What is ITT Educational Services Inc.?
ITT Educational Services Inc. is a trade school related to Educational Services. They ended up setting their student loan problem with the Consumer Financial Protection Bureau (CFPB).
ITT Educational Services Inc. filed for bankruptcy in 2016 and, as a result, had to discontinue operations. At that time, Peaks Trust was issuing loans for ITT Educational Services Incorporated. The CFPB ended up filing a proposed judgment against them and Deutsche Bank National Trust Company, Deutsche Bank Trust Company Delaware, and Deutsche Bank Trust Company Americas (in the capacity of trustees of PEAKS Trust 2009-1), for violating the Consumer Financial Protection Act (CFPA) of 2010. This was filed in the District Court of the Southern District of Indiana.
Although the Deutsche Banks had set up the trusts which made the loans, ITT controlled them.
What was Peaks’ role in the case?
Peaks owned and managed private loans for ITT Educational Services. Peaks either knew or were reckless in not knowing that many students did not understand the terms of the loan, or could not afford them and in a few cases, did not even know they had them, as was claimed by the CFPB. Peaks were aware of the wrong they were doing towards students as they did not know what they were getting into.
Peaks, as the manager of the loans, should have known about the unlawful practices of ITT. This laid the ground for CFPB’s lawsuit against Peaks, which was filed in 2014. The students had been borrowing since 2009.
Furthermore, a lawsuit was filed against ITT Educational Services as well, because ITT Educational Services has allegedly engaged in unlawful actions and practices to push students into private loans in a scheme to make it appear that ITT financial statements were doing better to show to investors and shareholders. ITT drew up two private student loan schemes; PEAKS trust and Student CU Connect CUSO, LLC. They were aware the students would have been unable to pay.
Representing false information on statements to show to investors proves that ITT knew they were in trouble beforehand.
The students were left with high-interest rates on their loans, while ITT investors were paid their full due. The students went through aggressive and pressurized tactics, including rushed financial aid appointments where they were not given useful advice and, worst of all, was signed up for the loan scheme without their permission. Moreover, this was appearing on the students’ credit reports negatively.
This was around the time ITT had to file for bankruptcy due to mismanagement of funds, although they did try to dismiss the case on the grounds of challenging CFPB’s constitutionality. To appease the investors and shareholders as they were a public company, they were dealing in suspicious activity in terms of bad loans and misrepresenting their statements to make them appear favorable. ITT wanted their quarterly revenue and profit to look good. These were outright fraudulent and manipulative ventures.
What will be the verdict in court?
If entered by the court, the proposed judgment by the CFPB that would require Peaks to do the following;
Stop collecting on all of the outstanding Peaks loans.
Discharge all outstanding Peak loans.
Ask the consumer reporting agency (CRA) to delete information to whoever PEAKS furnished information relating to Peaks loans.
Provide notices to all the consumers who have Peaks loans to be discharged and no longer owned.
Peaks will have to settle for about $330 million, about 35,000 consumers with outstanding loans. This will be settled out of court, and Peaks will have to forgive a lot of debt. Tens of thousands of students who were duped will not have to pay back any loan. A federal judge’s approval will have to be obtained for the settlement to pass through.
This particular settlement was the third settlement the CFPB had to make related to ITT private loans.
Forty-seven other states have already settled with Peaks previously regarding similar allegations, including the District of Columbia. In June 2019, CFPB had reached a $500 million settlement concerning CUSO.
What is happening with ITT Educational Services and Peaks?
Since ITT Educational Services has discontinued operations due to bankruptcy, Peaks is the one holding the bag as they either knew or failed to know what was happening with ITT Educational Services.
What to do next?
Many information will have to be deleted off credit reports as ITT is no longer in business. According to the CFPB, if a consumer’s credit report involves any entry related to Peaks, the account should be deleted, or a complaint is to be filed with the CFPB.
Clayton Wesley is a third party company which can help clients deal with such cases.