Colleges, universities and anyone offering postsecondary education, take note: The Consumer Financial Protection Bureau (CFPB) continues to target alleged unfair and deceptive practices related to the student loan and financial aid process. A few weeks ago, the CFPB filed suit against Corinthian Colleges in U.S. District Court for the Northern District of Illinois, alleging violations of the Consumer Financial Protection Act of 2010 (CFPA) by:

induc[ing] students to enroll in its programs through false and misleading representations about its graduates’ career opportunities, including representations suggesting Corinthian would provide assistance in helping students find a job, and that students were likely to obtain a permanent job upon graduation.1

According to the complaint, Corinthian allegedly inflated its job placement rates and induced students to sign up for private student loans with substantially higher interest rates.2 The CFPB also asserts that school staff used unacceptable tactics in collecting on past-due loan amounts, including pulling students from class, preventing registration and terminating computer access.3

The place of filing and the timing of the suit are notable. While Corinthian is headquartered in Santa Ana, California, and is one of the largest for-profit, postsecondary eduaation companies with campuses throughout the country,4 the CFPB filed suit in the Northern District of Illinois. Filing suit in that particular district was no coincidence. The filing came on the heels of a favorable decision to the CFPB’s position, Illinois v. Alta Colleges, Inc., issued out of the Northern District of Illinois on September 4, 2014.5

In that case, the Illinois Attorney General sued Alta Colleges and Westwood College for similar issues and representations made in the student loan process.6 The court in Alta denied defendants’ motion to dismiss the case. With little analysis, the court made clear its belief that defendant colleges are “covered persons” under the CFPA through operation of the student loan program, and thus, the Illinois Attorney General has jurisdiction to sue. The court dismissed the defendants’ assertion that the colleges may fall under the merchant-retailer-seller jurisdictional exception, which generally applies to those who are not significantly engaged in offering consumer financial products or services. The court also rejected defendants’ arguments that the CFPA’s prohibition of unfair, deceptive or abusive acts is unconstitutionally vague and acknowledged the similarity to prohibitions outlined in the Federal Trade Commission Act, which courts consistently have upheld.

In its efforts to regulate actions of colleges and universities in the student loan and financial aid process, the CFPB is already trying to convince other courts to adopt the Alta decision. The CFPB filed a Notice of Supplemental Authority on September 8, 2014, in its suit against ITT Educational Services, citing Alta.7 Meanwhile, ITT continues to mount a strenuous defense to the CFPB’s jurisdiction over it, by distinguishing Alta, who ran an in-house student loan program, from ITT, who had no financial interest in the student loans and simply referred students to a third-party lender.8 ITT’s motion to dismiss is pending in the Southern District of Indiana.9 With little case law on the scope of the CFPB’s jurisdiction and reach in this area, the outcome is certainly one to watch.