removing the financial burden of these loans, these same consumers will now be able to secure more affordable and lower interest rates as well as higher credit scores. Whenever defaulted loans are added to borrower credit profiles, the resulting credit score is lower and comes with predictable difficult and costly interest for any new credit application.

In the second consumer win, efforts of private legal advocates like the Virginia Poverty Law Center secured nearly $39.7 million in restitution and wiped out debts from Think Finance. Once a federal judge approves the negotiated settlement, these monies and others paid by other defendants will be distributed to consumers ensnared in loans that came with an average interest rate of 375%.

For consumers, these predatory rates meant that a $500 loan could wind up costing more than $3,000 for unsuspecting borrowers living in California, Florida, North Carolina, and Virginia.

The settlement brings an encouraging end to litigation originally filed in 2016 against the Fort-Worth-based, Think Finance, Inc.

It should be noted that these nonprofit legal advocates’ pursuit of financial justice from Think Finance stands in stark contrast to that of the current leadership at the Consumer Financial Protection Bureau (CFPB) – especially when it comes to payday lending and other forms of high-cost loans.

Under CFPB’s first director, a lawsuit against Think Finance was originally filed in November 2017 and alleged that the firm was deceiving consumers in 17 states into repaying loans they did not legally owe.

With a change of administration and key personnel, an amended complaint was filed under Acting CFPB Director Mick Mulvaney that significantly altered the affected dates as well as the amounts of monies involved in the alleged violations.

According to a May 2019 Bloomberg Law article, the dates originally cited a 7-year span of time from 2011-2018, were reduced to only two years, 2013-2015. Additionally, the news outlet reported the amount of fees dropped from at least $325 million to only $40.2 million in interest and fees on combined loans totaling $45.6 million.

“The low penalty assessed to Think Finance follows a recent pattern of the CFPB entering into settlements with companies for alleged abuse of consumers but collecting either no money or low amounts in civil money penalties and little to no consumer restitution,” states the article.

In the May 2019 CFPB settlement, there was no consumer restitution. Instead, Think Finance and each of its six affiliates agreed to pay $1 each to the CFPB to settle claims that consumers paid at least $325 million more than the nearly $50 million in principal amounts borrowed between 2011and 2018.

“These settlements are huge wins for consumers,” said Diane Standaert, an EVP with the Center for Responsible Lending and Director of State Policy. “They show the scope and harm of abusive practices by high-cost lenders and predatory for-profit colleges that result in consumers carrying the burden of debt for years”.

“The cancellation of these debts is an incredibly important form of redress that should be pursued by other state and federal regulators,” continued Standaert. “Effective enforcement can and will get people out from under crushing debt. And these actions underscore the need for strong protections at both the state and federal levels to prevent these predatory practices from occurring in the first place.”

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