On August 17, the Consumer Financial Protection Bureau filed a complaint and proposed settlement against Aequitas Capital Management, Inc. and its related entities, alleging that the loan buyer aided the Corinthian Colleges' predatory lending scheme. According to the Bureau, Aequitas enabled Corinthian to make high-cost private loans to Corinthian students, giving the impression that the school was raising enough outside revenue to meet the requirements for federal student aid funds. If the District of Oregon approves the settlement, over 40,000 Corinthian students could receive approximately $183 million in loan forgiveness and debt reduction.
"Tens of thousands of Corinthian students were harmed by the predatory lending scheme funded by Aequitas, turning dreams of higher education into a nightmare," CFPB Director Richard Cordray said in a statement. The action "marks another step by the Bureau to bring justice and relief to the borrowers still saddled with expensive student loan debt. We will continue to address the illegal lending practices of for-profit colleges and those who enable them."
The CFPB's complaint alleges that Aequitas violated the Dodd-Frank Wall Street Reform and Consumer Protection Act by funding and supporting Corinthian's "Genesis loan" program in the amount of $230 million. The Bureau contends that Aequitas and Corinthian together created the appearance that outside funders were sustaining Corinthian in the form of the Genesis loans, when Corinthian actually was paying Aequitas to support the loan program. On March 10, 2016, the Securities and Exchange Commission took action against Aequitas, alleging the company had defrauded over 1,500 investors. A receiver has been appointed to wind down the company and distribute its assets.
Under the terms of the proposed settlement, Aequitas and its related entities would be required to forgive Genesis loans for borrowers who meet certain eligibility requirements and forgive all outstanding balances for any Genesis loans that were 270 days or more past due as of March 31, 2017. In addition, Aequitas must reduce the principal amount owed on all other Genesis loans by 55 percent and forgive any accrued and unpaid interest, fees, and charges that were 30 or more days past due as of March 31, 2017.
The action is the most recent taken by the CFPB against Corinthian Colleges. In 2014, the Bureau sued Corinthian Colleges, Inc., alleging the for-profit college chain engaged in illegal predatory lending schemes. The CFPB obtained a $530 million default judgment against the chain in 2015.
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