Aequitas Capital Management, Inc., et al.
Documents in this case
- Complaint · · 30 p.
- Settlement · · 23 p.
- Stipulation · · 23 p.
Case summary
The Consumer Financial Protection Bureau filed a complaint and proposed settlement against Aequitas Capital Management, Inc. and related entities, for aiding the Corinthian Colleges’ predatory lending scheme. The CFPB alleges that Aequitas enabled Corinthian to make high-cost private loans to Corinthian students so that it would seem as if the school was making enough outside revenue to meet the requirements for receiving federal student aid dollars. The risky loans saddled students with high-priced debt that both Aequitas and Corinthian knew students could not afford. Under the terms of the final judgement, about 41,000 Corinthian students could be eligible for approximately $183.3 million in loan forgiveness and reduction. In collaboration with the CFPB, several state attorneys general have also reached proposed settlements with Aequitas.
Complaint ()
PDF of this document (30 pages)
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COMPLAINT
Anthony M. Alexis, DC Bar 384545 Enforcement Director David Rubenstein, DC Bar 458770 Deputy Enforcement Director Cynthia Gooen Lesser, NY Bar 2578045 Assistant Deputy Enforcement Director
Rina Tucker Harris, DC Bar 444550 Senior Litigation Counsel
[email protected] Mary K. Warren, NY Bar 2557684 Enforcement Attorney [email protected] Jessica Rank Divine, NY Bar 4544573 Enforcement Attorney [email protected] CONSUMER FINANCIAL PROTECTION BUREAU 1700 G Street NW Washington, DC 20552 Telephone: (202) 435-9196
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v.
AEQUITAS CAPITAL MANAGEMENT INC., AEQUITAS MANAGEMENT LLC, AEQUITAS HOLDINGS, LLC, AEQUITAS COMMERCIAL FINANCE, LLC, CAMPUS STUDENT FUNDING, LLC, CSF LEVERAGE I LLC, AEQUITAS INCOME OPPORTUNITY FUND, and AEQUITAS INCOME PROTECTION FUND, Defendants.
Case No. 17-1278
COMPLAINT
Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 1 of 30
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Plaintiff, the Consumer Financial Protection Bureau (“Bureau”), alleges the following against Aequitas Capital Management Inc., Aequitas Management LLC, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Campus Student Funding LLC, CSF Leverage I LLC, Aequitas Income Opportunity Fund, Aequitas Income Protection Fund (“Aequitas”):
INTRODUCTION 1.
The Bureau brings this action against Aequitas for its abusive acts and practices in connection with private loans made to students at Corinthian Colleges, Inc. (“Corinthian”), which were funded or purchased by Aequitas. By funding these private loans, Aequitas enabled Corinthian to present a façade of compliance with federal laws requiring that a certain portion of a for-profit school’s revenue come from sources other than federal student aid. At the same time, Aequitas’s funding of the private loans facilitated by Corinthian caused injury to Corinthian students by saddling them with what both Aequitas and Corinthian knew was high-priced debt with a high likelihood of default, which students had no way of knowing was only for a sham tuition charge solely to gain access to Title IV funds. Aequitas has collected, and continues to collect, on these loans.
2.
Until 2014, Corinthian was one of the largest for-profit, post-secondary education companies in the United States, boasting more than 100 school campuses. Corinthian offered career-oriented programs which were marketed to potential students as a way to obtain jobs in their fields of study, including health care, business, criminal justice, and information technology. Crucial to persuading students to sign up for these programs and attend were Corinthian’s deceptive promises of strong job placement and life-long career services.
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3.
Corinthian was a public company that derived nearly all of its revenue from federal student aid – mostly loans -- taken out by its students under Title IV of the Higher Education Act of 1965 (“Title IV”). To qualify for Title IV funds, the federal government required that schools like Corinthian obtain a portion of their revenue – 10 percent during the period relevant to this action -- from outside sources besides Title IV funds. This is known as the “90/10 rule.” Corinthian complied with the 90/10 rule by raising its tuition beyond what Title IV loans would cover, so that students were forced to finance a portion of the tuition from another source. Knowing that its generally lowincome students could not afford to pay this amount out of pocket, Corinthian established a private loan program, known as the “Genesis Loan Program,” available only to its students. Corinthian devised the Genesis Loan Program and presented it to Aequitas as a means of attracting Aequitas’s investment in it. The Genesis Loan Program was expensive. It featured interest rates as high as 18% and significant origination fees. 4.
Under a 2012 change to the 90/10 rule, however, such a loan program could no longer be financed by the school in order to qualify as an outside source of revenue for the purposes of obtaining Title IV funding. So, starting in 2011, Corinthian made an arrangement with Aequitas in which Aequitas purchased existing student loan portfolios and began funding or purchasing new Genesis Loans originated by depository institutions. Such an arrangement made it appear as if Corinthian were not funding the loans. Yet, central to the arrangement was an agreement by Corinthian to purchase all the Genesis Loans that became delinquent more than 90 days, essentially shifting the risk of the program from Aequitas back to Corinthian. 5.
Aequitas knew that the underlying tuition charge that the Genesis loans funded, as well as the Genesis Loans themselves, was intended to provide no economic Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 3 of 30
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benefit to Corinthian except access to Title IV funds. Default rates in the Genesis Loan Program were historically high – between 50 and 70 percent. Thus, the Genesis Loan Program essentially functioned as a loss leader for Corinthian, regardless of the outcomes for student borrowers.
6.
Aequitas was a necessary player in this scheme, which enriched Aequitas with performing loans at high interest rates and enabled Corinthian to continue in existence by keeping Title IV revenue flowing.
7.
Corinthian students, however, were never told that the portion of tuition funded by the Genesis Loans, as well as the loans themselves, were a sham to get access to federal funds. Indeed, Corinthian students were the ones left holding the bag, often with expensive debt that many would not be able to repay. 8.
Corinthian’s deceptive scheme has ended in disaster. In September 2014, the Bureau filed a complaint against Corinthian for, among other things, engaging in deceptive acts and practices in connection with the Genesis Loan Program by inducing its students to take out loans by means of misrepresentations regarding the school’s job placement rates and career services programs.
9.
In February 2015, amid governmental enforcement actions concerning its allegedly unlawful practices in marketing its educational and job placement support and in connection with the Genesis Loan Program, Corinthian sold more than 50 campuses. 10.
In April 2015, the U.S. Department of Education found that Corinthian had misrepresented job placement rates to students at certain Corinthian schools, and fined the company $30 million. In May 2015, Corinthian then closed its remaining campuses and filed for Chapter 11 bankruptcy protection. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 4 of 30
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11.
In October 2015, a federal court entered a default judgment in favor of the Bureau in another case against Corinthian for violations of the Consumer Financial Protection Act, including for unfair and deceptive acts and practices in connection with the Genesis Loan Program.
12.
In November 2015, the U.S. Department of Education found that Corinthian, in hundreds of programs at 20 Everest and WyoTech campuses in California and Florida, misled students about their job prospects after graduation. 13.
In March 2016, the U.S. Department of Education also found that Corinthian misled students attending Everest and WyoTech campuses in 20 states about their job prospects after graduation. These campuses were located in Massachusetts, California, Illinois, Texas, Georgia, Pennsylvania, Florida, Washington, Virginia, Ohio, West Virginia, Michigan, Minnesota, Nevada, Missouri, Indiana, Wisconsin, Oregon, New York, Utah, Maryland, New Jersey and Wyoming.
14.
As of March 31, 2017, Aequitas held a portfolio of these student loans with an unpaid balance of approximately $190.5 million, including approximately 46,327 loans made to approximately 41,290 individual borrowers. Aequitas continues to collect payments on performing loans.
NATURE OF THE ACTION 15.
The Bureau brings this action under sections 1031(a), 1036(a), 1054, and 1055 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531(a), 5536(a), 5564, and 5565, for Aequitas’s violations, from July 21, 2011 through the present, of sections 1031(a) and 1036(a)(1) of the CFPA, which prohibit abusive acts and practices.
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JURISDICTION AND VENUE 16.
This Court has subject matter jurisdiction over this action because it is “brought under Federal consumer financial law,” 12 U.S.C. § 5565(a)(1), presents a federal question, 28 U.S.C. § 1331, and is brought by an agency of the United States, 28 U.S.C. § 1345.
17.
Venue is proper in this district because Defendants are located, reside, and are doing business in Lake Oswego, Oregon. 28 U.S.C. § 1391(b); 12 U.S.C. § 5564(f). 18. Assignment to the Portland Division of this Court is proper because a substantial part of the events or omissions that gave rise to claims alleged in this Complaint occurred in Lake Oswego, Oregon in Clackamas County. L.R. 3-2(b). PLAINTIFF 19.
The Bureau is an independent agency of the United States charged with regulating the offering and provision of consumer financial products or services under federal consumer financial laws. 12 U.S.C. § 5491(a). The Bureau has independent litigating authority to commence civil actions to enforce federal consumer financial laws, including the CFPA. 12 U.S.C. §§ 5564(a)-(b); 5481(14).
DEFENDANTS Aequitas Entities 20.
Aequitas Capital Management Inc. (“Aequitas Capital”) is an Oregon corporation formed in 1993 with a principal place of business in Lake Oswego, Oregon. Aequitas Capital is the manager of ACF. As the manager of ACF, Aequitas Capital is responsible for the overall operations of ACF, including the management of ACF’s loan and investment portfolio.
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21.
Aequitas Management LLC (“Aequitas Management”) is an Oregon limited liability company with a principal place of business in Lake Oswego, Oregon. Aequitas Management owns 84% and exercises exclusive control over Aequitas Holdings, the sole owner and member of ACF and the sole shareholder of Aequitas Capital. 22.
Aequitas Holdings LLC (“Aequitas Holdings”) is an Oregon limited liability company with a principal place of business in Lake Oswego, Oregon. Aequitas Holdings is the sole owner and member of ACF and the sole shareholder of Aequitas Capital.
23.
Aequitas Commercial Finance LLC (“ACF”) is an Oregon limited liability company with a principal place of business in Lake Oswego, Oregon. ACF is the sole owner and member of at least seven subsidiaries that engage in the business of acquiring or investing in portfolios of trade receivables in the healthcare, education, transportation, and consumer credit sectors. ACF also holds ownership stakes in the Aequitas Funds and a number of other Aequitas-affiliated companies. ACF also has directly held or currently holds title to Genesis student loan promissory notes and/or the right to collect and receive existing and future principal and interest payments. 24.
Campus Student Funding LLC (“CSF”), formerly known as AFSG LLC, is an Oregon limited liability company with a principal place of business in Lake Oswego, Oregon. CSF is owned by ACF and was created by Aequitas as a special-purpose entity for purchasing student loans. CSF originally purchased all Genesis Loan notes sold to Aequitas entities, whether directly from Corinthian, the loan servicer, or the issuing bank. CSF was the seller of the notes pursuant to Corinthian’s commitment to purchase delinquent loans from Aequitas. Thus, CSF has held or currently holds title to Genesis student loan promissory notes.
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25.
CSF Leverage I, LLC (“CSF Leverage”) was on Oregon limited liability company with a principal place of business in Lake Oswego, Oregon. CSF Leverage was owned by ACF and at one time held Genesis student loan promissory notes. CSF Leverage merged into CSF and no longer exists as a separate entity. 26.
The Aequitas Funds are various funds owned by the Aequitas entities described above. Aequitas Income Opportunity Fund is owned by ACF and holds, or has held, the right to collect and receive Genesis student loan receivables. Aequitas Income Protection Fund is owned by ACF and CSF and holds, or has held, the right to collect and receive Genesis student loan receivables. CSF Leverage I LLC f.k.a ASFG Leverage I LLC is, upon information and belief, owned by ACF and CSF and has held the right to collect and receive Genesis student loan receivables. Common Enterprise 27.
At all times material to this complaint, Aequitas has operated as a common enterprise while engaging in the violations of Federal consumer financial law set forth herein. Aequitas has conducted the business practices described herein through then interrelated network of companies described above that have common business functions, employees, and office locations. 28.
Aequitas has also shared operations and proceeds of the relevant activities associated with the allegations in this complaint. For example, even though CSF initially purchased the Genesis Loans, the loans were sold to various other Aequitas funds or entities, including Aequitas Income Opportunity Fund, Aequitas Income Protection Fund, CSF Leverage Fund I, or ACF. Because Aequitas has operated as a common enterprise, each of the Aequitas entities is jointly and severally liable for the acts and practices described below.
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Receivership of Aequitas 29.
Corinthian’s repurchase of the delinquent Genesis loans was an important source of revenue for Aequitas. Corinthian’s failure, and the cessation of the loan repurchases, caused Aequitas significant distress. Early in 2016, the lack of that revenue coupled with, among other things, alleged improprieties by Aequitas management, led the company to curtail operations.
30.
On March 10, 2016, the Securities and Exchange Commission (“SEC”) brought an action in this court, alleging violations of the securities laws, including a scheme to defraud and misuse investor funds. Pursuant to the SEC’s request, the court on April 14, 2016 appointed a receiver to wind down the companies and distribute the remaining assets. The receiver is not a party to this action. FACTUAL BACKGROUND
31.
In 2011, Aequitas became involved in private student lending by purchasing private student loans from Corinthian and participating in the operation of Corinthian’s Genesis Loan Program.
32.
At that time, Corinthian was one of the largest for-profit, post-secondary education companies in the United States. With more than 100 school campuses, Corinthian operated schools under the following names: Everest College, Everest Institute, Everest University Online, Everest University, Everest College Phoenix, Heald College, and WyoTech. Corinthian offered career-oriented programs that were marketed to potential students as a way to obtain jobs in their fields of study, including health care, business, criminal justice, mechanical, and information technology. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 9 of 30
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COMPLAINT
33.
Most students attending Corinthian’s schools were low-income and/or the first in their families to seek an education beyond a high school diploma. Many Corinthian students struggled economically. For example, a 2011 Corinthian survey of campus operations indicated that over 57% of Corinthian’s student population had a household income of $19,000 or less, and 35% of Corinthian’s student population had a household income of less than $10,000.
34.
The great majority of students attending Corinthian’s schools could not afford to pay the school’s tuition out-of-pocket. Students needed financial aid – mostly loans from either the federal government under Title IV or private sources – to pay Corinthian’s tuition and fees. This was well known to Corinthian. Corinthian Induced Students to Take Out Loans With Deceptive Representations About Job Placement Statistics and Career Services Offerings 35.
Corinthian needed to convince students that paying its tuition, and taking on substantial debt to do so, would be a worthwhile investment in their future. Therefore, Corinthian deployed a series of misrepresentations about the likely employment outcomes for Corinthian students and the services Corinthian would provide to help them find jobs.
36.
Corinthian portrayed its educational programs as a way for students to secure better-quality careers. For example, in promoting Heald College, Corinthian advertised, “[y]our education might mean the difference between a rewarding career or just another job.” Similarly, Everest Colleges, Universities, and Institutes advertised on its websites that it provided students “[a] better career, a better life, a better way to get there.”
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Misrepresentations Concerning Job Placement Statistics 37.
Corinthian presented job placement rates that were misleading to consumers in several ways. For example, Corinthian represented to prospective and current students that its education would offer a “career,” not “just another job,” but in calculating and disseminating alleged job placement rates for graduates, Corinthian included jobs that lasted for just one day.
38.
In addition, Corinthian presented to students and prospective students falsified and overstated job placement rates. Corinthian deliberately overstated the number of jobs that students obtained, undercounted the pool of “employable” graduates, thereby increasing the percentage of employed graduates out of all the “employable graduates”, and engaged in a practice of paying employers to hire its graduates temporarily in order to inflate its job placement statistics. 39.
One way Corinthian inflated its job placement statistics was by counting a person as having been placed who only got a temporary assignment for a day with a promise of a second day of work. Corinthian could count that person within its employment statistics even if that person only worked for just one day. 40.
Corinthian took this deception one step farther by paying employers to hire its graduates for brief periods so that Corinthian could improve its job placement statistics.
Misrepresentations Concerning Career Services 41.
To convince students that they would achieve career success by taking out loans to pay for a Corinthian education, Corinthian also misrepresented the availability and the utility of its career services.
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42.
Corinthian falsely promised prospective students that they would receive career assistance while enrolled, and lifetime career assistance after graduation. Corinthian promoted “career-focused education” and career services that were available “whenever you need help finding a job, or want some advice on improving your resume or interviewing skills.” Corinthian further promoted that it “not only help[s] you find a job after you graduate, we help you find a job any time you need one, throughout your career… From graduation to retirement, we’ll help you advance your career whenever you need it.” Corinthian emphasized its nationwide network of employers. 43.
The actual services provided were limited, such as providing postings already publicly available from services like Craigslist. 44.
Moreover, after graduates obtained initial placements, Corinthian refused to provide any further assistance to them. This was particularly significant for students who received only temporary placements.
The “90/10” Rule 45.
Corinthian engaged in these deceptions because it wanted to convince students to take out the loans and use whatever aid they could to pay its tuition. Nearly all of its revenue was derived from Title IV federal student loans, which were Corinthian’s “life blood,” without which the school could not continue to operate. In its Annual Report Form 10-K for fiscal year 2013, filed with the SEC, Corinthian reported that its operations in the United States derived 84.8% of net revenue from Title IV aid programs.
46.
A for-profit company that owns a school receiving federal student aid funds is subject to the “90/10 rule,” 34 C.F.R. § 668.14(b)(16). Under this rule, a forprofit college must not receive more than 90% of its net revenue from Title IV aid. A Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 12 of 30
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minimum of 10% of such an entity’s revenue must come from non-Title IV aid, such as state aid, ordinary tuition payments from students, or private student loans. Schools that do not comply with the “90/10” rule risk losing their eligibility to participate in federal student aid programs; for Corinthian, this would have meant losing the source of nearly 90 percent of its revenue.
47.
In order to appear to satisfy the 90/10 rule, Corinthian made sure that the cost of attending its schools was high enough that students would not be able to pay solely through using Title IV aid. In September 2011, Corinthian’s CEO distributed a presentation to his executive team, describing efforts by Corinthian to meet the requirements of the 90/10 rule by instituting “above market price increases to create ‘funding gaps.’”
48.
Corinthian knew, however, that few of its students would be unable to pay the “funding gap” out of pocket, and thus most would require additional loans for this purpose. Thus, by increasing tuition, Corinthian caused students, who otherwise would have been able to pay for the entire cost of tuition through Title IV aid, to take out private student loans. Regardless of whether students were able to repay the private student loans, Corinthian would profit from the increased availability of Title IV monies. The private student loans filling this “funding gap” essentially would function as a loss leader for Corinthian.
Corinthian Implemented the Genesis Loan Program to Fill the “Funding Gap” That Corinthian Created 49.
Before 2008, third-party providers of private education loans offered Corinthian students the opportunity to apply for loans to fund their educational expenses.
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50.
In or about January 2008, as a result of the economic downturn, these third-party lenders ceased making private student loans available to students at high risk of default due to poor credit profiles or low income. Therefore, these sources of funding became unavailable to Corinthian students.
51.
In order to continue the flow of the needed “10 percent” of funds from non-Title IV sources, Corinthian launched its own institutional loan program – the Genesis Loan Program – which it developed together with a third-party entity (“Company A”) already engaged in financing and servicing “funding gap” loans for other educational institutions.
52.
Beginning in approximately March 2008, Corinthian actively marketed, promoted, and offered Genesis Loans to its prospective and current students to pay tuition and fees that were not covered by federal aid or other sources. Corinthian’s financial aid staff promoted the loan program by introducing it to prospective and current students, and by encouraging them to apply for Genesis Loans to pay for tuition and fees that were not covered by federal financial aid. 53.
The interest rates for Genesis Loans were typically substantially higher than the interest rate for federal loans. In 2011, the Genesis Loan interest rate was as high as 18% with an origination fee of 6%. Meanwhile, the interest rate for federal student loans during this time period was 3.4% to 6.8% with an origination fee of 1%. 54.
Under the Genesis Loan Program, nearly all student borrowers were required to make monthly loan payments while attending school. The most common payment plan was called “Plan A,” which required a monthly loan payment while the student was attending school. The interest began accruing after the student left school. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 14 of 30
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55.
Under the original Genesis Loan Program, pursuant to written agreements, Corinthian marketed the loan and a partner bank acted as the originator for each Genesis loan, disbursing the loan funds to Corinthian after each student’s loan application was approved. Shortly after a student’s loan funds were disbursed to Corinthian on the student’s behalf, Company A purchased the loans from the bank. Corinthian then paid a “discount fee” to Company A equal to 50% of the face value of the loans that Company A purchased from the bank.
56.
Under the agreement with Company A, typically within two weeks after Company A purchased the loans from the bank, Corinthian purchased all of the loans from Company A. Corinthian paid Company A the face value of the loans minus any discount fee that it had already paid and Company A operated as the servicer of the loans.
57.
Accordingly, from in or about 2008 through approximately July 2011, Corinthian would own all Genesis loans that its students took out within a period of approximately two weeks after the loan funds were disbursed. 58.
In 2011, the third-party lenders who had previously been extending private loans to the small portion of Corinthian’s students who were considered prime borrowers ceased lending to Corinthian students altogether. As a result, the Genesis Loan Program then became effectively the only available source of private financing to Corinthian students.
High Default Rates on the Genesis Loans 59.
Although Corinthian engaged in aggressive collection efforts, the default rate on Genesis Loans was consistently extremely high. Corinthian charged off a Genesis Loan when the student borrower was more than 270 days delinquent in making Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 15 of 30
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required loan payments. Using the period in which Corinthian would classify a Genesis loan as more than 270 days delinquent and calculating the default rate based upon the number of student loans, the default rate on Genesis Loans was typically greater than 50% for all loans more than two years old, and above 60% for all loans more than three years old.
60.
Corinthian knew of the high default rates for its Genesis Loans, and at all times during operation of the Genesis Loan Program, Corinthian anticipated that the default rates would remain at these high levels. As the Genesis Loan Program was simply a tool to achieve compliance with the 90-10 rule, Corinthian was willing to take the losses resulting from the high level of defaults for the greater reward of keeping Title IV revenue flowing to the school.
61.
Moreover, Corinthian knew the characteristics of students who were most likely to default. Corinthian required that “Schools should gather information to discern who is defaulting and why … Internal data includes key information such as high school attended, program of study, demographics, grades, etc.”. The 90/10 Rule Changes and Aequitas Sees a Business Opportunity By Helping Corinthian Continue To Qualify For Federal Funds
62.
Effective July 1, 2012, the 90/10 rule was changed to eliminate institutional loans like the Genesis Loans from counting toward the private revenue required to maintain Title IV eligibility. With third-party private lenders no longer making loans available to its students by that time, Corinthian had to find another source of funding for the “10%.”
63.
Corinthian determined that as long as it moved the Genesis Loans “off its books,” it could still count the revenue from the Genesis Loan Program toward the 10%. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 16 of 30
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Well before the rule change became effective, Corinthian sought a third party to purchase the loans after origination.
64.
Aequitas’s involvement in the Corinthian private loan program formally began in June 2011, when CSF entered into an agreement to pay approximately $24 million to purchase a portfolio of existing Corinthian student loans with a face value of $30,576,549 on a non-recourse basis.
65.
Aequitas understood from the outset, that Corinthian’s business model, indeed its very existence, depended on its satisfaction of the 90/10 Rule as a condition of obtaining federal funds. In July 2011, in its Deal Summary and Underwriting Report for Student Receivable Portfolio Purchase from Corinthian Aequitas explained Corinthian’s challenges complying the 90/10 rule and how Aequitas could alleviate this compliance problem:
Corinthian . . . has been under regulatory pressure to stay compliant with the 90/10 economics. . . Thus, an opportunity presented itself to alleviate the regulatory pressure for Corinthian by acquiring their existing student loans, as well as to enter into a longer forward flow relationship to purchase more recently originated student loans. Corinthian needs to get their student loans off their balance sheet and to stop originating student loans.
66.
As the relationship between Aequitas and Corinthian progressed, Aequitas reported internally statements by Corinthian that it was “[m]anaging to 90/10, not under” and that federal loans were Corinthian’s “life blood.” 67.
Aequitas further understood that Corinthian raised its tuition not to make additional money but rather to create the obligation for additional “10 %” in revenues that would give it access to the needed Title IV funds. Aequitas told its investors that that “increasing tuition is the simplest way a school can mitigate risk from the 90/10 Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 17 of 30
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Rule.” Indeed, Corinthian even told Aequitas that the 90/10 Rule had “required” Corinthian to raise tuition. Aequitas knew that the additional tuition charge, as well as the Genesis Loans that funded them, were a sham to get federal funds. 68.
In September 2011, CSF agreed to pay approximately $10 million to purchase another portfolio of existing loans with a face value of $16,792,381 on a recourse basis, meaning that if the loans became more than [90] days past due, Corinthian would purchase the loans back from CSF. 69.
Pleased with the money it was making for itself and its investors on the student loan portfolio, Aequitas sought to “deepen” its relationship with Corinthian. In September 2011, CSF entered into an agreement with Corinthian to create a “forward flow” program, called “Corinthian 1.0.” Pursuant to that agreement, CSF purchased Genesis loans at a 40% discount on the face value of each purchased loan, and Corinthian also committed to purchase all loans back from CSF that were more than 90 days past due. CSF agreed that each month it would purchase approximately $15 million in face value of loans shortly after origination on a full recourse basis. The loans would be originated by a bank and immediately purchased after origination by Aequitas. Under the forward flow agreements, Aequitas had the right to purchase loans but not the obligation, and could terminate its relationship upon 14 days’ notice to Corinthian. 70.
In April 2012, Aequitas sent Corinthian a list of points for discussion. The list included allegations made by others about the for-profit education industry generally and Corinthian specifically, including that for-profit schools “game” the 90/10 regulations by inflating tuition costs and creating a funding gap, despite knowing that most of the private loans provided would not perform. Yet Aequitas continued to participate in and seek profit from the Genesis Loan Program scheme. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 18 of 30
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71.
Indeed, Aequitas regularly monitored the status of the various, multiplying state and federal government investigations and litigation concerning Corinthian’s student lending practices, marketing to students, and job placement data postgraduation. Knowledge of these investigations and litigation did not deter Aequitas from continuing to seek profit from the Genesis Loan Program scheme. 72.
In July 2012, Aequitas and Corinthian discussed additional ways for Corinthian to maximize its Title IV revenue. In its internal notes of the meeting, Aequitas noted Corinthian’s plans to shift more students enrolled in on-line course programs from part-time to full-time status, because “part time online students don’t need gap financing” and “shifting students from part-time to full-time will create gap financing needs.”
73.
Aequitas understood that Corinthian was “highly focused on maximizing starts to generate Title IV revenue flow” and that Corinthian’s “quality bar [was] low.” 74.
On August 14, 2012, an Aequitas executive observed that “[i]t appears as if the for profits are spending an inordinate amount of money to put anyone (qualified or unqualified) into a seat on their campus.”
75.
In September 2012, the parties launched the “Corinthian 2.0” program, which was a continuation of the original forward flow program, with slightly different terms.
Aequitas Saw Corinthian Students As Easy Prey and Knew That Corinthian Exercised Undue Influence Over Them 76.
At a meeting with Corinthian executives in Santa Ana, California in June 2012, Aequitas noted that Corinthian described its competition for students as “the Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 19 of 30
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couch, inertia, and gangs” and that its students were “looking to get a life, looking for a mother figure and father figure.”
77.
In a January 2013 marketing presentation to Aequitas, Corinthian described its prospective student population as individuals who have “low self-esteem” and “[f]ew people in their lives who care about them”; who are “isolated,” “stuck, unable to see and plan well for future”; and “impatient, [and] want quick solutions.” 78.
Aequitas knew that Corinthian brokered the Genesis Loans to its students by arranging for the loans and serving as the students’ single point of contact in doing so.
79.
Aequitas knew that Corinthian was advising students regarding the loans offered through the Genesis Loan scheme and that Corinthian was actively engaged in promoting Genesis Loans.
Aequitas Knew that Corinthian Students Were Being Harmed by High Default Rates but Sought Only to Mitigate Its Own Exposure to the Defaults 80.
Aequitas understood that default rates on the Genesis Loan Program were high. In March 2012, an Aequitas employee noted that Corinthian continued making institutional loans, despite the high default rates that resulted in Corinthian writing many of the loans off, “presumably because the loans lure students to its schools and give[] it access to federal student aid dollars.” In other words, Aequitas understood the Genesis Loan Program was intended to be a loss leader for Corinthian. 81.
Aequitas understood that Corinthian expected students would, more often than not, be unable to repay their Genesis Loans. In conducting diligence, Aequitas noted that “[d]espite the dismal performance of [the Genesis] loans, Corinthian Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 20 of 30
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executives told investors in summer 2011 that they planned to double the volume of private loans made through the institutional loan program . . . .” 82.
The same Aequitas employee noted “with defaults this high, how can we defend our practices?”
83.
Indeed, despite the fact that Aequitas knew that the tuition charge funded by the Genesis Loans, as well as the Program itself, was merely a ploy to obtain access to federal funds, Aequitas disregarded the high default rates on these sham loans. 84.
Aequitas understood the harmful impact of student loan defaults on students. For example, Aequitas learned that private student loans like the Genesis Loans were difficult to discharge in bankruptcy, “making them more onerous than credit-card debt or subprime mortgages.”
85.
Aequitas was well aware that, in 2008, when Corinthian began its loan program, the default rates for these loans were between 50% and 70%. 86.
Aequitas’s initial models in 2011 predicted a 45% default rate. In October 2012, Aequitas revised its models upon a finding that default rates were in the mid-50% range. Aequitas estimated that it could cover the cost of investor funds if the cumulative default rate reached 63% even if Corinthian defaulted on its obligations to purchase the loans.
87.
In December 2012, Aequitas’s Underwriting Report recommended Aequitas continue purchasing Corinthian’s loans, despite an expected default rate of 57% for the loans purchased as part of the 2.0 forward flow agreement with Corinthian. 88.
In October 2013, Aequitas concluded that the loans purchased in June 2011 had a default rate of 63%. Aequitas estimated that the default rate for the full term of these loans would be 66%. Moreover, Aequitas determined a default rate of 50.9% for Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 21 of 30
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loans in the Corinthian 1.0 program and an estimated default rate of 61% for the full term of the loans.
89.
Aequitas understood Corinthian was not concerned about the high default rates because, from Corinthian’s perspective, the purpose of the Genesis Loan Program was to receive Title IV funds and avoid 90/10 Rule compliance problems. 90.
For Aequitas, the high default rates were simply an investment risk to be mitigated. As long as the loans performed within Aequitas’s projections and Corinthian assumed the risk of purchasing delinquent and defaulted loans, Aequitas made money on the loans. Corinthian was willing to assume that risk because the pretense of a third party funding the Genesis Loan Program allowed the school to stay in compliance with the 90/10 rule.
91.
Despite its knowledge of the high default rates and the effect of defaults on students, Aequitas continued funding the Genesis Loan Program. Aequitas continued to seek out ways in which it could work more closely with and fund more loans for Corinthian, ultimately agreeing to do so several times via renewed funding agreements. 92.
In the meantime, Corinthian students who defaulted on Genesis Loans suffered harmful consequences including negative credit reporting, along with consequences that flow from that. Negative items on a credit report like defaults can result in difficulty in renting an apartment, denial of employment, ineligibility for other forms of financing, or eligibility only on less favorable terms than would otherwise have been available.
93.
In addition, Corinthian students were and are harmed by Aequitas’s continued collection of payments on loans that carried interest rates as high as 18% and origination fees as high as 6%.
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Aequitas Was Aware of and Disregarded Increasing Scrutiny of Corinthian’s Business Practices 94.
Aequitas was aware of allegations of wrongdoing by Corinthian and ignored numerous red flags regarding Corinthian’s deceptive acts and practices. 95.
In a 2011 Deal Summary and Underwriting Report to investors concerning Aequitas’s purchase of a portfolio of loans in 2011, Aequitas summarized the numerous lawsuits against Corinthian.
96.
For example, the summary noted that Corinthian was facing three qui tam false claims actions alleging violations of the Higher Education Act regarding the manner in which admissions personnel were compensated. 97.
The summary also observed that Corinthian had experienced an “unprecedented increase” in putative class action lawsuits brought by former students in the second, third, and fourth quarters of the 2011 fiscal year. Aequitas explained that Corinthian “believes these lawsuits are largely the result of negative publicity” and noted that binding arbitration clauses required nearly all of the students to resolve their cases through individual arbitration.
98.
Aequitas was aware that in 2012, Corinthian was being investigated by state attorneys general for Florida, California, Massachusetts, Illinois, New York, and Oregon for alleged wrongdoing including misrepresentations regarding job placement and career prospects.
99.
In 2012, Aequitas was aware of the Bureau’s investigation into Corinthian’s practices.
100. Aequitas was also aware that in October 2013, the State of California sued Corinthian, alleging “false and predatory advertising, intentional misrepresentations to Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 23 of 30
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students, securities fraud and unlawful use of military seals in advertisements.” According to the California complaint, Corinthian’s “predatory marketing efforts specifically target[ed] vulnerable, low-income job seekers and single parents who have annual incomes near the federal poverty line.”
101.
Aequitas’s periodic written internal memoranda about its business relationship with Corinthian indicate Aequitas failed to perform any meaningful due diligence concerning Corinthian’s marketing and representations to its students. Instead, Aequitas took at face value Corinthian’s assertions that the lawsuits and investigations were without merit or easily disposed of. Despite The Many Red Flags, Aequitas Continued Its Partnership With Corinthian and Its Expansion Efforts For the “EducationPlus” Loan Program 102.
In June 2012, at Aequitas’s request, the agreement between Corinthian and Aequitas was amended to include a provision that barred Corinthian from endorsing any tuition loan program other than Aequitas’s. 103.
In a December 2012 internal report, Aequitas noted “we enjoy regular interactions with Corinthian’s CEO and CFO, allowing us to increasingly become a strategic partner to Corinthian.”
104.
In or about 2013, Corinthian and Aequitas renamed the Genesis Loan Program the “EducationPlus” loan program. The EducationPlus loan program resulted in lower interest rates being offered to Corinthian students, but was the functional equivalent of the Genesis Loan Program and Aequitas’s and Corinthian’s respective roles did not change. Corinthian management and staff often referred to the EducationPlus loan program as the Genesis Loan Program. (References in this Complaint to the Genesis Loan Program and Genesis Loans include EducationPlus loans.) Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 24 of 30
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105.
Aequitas began marketing the EducationPlus program to other for-profit schools as a “turnkey solution” to provide funding for their institutional loan programs. Aequitas did this because it saw the scheme it was running with Corinthian as a profit center, disregarding the fact that it was a sham that harmed the student borrowers who were caught up in it.
Only When Aequitas Deemed the Forward Flow Program too Risky to Aequitas Did It Cease Funding Loans 106.
In January 2014, Aequitas exercised its option to withdraw from the loan program and stop purchasing Genesis Loans originated through Corinthian. 107.
Aequitas management made the decision based on “increased operational risk at Corinthian” and “headline risk to Aequitas.” Aequitas was concerned that state and federal investigations of Corinthian could ultimately affect the underlying value of the Genesis Loans they were funding.
108.
However, from February 2014 through May 2014, Aequitas and Corinthian continued to discuss additional opportunities to continue working together, which Aequitas said would require additional insulation from defaults and other risk in the loan portfolios.
109.
In May 2014, Corinthian stopped honoring its obligation to purchase all loans from CSF that were more than 90 days past due.
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COMPLAINT
COUNT I AEQUITAS VIOLATED THE CFPA’S PROHIBITION ON ABUSIVE ACTS AND PRACTICES BY FUNDING AND SUPPORTING THE GENESIS LOAN PROGRAM
110.
The allegations in paragraphs 1 through 109 are incorporated here by reference.
111.
Section 1036(a)(1)(B) of the CFPA, 12 U.S.C. § 5536(a)(1)(B), makes it unlawful for a covered person to engage “in any unfair deceptive, or abusive act or practice.” An act or practice is abusive under the CFPA if it “takes unreasonable advantage of . . . the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. . . . ” 12 U.S.C. §§ 5531(d)(2)(B).
112.
The Genesis Loans sold by Corinthian to its students and funded by Aequitas were consumer financial products. 12 U.S.C. §§ 5481(5), (15)(A)(i). 113.
Aequitas is a “covered person”” under the CFPA, 12 U.S.C. § 5481(6) because it acquired or purchased consumer loans, the Genesis Loans. 114.
From at least September 2011 until February 2014, Aequitas and Corinthian engaged in a complex scheme designed to maximize the flow of Title IV federal loan dollars to Corinthian and satisfy its obligations under the “90/10 Rule.” 115.
Under the “90/10 Rule,” Corinthian was barred from receiving more than 90% of its revenue from Title IV federal student aid. At first, Corinthian sought to satisfy the “10 %” by charging additional tuition, above what federal aid could cover, to ensure that a “10 %” would be forthcoming. Knowing that its students could not generally afford the “10 %” additional charge out of pocket, however, Corinthian created Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 26 of 30
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and funded the Genesis Loan Program to cover that, acquiring the Genesis Loans within days of their origination by a bank.
116.
As of July 1, 2012, private student loans originated and owned by an institution of higher education, such as the first version of Genesis Loan Program, would no longer count toward the 10% of private revenue required for a school to maintain eligible to receive Title IV funds. As a result of this change to the 90/10 Rule, Corinthian sought a third party to immediately purchase the loans after origination, thereby keeping the loans off Corinthian’s books so that they could be counted as a private source of revenue for purposes of the 90/10 Rule. 117.
Aequitas agreed to take on that role in the scheme, which permitted Corinthian to continue offering Genesis Loans to students, despite no longer being able to hold those loans on its books, and without increasing its non-Title IV sources of revenue from other sources.
118.
Aequitas knew that Corinthian sought no economic benefit from the Genesis Loan Program or the tuition payments it was intended to fund except for Corinthian’s access to the Title IV program. Aequitas knew that the additional tuition was charged by Corinthian simply to create revenue that would satisfy the “10 %” required to obtain federal funds. Aequitas knew that the high projected default rate of the program meant that Corinthian, which was bound to buy all delinquent Genesis Loans from Aequitas, would not actually realize that “10 %” because the cost of buying back non-performing loans and maintaining the program would absorb any such revenue.
119.
In short, Aequitas knew that the Genesis Loan Program, and the tuition charge it funded for Corinthian student-borrowers, was a sham. Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 27 of 30
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120.
Aequitas participated in the loan programs in order to earn the profit from the performing loans it expected to keep.
121.
Aequitas knew but disregarded the harm to Corinthian student borrowers caused by this scheme. While Aequitas made what appeared to be an easy profit, with Corinthian buying back delinquent loans, student borrowers would have to pay highinterest, high origination fee loans back for illusory tuition that Corinthian never expected to recoup. Aequitas knew but disregarded the fact that most Corinthian student borrowers would default on these loans and would suffer the consequences of such defaults.
122.
Student borrowers were not able to protect their interests in selecting or using the Genesis Loans because they could not have known or understood that Corinthian and Aequitas were using the Genesis Loans, and the tuition charge they funded, as a loss leader and a ruse designed to generate Title IV federal loan revenue for Corinthian, and because most borrowers did not have other options to pay for Corinthian’s artificially-inflated tuition.
123.
Aequitas took unreasonable advantage of student borrowers’ inability to protect their interests in selecting or using the Genesis Loans by funding, supporting, and maintaining its purchase of Corinthian student loan portfolios and by participating in the Genesis Loan Program through the “forward flow” agreements with Corinthian, all while continuing to reap significant profits from the scheme. 124.
Corinthian students, the great majority of whom had few financial resources to begin with, were and are harmed by Aequitas’s continued collection of unaffordable payments on loans that carried interest rates as high as 18% and Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 28 of 30
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origination fees as high as 6%, which translates to thousands of dollars for each student over the life of the loan.
125.
Many Corinthian students were and are harmed by defaults on their student loans, which exacerbate their financial distress, are difficult to discharge in bankruptcy, and will detrimentally affect their credit ratings for years. 126.
Therefore, Aequitas violated the CFPA’s prohibition on abusive practices, 12 U.S.C. § 5536(a)(1)(B).
PRAYER FOR RELIEF
Wherefore, the Bureau, pursuant to Sections 1054 and 1055 of the CFPA, 12 U.S.C. §§ 5564 and 5565, and the Court’s power to grant legal or equitable relief, requests that the Court:
a. permanently enjoin Aequitas from committing future violations of the CFPA; b. declare that Aequitas engaged in abusive conduct when it funded and implemented the Genesis Loan Program in order for Corinthian to carry out the 90/10 scheme.
c. permanently enjoin Aequitas from collecting loan payments from the affected borrowers;
d. order Aequitas to pay restitution to consumers harmed by its unlawful conduct;
e. order Aequitas to pay damages to consumers harmed by its unlawful conduct; f. order Aequitas to disgorge all ill-gotten profits; g. order the rescission of all Genesis Loans originated or funded by Aequitas or Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 29 of 30
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its subsidiaries since July 21, 2011; h. enjoin Aequitas from making further investments in student loan products; i. impose civil money penalties against Aequitas; j. order Aequitas to pay the Bureau’s costs incurred in connection with bringing this action; and k. award such other and additional relief as the Court may determine to be just and proper.
Dated: August 17, 2017 Respectfully submitted,
Anthony M. Alexis, DC Bar 384545 Enforcement Director
David Rubenstein, DC Bar 458770 Deputy Enforcement Director
Cynthia Gooen Lesser, NY Bar 2578045 Assistant Deputy Enforcement Director
/s/ Rina Tucker Harris ___________
Rina Tucker Harris, DC Bar 444550 Mary K. Warren, NY Bar 2557684 Jessica Rank Divine, NY Bar 4544573
Attorneys for Plaintiff CONSUMER FINANCIAL PROTECTION BUREAU
Case 3:17-cv-01278-MO Document 1 Filed 08/17/17 Page 30 of 30
Settlement ()
PDF of this document (23 pages)
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 1 Anthony M. Alexis, DC Bar 384545 Enforcement Director David Rubenstein, DC Bar 458770 Deputy Enforcement Director Cynthia Gooen Lesser, NY Bar 2578045 Assistant Deputy Enforcement Director
Rina Tucker Harris, DC Bar 444550 Senior Litigation Counsel
[email protected] Mary K. Warren, NY Bar 2557684 Enforcement Attorney [email protected] Jessica Rank Divine, NY Bar 4544573 Enforcement Attorney [email protected] CONSUMER FINANCIAL PROTECTION BUREAU 1700 G Street NW Washington, DC 20552 Telephone: (202) 435-9196
Attorneys for Plaintiff
UNITED STATES DISTRICT COURT
DISTRICT OF OREGON
PORTLAND DIVISION
CONSUMER FINANCIAL PROTECTION BUREAU, Plaintiff, v.
AEQUITAS CAPITAL MANAGEMENT INC., AEQUITAS MANAGEMENT LLC, AEQUITAS HOLDINGS, LLC, AEQUITAS COMMERCIAL FINANCE, LLC, CAMPUS STUDENT FUNDING, LLC, CSF LEVERAGE I LLC, AEQUITAS INCOME OPPORTUNITY FUND, and AEQUITAS INCOME PROTECTION FUND, Defendants.
Case No. 17-cv-1278
[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 1 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 2
The Consumer Financial Protection Bureau (Bureau) commenced this civil action on August 17, 2017 to obtain consumer redress, injunctive relief, and other relief, from the Defendants. The Complaint alleges violations of §§ 1031(a) and 1036(a)(1) of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531(a), 5536(a)(1) in connection with Defendants’ funding, purchasing, and maintaining loans made to students at Corinthian Colleges, Inc. (Corinthian). Specifically, the Complaint alleges Defendants funded and maintained the private student loan program offered to Corinthian students as part of a scheme to allow Corinthian to present a façade of compliance with federal laws requiring that a certain portion of a for-profit school’s revenue come from sources other than federal student aid. The Complaint also alleges that Defendants profited from this scheme, and in doing so, took unreasonable advantage of Corinthian’s student borrowers who were unaware of the scheme associated with this loan program, and therefore were unable to protect their interests in taking out such loans.
The Securities and Exchange Commission commenced the Receivership Action in this Court on March 10, 2016 to, among other things, obtain injunctive relief against Defendants for violation of certain federal securities laws, and place Defendants and certain other related parties in receivership for purposes of orderly liquidation. The Court entered a preliminary injunction against Defendants on March 14, 2016, and by Order dated April 14, 2016 (Receivership Order) appointed the Receiver for Defendants and certain other related parties. Pursuant to the Receivership Order, the Receiver has the power and authority to enter into this Stipulated Final Judgment and Order (Order) and to perform certain duties set forth in this Order during the pendency of the Receivership.
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 2 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 3 The parties, by and through respective counsel, have requested the Court to enter this Order to resolve all matters in dispute arising from the conduct alleged in the Complaint.
I. FINDINGS 1. This Court has jurisdiction over the parties and the subject matter of this action. 2. The parties agree to entry of this Order to settle and resolve all matters in dispute arising from the conduct of Defendants alleged in the Complaint. 3. The Bureau makes no allegations against the Receiver, but only against Defendants. The Receiver is obligated under this Order for the sole purpose of acting on behalf of the Defendants to grant certain monetary relief from the assets of the Receivership and to perform certain obligations to the Bureau set forth in this Order. Defendants neither admit nor deny any allegation in the Complaint, except that for purposes of this Order, Defendants admit the facts necessary to establish the Court’s jurisdiction over Defendants and the subject matter of this action. 4. The loan reductions, discharges and cancellations described in this judgment are based on alleged infirmities that relate back to the original sale of educational services by Corinthian and are for the purpose of correcting these alleged unlawful business practices by the Defendants, including alleged unfair, deceptive, and abusive acts and practices.
5. Defendants waive service under Rule 4(d) of the Federal Rules of Civil Procedure and waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Defendants also waive any claims that they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 3 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 4 date of this Order. Each party will bear its own costs and expenses, including, without limitation, attorneys’ fees.
6.
Entry of this Order is in the public interest.
II. DEFINITIONS 7.
“Affected Consumers” means all consumers who were Borrowers of Aequitas Genesis Loans and have remaining unpaid amounts on such loans as of the Record Date.
8. “Active Aequitas Genesis Loans” means, as of the Record Date, all Aequitas Genesis Loans, with the exception of Defaulted Genesis Loans and Aequitas Closed School Loans.
9. “Defendants” means Aequitas Capital Management Inc., Aequitas Management LLC, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Campus Student Funding LLC, CSF Leverage I LLC, Aequitas Income Opportunity Fund, and Aequitas Income Protection Fund, as named in the Complaint. 10. “Aequitas Genesis Loan” means any private student loan referred to in the Complaint as either a Genesis loan or EducationPlus loan, which was made to a Borrower to pay for tuition, cost of living expenses and/or fees to attend a Corinthian school, and which as of the Record Date still has an outstanding balance on the books and records of Defendants in the possession of the Receiver (or on the books and records of servicers of said loans).
11.
“Borrower” means a consumer who was a borrower of an Aequitas Genesis Loan, and his/her/its successors or assigns.
12. “Closed School Loan ” means an Aequitas Genesis Loan to a Borrower who did not graduate or complete his/her course work and who (a) attended one of the Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 4 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 5 Corinthian schools that Corinthian announced on April 27, 2015 would be closed (listed on Schedule 1 to this Order) and was either attending such school when it closed or withdrew from such school on or after June 1, 2014, or (b) attended one of the Corinthian schools sold to Zenith (listed on Schedule 2 to this Order) and whose loan is included on a list agreed upon between the Receiver and the Bureau prior to the filing of the Complaint.
13. “Defaulted Aequitas Genesis Loan” means an Aequitas Genesis Loan that is 270 days or more past due, charged off, or cancelled as of the Record Date. 14. “Current Payment Amount” is the monthly payment amount designated for each Active Aequitas Genesis Loan in order to keep the account current and nondelinquent.
15. “Effective Date” means the date on which this Order is entered on the docket. 16. “Enforcement Director” means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate. 17. “Re-Amortization Payment Amount” is a new payment amount per month for each Active Aequitas Genesis Loan, calculated based on the principal reduction provided for in paragraph 32 as of the Effective Date such that the Active Aequitas Genesis Loan will be fully paid if the Re-Amortization Payment Amount is paid by the Borrower each month on time, by the end of that loan’s actual or, in the case of loans that have ever been in or are currently in a forbearance plan, estimated remaining term. 18. “Receiver” means Ronald Greenspan, receiver of Aequitas, named as such in the Receivership Order, or any other receiver that is appointed by a superseding order in the same litigation.
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 5 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 6 19. “Receivership Action” means the matter of SEC v. Aequitas Management, LLC, et al., No. 3:16-cv-438(PK) (D. Or.).
20. “Receivership Order” means the Order Appointing Receiver, ECF No. 156, SEC v. Aequitas Management, LLC, et al., No. 3:16-cv-438(PK) (D. Or. Apr. 14, 2016). 21. “Record Date” means March 31, 2017.
22. “Retained Personnel” means the agents of the Receiver, as defined by the Receivership Order.
III.
ORDER A. CONDUCT PROVISIONS
IT IS HEREBY ORDERED as follows:
23. Defendants and their respective officers, agents, servants, employees and attorneys, who have actual notice of this Order, whether acting directly or indirectly, may not violate §§ 1031 and 1036 of the CFPA, 12 U.S.C. §§ 5531, 5536, including by engaging in abusive acts or practices in connection with lending to students of for-profit schools.
24. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall obtain the following reports from servicers currently servicing the Aequitas Genesis Loans, with data as of the Record Date. Upon obtaining such reports, the Defendants or the Receiver on behalf of the Defendants shall provide copies of them to the Bureau. The following reports are to be obtained, to the extent the specified loanlevel data are available:
a. a report of all Aequitas Genesis Loans including for each such Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Aequitas Genesis Loan, the associated Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 6 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 7 Borrower’s name, a unique identifying number, and most currently available postal address, phone number, and email address. b. a report of all Active Aequitas Genesis Loans including for each such Active Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Active Aequitas Genesis Loan, the associated Borrower’s name, a unique identifying number, and most currently available postal address, phone number, and email address. c. a report of all Defaulted Aequitas Genesis Loans, including for each such Defaulted Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Defaulted Aequitas Genesis Loan, the associated Borrower’s name, a unique identifying number, and most currently available postal address, phone number, and email address. d. a report of all Closed School Loans, including for each such Closed School Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Closed School Loan, the associated Borrower’s name, a unique identifying number, and most currently available postal address, phone number, and email address. 25. For each Closed School Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from: a. Engaging in any collection activity with respect to each such Closed School Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 7 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 8 b. Accepting any future payment on any such Closed School Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants’ behalf, will return the payment to the Borrower within a reasonable time; and c. Reselling, transferring, or assigning any such Closed School Loan. 26. For each Defaulted Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from:
a. Engaging in any collection activity with respect to each such Defaulted Aequitas Genesis Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; b. Accepting any future payment on any such Defaulted Aequitas Genesis Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants’ behalf, will return the payment to the Borrower within a reasonable time; and c. Reselling, transferring, or assigning any such Defaulted Aequitas Genesis Loan.
27. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from: Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 8 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 9 a. Reselling, transferring, or assigning any such Active Aequitas Genesis Loan, unless:
i.
Defendants, or the Receiver on behalf of Defendants, ensure that the principal amount of each such loan sold, transferred or assigned reflects the reduction required in paragraph 32; ii.
Within five business days of reaching an agreement in principle to sell, transfer or assign any Active Aequitas Genesis Loans, in which the terms have been agreed upon by the parties but the Receiver has not yet sought the authority of the Receivership Court to make such a sale, transfer, or assignment, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of the fact that such agreement in principle has been reached;
2. the name of the proposed purchaser, transferee or assignee; 3. the list of Active Aequitas Genesis loans to be sold, transferred or assigned; and 4. the proposed written agreement memorializing the terms of the proposed sale, transfer, or assignment; iii.
Within five business days prior to filing a motion seeking court approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of its intention to file any such motion; and Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 9 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 10 2. the proposed motion papers, including any attachments thereto;
iv.
Defendants, or the Receiver on behalf of Defendants, ensure that the final agreement memorializing any such sale, transfer or assignment of any Active Aequitas Genesis Loans contains a provision requiring the purchaser, transferee or assignee to adopt or abide by the terms and provisions of this Order requiring ongoing performance for the Bureau; b. Any motion seeking approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans shall (1) contain a request to the Court that the terms of this Order requiring ongoing performance for the Bureau shall be enforceable against the purchaser, transferee or assignee; and (2) not seek to sell, transfer or assign such loans free and clear of rights, claims or defenses of any borrower, co-borrower or guarantor on any such Loan. 28. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of 60 days after the Effective Date from:
a. Engaging in any collection activity with respect to each such Active Aequitas Genesis Loan that seeks an amount in principal greater than the amount identified in paragraph 32, including by:
i.
calculating interest or fees based on a principal amount greater than the amount identified in paragraph 32, however, in the event interest or fees have been calculated on a principal amount greater than the amount identified in paragraph 32, the excess amounts that have been paid by the Borrower will be applied to the Borrower’s principal balance Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 10 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 11 unless the Borrower seeks a refund of such improperly charged amounts, in which case the Borrower will be supplied a refund; and ii.
representing to the Borrower of any such Active Aequitas Genesis Loan that the principal amount owed is greater than the amount identified in paragraph 32.
29. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must request that and use commercially reasonable efforts to follow up with any servicer that furnished trade line information for Aequitas Genesis Loans to credit reporting agencies to furnish deletion codes to said credit reporting agencies to delete such information from subject Borrowers’ credit reports. For Borrowers of Active Aequitas Genesis Loans who perform under such Loans after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such performance to credit reporting agencies in accordance with applicable law. For any Borrowers who become or continue to be delinquent or in default after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such Borrowers’ status to credit reporting agencies in accordance with applicable law; however, any such reporting shall reflect the balance as modified by this Order. 30. Defendants, or the Receiver on behalf of Defendants, shall direct any person or entity collecting on Active Aequitas Genesis Loans to fully comply with all applicable requirements of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq., in any such collection.
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 11 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 12 B. REDRESS AND REMEDIATION
IT IS FURTHER ORDERED that:
31. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, will discharge and cancel all amounts shown as owed in the report provided to the Bureau under paragraph 24, including principal, interest, fees or any other amounts, in connection with:
a. all Closed School Loans; and b. all Defaulted Aequitas Genesis Loans.
32. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall reduce the principal amount owed as of the Record Date on each Active Aequitas Genesis Loan, as identified in the report provided to the Bureau under paragraph 24, by 55% and discharge and cancel such principal and any accrued and unpaid interest, fees and charges that are 30 or more days past due as of the Record Date.
33. Defendants, or the Receiver on behalf of Defendants, shall use commercially reasonable efforts to obtain guidance from the Internal Revenue Service indicating that the Receiver is not required to make federal tax filings (including sending 1099 forms to Borrowers) as a result of the debt relief provided in this Order, prior to the time such forms would be required to be sent. If the Receiver, in consultation with his counsel, is satisfied that such guidance is reliable, the Receiver shall not make applicable federal tax filings and shall not send Borrowers 1099 forms. 34. Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of a Closed School Loan and each Borrower of a Defaulted Aequitas Genesis Loan with the following notice within 90 days of the Effective Date. Nothing else but Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 12 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 13 such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer’s system of record. The notice shall contain the following information: a. The outstanding amount that had been owed under each Aequitas Genesis Loan as of the Record Date by such Borrower;
b. The fact that each such amount has been reduced, discharged and canceled in full and such Borrower no longer owes any amounts under his or her Aequitas Genesis Loan;
c. The fact that the cancellation of the amounts owed for each such Aequitas Genesis Loan is pursuant to this Order;
d. The fact that the Borrower will not be subjected to any new debt-collection or credit-reporting activities related to each such Aequitas Genesis Loan; e. Any such reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
f. No amounts that were due and owing and were paid prior to the Record Date will be returned to the Borrower.
35. Within 90 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan written notice as described in paragraph 37 of his/her option to either continue paying the Current Payment Amount on the lowered principal balance or elect to have the loan reamortized using the lowered principal balance and remaining term of the subject loan, which will result in a Re-Amortization Payment Amount. No such notice is required to a Borrower and no Re-Amortization Payment Amount will be available to a Borrower, Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 13 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 14 however, if such Borrower’s Current Payment Amount before re-amortization is less than $20; in any event, a Borrower’s Re-Amortization Payment Amount will not be less than $20.
36. Each Borrower of an Active Aequitas Genesis Loan will have 90 days from the mailing date of such notice to make his/her election by completing the notice and returning it to Defendants, the Receiver (on behalf of Defendants) or the applicable servicer. If the Borrower does not make such an election, he or she will be required to pay the Current Payment Amount and the loan will not be re-amortized. For Borrowers as to whom Defendants, the Receiver on behalf of Defendants or the applicable servicer timely have received affirmative notice of election of the Re-Amortization Payment Amount, within 30 days following the expiration of the 90 day election period, Defendants, or the Receiver on behalf of Defendants, will re-amortize loans and adjust the monthly payment amount for all future unbilled and un-accrued loan payments to the Re-Amortization Payment Amount. Notwithstanding the foregoing, for any Active Aequitas Genesis Loan which already has been amended or modified pursuant to a forbearance plan to provide a Borrower with a monthly payment that is less than the applicable Re-Amortization Payment Amount and the Borrower has elected to accept the re-amortization option, Defendants, or the Receiver on behalf of Defendants, shall not be required to adjust the monthly payment until the end of the applicable forbearance period. Defendants, or the Receiver on behalf of Defendants, will adjust the monthly payment to a Re-Amortization Payment Amount based on the principal balance of the Borrower’s loan at the end of the applicable forbearance period. 37. Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan with the following notice pursuant to Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 14 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 15 paragraph 35. Nothing else but such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer’s system of record. The notice shall contain the following information:
a. Identification information that associates the loan to the Borrower; b. The amount of principal owed as of the Record Date of each Active Aequitas Genesis Loan associated with such Borrower; c. The amount of principal owed for each such Active Aequitas Genesis Loan after the reduction required in paragraph 32 has been applied; d. A statement notifying the Borrower that the principal has been reduced by 55% pursuant to this Order;
e. A Re-Amortization Payment Amount option whereby the Borrower has 90 days from the mailing date of such notice to inform the servicer of his or her election to opt-in and have his or her loan re-amortized with the minimum monthly payment modified from the Current Payment Amount to a Re- Amortization Payment Amount;
f. The fact that if the Borrower does not make such an election by the required date, the Current Payment Amount will continue as the amount due on his or her loan each month;
g. The fact that replacing the Current Payment Amount with the Re- Amortization Payment Amount may reduce the amount such Borrower pays each month but will cost the Borrower more over the life of the loan than if he or she continued with the Current Payment Amount;
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 15 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 16 h. The fact that a Borrower’s election will not waive any rights, claims or defenses that the Borrower and any co-borrower or guarantor may have with respect to the loan.
i. The fact that continuing to pay the Current Payment Amount (or more) each month will result in full satisfaction of his or her loan before the payment term has expired, and will cost the Borrower less overall than if he or she elected to use the Re-amortization Payment Amount;
j. The following specific information individualized for each Borrower on an Active Aequitas Genesis Loan:
i.
The estimated total amount of principal and interest the Borrower will pay if the Borrower pays each current Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances;
ii.
The estimated total amount of principal and interest that the Borrower will pay if the Borrower elects his or her option to pay the Re- Amortization Payment Amount and pays such Re-Amortization Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances; k. Any reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
l. A statement notifying the Borrower that, if the Borrower desires, the Borrower at any time may make payments larger than the Re-Amortization Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 16 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 17 Payment Amount, which if the loan is current would result in a shorter payoff period and interest savings; and m. A statement notifying Borrowers on forbearance plans of their alternative payment options as set forth in paragraph 36.
n. A statement notifying Borrowers that the relief described does not waive or extinguish any rights, claims or defenses that the Borrower, any co-borrower and/or guarantor may have with respect to his or her loan. 38. A proposed form of the notices required by paragraph 34 and 35 shall be provided to the Enforcement Director for his non-objection within 30 days of the Effective Date.
39. Defendants, or the Receiver on behalf of Defendants, shall include no materials other than the notices provided in paragraphs 34 and 35 in any envelope containing such notices, unless Defendants, or the Receiver on behalf of Defendants, have obtained written confirmation from the Enforcement Director that the Bureau does not object to the inclusion of such materials.
C. REPORTING REQUIREMENTS
IT IS FURTHER ORDERED that:
40. Defendants, or during the pendency of the Receivership Receiver on behalf of Defendants, shall notify the Bureau of any development that may affect their obligations arising under this Order, including, but not limited to, the replacement of the Receiver or the filing of any bankruptcy or insolvency proceeding by or against Defendants. Defendants, or the Receiver on behalf of Defendants, must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 17 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 18 41. Within 180 days of the Effective Date, and again one year after the Effective Date, Defendants, or the Receiver on behalf of Defendants, must submit to the Enforcement Director an accurate written compliance progress report, which, at a minimum:
a. Describes in detail the manner and form in which Defendants, or the Receiver on behalf of Defendants, as applicable, have complied with this Order; and b. Attaches a copy of each Order Acknowledgment obtained under Section D, unless previously submitted to the Bureau.
42. Defendants, or the Receiver on behalf of Defendants, in carrying out the provisions of this Order, are permitted to make such adjustments to loan balance amounts, accrual of interest and Borrower payment amounts and process refunds to Borrowers (including providing Borrower refunds or reimbursements not expressly required by this Order) as may be necessary to assure compliance with this Order, but in any event in a manner that is fair and transparent to Borrowers subject to such adjustments and in a manner that is otherwise in compliance with this Order. D. ORDER DISTRIBUTION AND ACKNOWLEDGEMENT
IT IS FURTHER ORDERED that:
43. Within 15 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must deliver a copy of this Order to each employee or agent of the Receiver who or which is, as of the Effective Date, employed or retained by the Receiver and who or which has responsibilities that extend beyond the Effective Date related to the subject matter of this Order.
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 18 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 19 44. Within 30 days of the Effective Date, the Receiver shall provide a signed and dated statement to the Bureau of the Receiver’s compliance with paragraph 43, and shall provide a signed and dated statement from the servicer, or any other third-party service provider tasked with carrying out responsibilities under this Order, acknowledging receipt of this Order, ensuring that any electronic signatures comply with the requirements of the E-Sign Act, 15 U.S.C. §§ 7001 et. seq.. E. RECORDKEEPING
IT IS FURTHER ORDERED that:
45. Defendants, or the Receiver on behalf of Defendants, must maintain for 3 years from the Effective Date or the duration of the Receivership, whichever is lesser, all documents and records necessary to demonstrate full compliance with this Order, including all submissions to the Bureau.
46. Aequitas, or the Receiver on Aequitas’s behalf, must make the documents identified in paragraph 45 available to the Bureau upon the Bureau’s request. F. NOTICES
IT IS FURTHER ORDERED that:
47. Unless otherwise directed in writing by the Bureau, Defendants, or the Receiver on behalf of Defendants, must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line CFPB v. Aequitas Management, LLC, 17-cv-1278 (D. Or.) and send them either a. By overnight courier (not the U.S. Postal Service), as follows: Assistant Deputy Enforcement Director Consumer Financial Protection Bureau Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 19 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 20 ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552; or b. By first-class mail to the below address and contemporaneously by email to [email protected]:
Assistant Deputy Enforcement Director ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552 G. COOPERATION WITH THE BUREAU
IT IS FURTHER ORDERED that:
48. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully with the Bureau as necessary to achieve the goals and carry out the requirements of this Order.
49. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully to help the Bureau determine the identity and the location of, and the relief provided pursuant to this Order for each Affected Consumer, from the information within Defendants’ or the Receiver’s possession and control or a servicer’s system of record.
H. MODIFICATIONS TO NON-MATERIAL REQUIREMENTS
IT IS FURTHER ORDERED that:
50. Notwithstanding the provisions of paragraph 53 (section K), any time limits for performance fixed by this Order may be extended by mutual written agreement of the Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 20 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 21 parties (or, as applicable, the Receiver) and without further Court approval. Additionally, details related to the administration of Sections C through G of this Order may be modified by written agreement of the parties (or, as applicable, the Receiver) and without further Court approval. Any other modifications to this Order may be made only upon approval of the Court, upon motion by any party. I. RELEASE
IT IS FURTHER ORDERED that:
51. The Bureau releases and discharges Defendants from all potential liability for law violations that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. The Bureau may use the practices described in this Order in future enforcement actions against Defendants, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order.
J. LIMITATION OF LIABILITY UNDER RECEIVERSHIP ORDER
IT IS FURTHER ORDERED that:
52. Notwithstanding any other terms, conditions or provisions of this Order, pursuant to the Receivership Order, the Receiver and the Retained Personnel are entitled to rely on all outstanding rules of law and the orders of the Receivership Court and shall not be liable to any person or party (including, without limitation, the Bureau) Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 21 of 23
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[PROPOSED] STIPULATED FINAL JUDGMENT AND ORDER - 22 for their own good faith compliance with this Order. Pursuant to the Receivership Order, in no event shall the Receiver or Retained Personnel be liable to any person or party (including, without limitation, the Bureau) for their good faith compliance with their duties and responsibilities as Receiver or Retained Personnel, nor shall the Receiver or Retained Personnel be liable to anyone for any actions taken or omitted by them except upon a finding by the Receivership Court that they acted or failed to act as a result of malfeasance, bad faith, gross negligence, or in reckless disregard of their duties. K. RETENTION OF JURISDICTION
IT IS FURTHER ORDERED that:
53. This Court retains jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
IT IS SO ORDERED.
Dated this ___ day of ____, 2017.
_________________________ United States District Judge
Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 22 of 23
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Corinthian Closed School OPEID List (Per the Department of Education Listing) Corinthian OPEID School Name Location Street Address City State School # 809000 Everest College Everest College 2215 Mission Road Alhambra CA 1110700 Everest College Everest College 511 North Brookhurst Street Anaheim CA 1112300 Everest College Everest College 1045 Wt Redondo Beach Blvd Gardena CA 3072300 Everest College Everest College 1460 S. Milliken Ave Ontario CA 449400 Everest College Everest College 217 E. Club Center Drive, Ste A San Bernardino CA 449401 Everest College ‐ Santa Ana Everest College ‐ Santa Ana 500 West Santa Ana Boulevard Santa Ana CA 449402 Everest College ‐ Ontario Everest College ‐ Ontario 1819 South Excise Avenue Ontario CA 481100 Everest Institute Everest Institute 1630 Portland Avenue Rochester NY 1110900 Everest College Everest College 18040 Sherman Way Reseda CA 2295000 Everest College Everest College 10400 North 25th Avenue Phoenix AZ 575, 975 2295002 Everest College Everest College 5416 East Baseline Mesa AZ 3195400 Everest College Everest College 1231 Cabrillo Avenue Torrance CA 723400 Heald College Heald College 875 Howard Street San Francisco CA 11101 723401 Heald College ‐ Honolulu Heald College ‐ Honolulu 1500 Kapliolani Boulevard Honolulu HI 11136 723402 Heald College Heald College 6035 Northeast 78th Court Portland OR 11138 723403 Heald College ‐ Kaneoche MCB Heald College ‐ Kaneoche MCB Bldg 220, 5th St. Marine Corps Kaneohe HI Unable to Identify 723404 Heald College ‐ Concord Heald College ‐ Concord 5130 Commercial Circle Concord CA 11103, 11199 723405 Heald College ‐ Milpitas Heald College ‐ Milpitas 341 Great Mall Parkway Milpitas CA 11105 723406 Heald College ‐ Hayward Heald College ‐ Hayward 25500 Industrial Boulevard Hayward CA 11104 723407 Heald College ‐ Modesto Heald College ‐ Modesto 5260 Pirrone Court Salida CA 11115 723408 Heald College ‐ Roseville Heald College ‐ Roseville Seven Sierra Gate Plaza Roseville CA 11156 723409 Heald College ‐ Salinas Heald College ‐ Salinas 1450 North Main Street Salinas CA 11109 723410 Heald College ‐ Stockton Heald College ‐ Stockton 1605 East March Lane Stockton CA 11114 723411 Heald College ‐ Rancho Cordova Heald College ‐ Rancho Cordova 2910 Prospect Park Drive Rancho Cordova CA 11111 723412 Heald College ‐ Fresno Heald College ‐ Fresno 255 West Bullard Fresno CA 11112 723413 Heald College ‐ Fresno Satellite Heald College ‐ Fresno Satellite 255 East River Park Circle Fresno CA 11112 719000 WyoTech WyoTech 200 Whitney Place Fremont CA 1287300 WyoTech WyoTech 2161 Technology Place Long Beach CA 1287301 WyoTech WyoTech 3000 S Robertson BLVD #300 Los Angeles CA Unable to Identify 1287302 WyoTech WyoTech 12801 Crossroads Pkwy South City of Industry CA Unable to Identify Corinthian Zenith Closed School OPEID List "Zenith"
OPEID SCHOOL NAME LOCATION ADDRESS CITY STATE School # 2100401 EVEREST INSTITUTE EVEREST INSTITUTE ‐ KALAMAZOO 5177 WEST MAIN STREET KALAMAZOO MI 982809 EVEREST INSTITUTE EVEREST INSTITUTE ‐ CHELSEA 70 EVERETT AVENUE CHELSEA MA 2300105 EVEREST COLLEGE EVEREST COLLEGE ‐ EARTH CITY 3420 RIDER TRAIL SOUTH EARTH CITY MO 2617507 EVEREST COLLEGE EVEREST COLLEGE ‐ EVEREST INSTITUTE ‐ BENSALEM 3050 TILLMAN DRIVE BENSALEM PA Unable to Identify 2100402 EVEREST INSTITUTE EVEREST INSTITUTE ‐ EVEREST COLLEGE 8585 BROADWAY SUITE 200 MERRILLVILLE IN 2100400 EVEREST INSTITUTE EVEREST INSTITUTE 1750 WOODWORTH STREET NORTHEAST GRAND RAPIDS MI 2298501 EVEREST COLLEGE EVEREST COLLEGE ‐ FORT WORTH 5237 NORTH RIVERSIDE DRIVE SUITE 200 FORT WORTH TX 149911 EVEREST UNIVERSITY EVEREST UNIVERSITY ‐ EVEREST COLLEGE ‐ MERRIONETTE PARK 11560 SOUTH KEDZIE AVENUE MERRIONETTE PARK IL 2298500 EVEREST COLLEGE EVEREST COLLEGE 3280 WEST 3500 SOUTH SALT LAKE CITY UT 450301 EVEREST COLLEGE EVEREST COLLEGE ‐ MCLEAN 8620 WESTWOOD CENTER DRIVE VIENNA VA 1185802 EVEREST COLLEGE EVEREST COLLEGE ‐ BURR RIDGE 6880 NORTH FRONTAGE ROAD SUITE 400 BURR RIDGE IL 1185800 EVEREST COLLEGE EVEREST COLLEGE 9811 WOODS DRIVE SUITE 200 SKOKIE IL 1185803 EVEREST COLLEGE EVEREST COLLEGE ‐ MELROSE PARK 1101 WEST NORTH AVENUE SUITE 1 MELROSE PARK IL Unable to Identify 982810 EVEREST INSTITUTE EVEREST INSTITUTE ‐ EVEREST COLLEGE‐ BEDFORD PARK 7414 SOUTH CICERO AVENUE BEDFORD PARK IL Unable to Identify 709100 EVEREST INSTITUTE EVEREST INSTITUTE 100 FORBES AVENUE KOSSMAN BUILDING SUITE 1200 PITTSBURGH PA 450701 EVEREST COLLEGE EVEREST COLLEGE‐ EVEREST COLLEGE AURORA 14280 EAST JEWELL AVENUE SUITE 100 AURORA CO 982806 EVEREST INSTITUTE EVEREST INSTITUTE ‐ JONESBORO 6431 TARA BOULEVARD JONESBORO GA 2606200 EVEREST COLLEGE EVEREST COLLEGE 981 POWELL AVENUE SW SUITE 200 RENTON WA 982801 EVEREST INSTITUTE EVEREST INSTITUTE‐ DEARBORN 23400 MICHIGAN AVENUE SUITE 200 DEARBORN MI 907901 EVEREST COLLEGE EVEREST COLLEGE STONEMILL CENTER SUITE 130 120 NORTHEAST 136TH AVENUE VANCOUVER WA 907900 EVEREST COLLEGE EVEREST COLLEGE 600 SW 10TH AVENUE SUITE 400 PORTLAND OR 2617509 EVEREST COLLEGE EVEREST COLLEGE NORTHGATE MERIDIAN BUILDING 2111 NORTH NORTHGATE WAY SUITE 300 SEATTLE WA 2300106 EVEREST COLLEGE EVEREST COLLEGE 155 WASHINGTON AVENUE SUITE 200 BREMERTON WA 149908 EVEREST UNIVERSITY EVEREST UNIVERSITY ‐ LAKELAND 995 EAST MEMORIAL BOULEVARD LAKELAND FL 149912 EVEREST UNIVERSITY EVEREST UNIVERSITY ‐ EVEREST COLLEGE ‐ KANSAS CITY 1740 WEST 92ND STREET KANSAS CITY MO Schedule 1 Schedule 2 Case 3:17-cv-01278-MO Document 2-1 Filed 08/17/17 Page 23 of 23
Stipulation ()
PDF of this document (23 pages)
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Anthony M. Alexis, DC Bar 384545 Enforcement Director David Rubenstein, DC Bar 458770 Deputy Enforcement Director Cynthia Gooen Lesser, NY Bar 2578045 Assistant Deputy Enforcement Director Rina Tucker Harris, DC Bar 444550 Senior Litigation Counsel [email protected] Mary K. Warren, NY Bar 2557684 Enforcement Attorney [email protected] Jessica Rank Divine, NY Bar 4544573 Enforcement Attorney [email protected] CONSUMER FINANCIAL PROTECTION BUREAU 1700 G Street NW Washington, DC 20552 Telephone: (202) 435-9196 Attorneys for Plaintiff UNITED STATES DISTRICT COURT DISTRICT OF OREGON PORTLAND DNISION CONSUMER FINAl'l"CIAL PROTECTION BUREAU, Plaintiff, v.
AEQUITAS CAPITAL MANAGEMENT INC., AEQUITAS MANAGEMENT LLC, AEQUITAS HOLDINGS, LLC, AEQUITAS COMMERCIAL FINANCE, LLC, CAMPUS STUDENT FUNDING, LLC, CSF LEVERAGE I LLC, AEQUITAS INCOME OPPORTUNITY FUND, and AEQUITAS INCOME PROTECTION FUND, Defendants.
Case No. 17-cv-1278 ··"Pl( [PFli!'PQ£:1!J!D) STIPULATED FINAL JUDGMENT AND ORDER tpP @P@Bl!JIS) STIPULATED FINAL JUDG!vlENT AND ORDER - 1 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 1 of 23
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The Consumer Financial Protection Bureau (Bureau) commenced this civil action on August 17, 2017 to obtain consumer redress, injunctive relief, and other relief, from the Defendants. The Complaint alleges violations of§§ 1031(a) and 1036(a)(1) of the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5531(a), 5536(a)(1) in connection with Defendants' funding, purchasing, and maintaining loans made to students at Corinthian Colleges, Inc. (Corinthian). Specifically, the Complaint alleges Defendants funded and maintained the private student loan program offered to . Corinthian students as part of a scheme to allow Corinthian to present a fa<;ade of compliance with federal laws requiring that a certain portion of a for-profit school's revenue come from sources other than federal student aid. The Complaint also alleges that Defendants profited from this scheme, and in doing so, took unreasonable advantage of Corinthian's student borrowers who were unaware of the scheme associated with this loan program, and therefore were unable to protect their interests in taking out such loans.
The Securities and Exchange Commission commenced the Receivership Action in this Court on March 10, 2016 to, among other things, obtain injunctive relief against Defendants for violation of certain federal securities laws, and place Defendants and certain other related parties in receivership for purposes of orderly liquidation. The Court entered a preliminary injunction against Defendants on March 14, 2016, and by Order dated April 14, 2016 (Receivership Order) appointed the Receiver for Defendants and certain other related parties. Pursuant to the Receivership Order, the Receiver has the power and authority to enter into this Stipulated Final Judgment and Order (Order) and to perform certain duties set forth in this Order during the pendency of the Receivership.
[fR@fBOJ!lQ] STIPULATED FINAL JUDGMENT AND ORDER- 2 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 2 of 23
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The parties, by and through respective counsel, have requested the Court to enter this Order to resolve all matters in dispute arising from the conduct alleged in the Complaint.
I. FINDINGS 1. This Court has jurisdiction over the parties and the subject matter of this action. 2. The parties agree to entry of this Order to settle and resolve all matters in dispute arising from the conduct of Defendants alleged in the Complaint. 3. The Bureau makes no allegations against the Receiver, but only against Defendants. The Receiver is obligated under this Order for the sole purpose of acting on behalf of the Defendants to grant certain monetary relief from the assets of the Receivership and to perform certain obligations to the Bureau set forth in this Order. Defendants neither admit nor deny any allegation in the Complaint, except that for purposes of this Order, Defendants admit the facts necessary to establish the Comt's jurisdiction over Defendants and the subject matter of this action. 4. The loan reductions, discharges and cancellations described in this judgment are based on alleged infirmities that relate back to the original sale of educational services by Corinthian and are for the purpose of correcting these alleged unlawful business practices by the Defendants, including alleged unfair, deceptive, and abusive acts and practices.
5. Defendants waive service under Rule 4( d) of the Federal Rules of Civil Procedure and waive all rights to seek judicial review or otherwise challenge or contest the validity of this Order. Defendants also waive any claims that they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of this action to the [PR@P@!i!Jiili'] STIPULATED FINAL JUDGMENT AND ORDER- 3 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 3 of 23
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date of this Or.der. Each party will bear its own costs and expenses, including, without limitation, attorneys' fees.
6.
Entry of this Order is in the public interest.
II. DEFINITIONS 7.
"Affected Consumers" means all consumers who were Borrowers of Aequitas Genesis Loans and have remaining unpaid amounts on such loans as of the Record Date.
8. "Active Aequitas Genesis Loans" means, as of the Record Date, all Aequitas Genesis Loans, with the exception of Defaulted Genesis Loans and Aequitas Closed School Loans.
9. "Defendants" means Aequitas Capital Management Inc., Aequitas Management LLC, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Campus Student Funding LLC, CSF Leverage I LLC, Aequitas Income Opportunity Fund, and Aequitas Income Protection Fund, as named in the Complaint. 10. "Aequitas Genesis Loan" means any private student loan referred to in the Complaint as either a Genesis loan or EducationPlus loan, which was made to a Borrower to pay for tuition, cost of living expenses and/ or fees to attend a Corinthian school, and which as of the Record Date still has an outstanding balance on the books and records of Defendants in the possession of the Receiver (or on the books and records of servicers of said loans).
11.
"Borrower" means a consumer who was a borrower of an Aequitas Genesis Loan, and his/her/its successors or assigns.
12. "Closed School Loan" means an Aequitas Genesis Loan to a Borrower who did not graduate or complete his/her course work and who (a) attended one of the [P:ll OP 0 Bilio] STIPULATED FINAL ruDGMENT AND ORDER - 4 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 4 of 23
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Corinthian schools that Corinthian announced on April 27, 2015 would be closed (listed on Schedule 1 to this Order) and was either attending such school when it closed or withdrew from such school on or after June 1, 2014, or (b) attended one of the Corinthian schools sold to Zenith (listed on Schedule 2 to this Order) and whose loan is included on a list agreed upon between the Receiver and the Bureau prior to the filing of the Complaint.
13. "Defaulted Aequitas Genesis Loan" means an Aequitas Genesis Loan that is 270 days or more past due, charged off, or cancelled as of the Record Date. 14.
"Current Payment Amount" is the monthly payment amount designated for each Active Aequitas Genesis Loan in order to keep the account current and nondelinquent.
15.
"Effective Date" means the date on which this Order is entered on the docket. 16.
"Enforcement Director" means the Assistant Director of the Office of Enforcement for the Consumer Financial Protection Bureau, or his or her delegate. 17.
"Re-Amortization Payment Amount" is a new payment amount per month for each Active Aequitas Genesis Loan, calculated based on the principal reduction provided for in paragraph 32 as of the Effective Date such that the Active Aequitas Genesis Loan will be fully paid if the Re-Amortization Payment Amount is paid by the Borrower each month on time, by the end of that loan's actual or, in the case of loans that have ever been in or are currently in a forbearance plan, estimated remaining term. 18. "Receiver" means Ronald Greenspan, receiver of Aequitas, named as such in the Receivership Order, or any other receiver that is appointed by a superseding order in the same litigation.
[FR®Fe'JBEB] STIPULATED FINAL JUDGMENT AND ORDER- 5 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 5 of 23
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19. "Receivership Action" means the matter of SEC v. Aequitas Management, LLC, et al., No. 3:16-cv-438(PK) (D. Or.).
20. "Receivership Order" means the Order Appointing Receiver, ECF No. 156, SEC v. Aequitas IVfanagement, LLC, et al., No. 3:16-cv-438(PK) (D. Or. Apr. 14, 2016). 21. "Record Date" means March 31, 2017.
22. "Retained Personnel" means the agents of the Receiver, as defined by the Receivership Order.
III.
ORDER A. CONDUCT PROVISIONS IT IS HEREBY ORDERED as follows:
23. Defendants and their respective officers, agents, servants, employees and attorneys, who have actual notice of this Order, whether acting directly or indirectly, may not violate§§ 1031and1036 of the CFPA, 12 U.S.C. §§ 5531, 5536, including by engaging in abusive acts or practices in connection with lending to students of for-profit schools.
24. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall obtain the following reports from servicers currently servicing the Aequitas Genesis Loans, with data as of the Record Date. Upon obtaining such reports, the Defendants or the Receiver on behalf of the Defendants shall provide copies of them to the Bureau. The following reports are to be obtained, to the extent the specified loanlevel data are available:
a. a report of all Aequitas Genesis Loans including for each such Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Aequitas Genesis Loan, the associated [PR@f@8F&j STIPULATED FINAL JUDGMENT AND ORDER - 6 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 6 of 23
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Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address. b. a report of all Active Aequitas Genesis Loans including for each such Active Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Active Aequitas Genesis Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address. c. a report of all Defaulted Aequitas Genesis Loans, including for each such Defaulted Aequitas Genesis Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Defaulted Aequitas Genesis Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address. d. a report of all Closed School Loans, including for each such Closed School Loan, the amount of principal, interest, fees, and any other amount due and owing as of the Record Date on such Closed School Loan, the associated Borrower's name, a unique identifying number, and most currently available postal address, phone number, and email address. 25. For each Closed School Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from: a. Engaging in any collection activity with respect to each such Closed School Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; "'n @F !'OEJil] STIPULATED FINAL JUDGMENT AND ORDER - 7 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 7 of 23
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b. Accepting any future payment on any such Closed School Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants' behalf, will return the payment to the Borrower within a reasonable time; and c. Reselling, transferring, or assigning any such Closed School Loan. 26. For each Defaulted Aequitas Genesis Loan, Defendants, and the Receiver on · behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from:
a. Engaging in any collection activity with respect to each such Defaulted Aequitas Genesis Loan; however, Defendants will not be regarded as in violation of this Order if they send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; b. Accepting any future payment on any such Defaulted Aequitas Genesis Loan, including any future payment made in connection with any statement or notice permitted by subparagraph (a), provided, however, that in the event that such a payment is discovered to be accepted and processed, Defendants, or the Receiver acting on Defendants' behalf, will return the payment to the Borrower within a reasonable time; and c. Reselling, transferring, or assigning any such Defaulted Aequitas Genesis Loan.
27. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of the Effective Date from: [FROI <"Jtll":8ij STIPULATED FINAL JUDGMENT AND ORDER - 8 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 8 of 23
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a. Reselling, transferring, or assigning any such Active Aequitas Genesis Loan, unless:
i.
Defendants, or the Receiver on behalf of Defendants, ensure that the principal amount of each such loan sold, transferred or assigned reflects the reduction required in paragraph 32; ii.
Within five business days of reaching an agreement in principle to sell, transfer or assign any Active Aequitas Genesis Loans, in which the terms have been agreed upon by the parties but the Receiver has not yet sought the authority of the Receivership Court to make such a sale, transfer, or assignment, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of the fact that such agreement in principle has been reached;
2. the name of the proposed purchaser, transferee or assignee; 3. the list of Active Aequitas Genesis loans to be sold, transferred or assigned; and 4. the proposed written agreement memorializing the terms of the proposed sale, transfer, or assignment; iii.
Within five business days prior to filing a motion seeking court approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans, Defendants, or the Receiver on behalf of Defendants, must provide the Bureau:
1. notice of its intention to file any such motion; and s{i'R@FQEJIJD] STIPULATED FINAL JUDGIYIBNT AND ORDER - 9 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 9 of 23
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2. the proposed motion papers, including any attachments thereto;
iv.
Defendants, or the Receiver on behalf of Defendants, ensure that the final agreement memorializing any such sale, transfer or assignment of any Active Aequitas Genesis Loans contains a provision requiring the purchaser, transferee or assignee to adopt or abide by the terms and provisions of this Order requiring ongoing performance for the Bureau; b. Any motion seeking approval for any such sale, transfer or assignment of Active Aequitas Genesis Loans shall (1) contain a request to the Court that the terms of this Order requiring ongoing performance for the Bureau shall be enforceable against the purchaser, transferee or assignee; and (2) not seek to sell, transfer or assign such loans free and clear of rights, claims or defenses of any borrower, co-borrower or guarantor on any such Loan. 28. For each Active Aequitas Genesis Loan, Defendants, and the Receiver on behalf of Defendants, are permanently restrained and enjoined as of 60 days after the Effective Date from:
a. Engaging in any collection activity with respect to each such Active Aequitas Genesis Loan that seeks an amount in principal greater than the amount identified in paragraph 32, including by:
i.
calculating interest or fees based on a principal amount greater than the amount identified in paragraph 32, however, in the event interest or fees have been calculated on a principal amount greater than the amount identified in paragraph 32, the excess amounts that have been paid by the Borrower will be applied to the Borrower's principal balance [I tt@P(i!'!ill!JQy STIPULATED FINAL JUDGJVIBNT AND ORDER- 10 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 10 of 23
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unless the Borrower seeks a refund of such improperly charged amounts, in which case the Borrower will be supplied a refund; and ii.
representing to the Borrower of any such Active Aequitas Genesis Loan that the principal amount owed is greater than the amount identified in paragraph 32.
29. Within 30 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must request that and use commercially reasonable efforts to follow up with any servicer that furnished trade line information for Aequitas Genesis Loans to credit reporting agencies to furnish deletion codes to said credit reporting agencies to delete such information from subject Borrowers' credit reports. For Borrowers of Active Aequitas Genesis Loans who perform under such Loans after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such performance to credit reporting agencies in accordance with applicable law. For any Borrowers who become or continue to be delinquent or in default after the Effective Date, Defendants, or the Receiver on behalf of Defendants, may direct the servicer to report such Borrowers' status to credit reporting agencies in accordance with applicable law; however, any such reporting shall reflect the balance as modified by this Order. 30. Defendants, or the Receiver on behalf of Defendants, shall direct any person or entity collecting on Active Aequitas Genesis Loans to fully comply with all applicable requirements of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692 et seq., in any such collection.
[I ROI OSEI'>] STIPULATED FINAL JUDGMENT AND ORDER- 11 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 11 of 23
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B. REDRESS AND REMEDIATION IT IS FURTHER ORDERED that:
31. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, will discharge and cancel all amounts shown as owed in the report provided to the Bureau under paragraph 24, including principal, interest, fees or any other amounts, in connection with:
a. all Closed School Loans; and b. all Defaulted Aequitas Genesis Loans.
32. Within 60 days after the Effective Date, Defendants, or the Receiver on behalf of Defendants, shall reduce the principal amount owed as of the Record Date on each Active Aequitas Genesis Loan, as identified in the report provided to the Bureau under paragraph 24, by 55% and discharge and cancel such principal and any accrued and unpaid interest, fees and charges that are 30 or more days past due as of the Record Date.
33. Defendants, or the Receiver on behalf of Defendants, shall use commercially reasonable efforts to obtain guidance from the Internal Revenue Service indicating that the Receiver is not required to make federal tax filings (including sending 1099 forms to Borrowers) as a result of the debt relief provided in this Order, prior to the time such forms would be required to be sent. If the Receiver, in consultation with his counsel, is satisfied that such guidance is reliable, the Receiver shall not make applicable federal tax filings and shall not send Borrowers 1099 forms. 34. Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of a Closed School Loan and each Borrower of a Defaulted Aequitas Genesis Loan with the following notice within 90 days of the Effective Date. Nothing else but [f ICOfOSL1!!'1 STIPULATED FINAL JUDGJVIENT AND ORDER - 12 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 12 of 23
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such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer' s system of record. The notice shall contain the following information: a. The outstanding amount that had been owed under each Aequitas Genesis Loan as of the Record Date by such Borrower;
b. The fact that each such amount has been reduced, discharged and canceled in full and such Borrower no longer owes any amounts under his or her Aequitas Genesis Loan;
c. The fact that the cancellation of the amounts owed for each such Aequitas Genesis Loan is pursuant to this Order;
d. The fact that the Borrower will not be subjected to any new debt-collection or credit-reporting activities related to each such Aequitas Genesis Loan; e. Any such reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
f. No amounts that were due and owing and were paid prior to the Record Date will be returned to the Borrower.
35.
Within 90 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan written notice as described in paragraph 37 of his/her option to either continue paying the Current Payment Amount on the lowered principal balance or elect to have the loan reamortized using the lowered principal balance and remaining term of the subject loan, which will result in a Re-Amortization Payment Amount. No such notice is required to a Borrower and no Re-Amortization Payment Amount will be available to a Borrower, [FR@f@Sli§Ji§] STIPULATED FINAL JUDGMENT AND ORDER- 13 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 13 of 23
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however, if such Borrower's Current Payment Amount before re-amortization is less than $20; in any event, a Borrower's Re-Amortization Payment Amount will not be less than $20.
36. Each Borrower of an Active Aequitas Genesis Loan will have 90 days from the mailing date of such notice to make his/her election by completing the notice and returning it to Defendants, the Receiver (on behalf of Defendants) or the applicable servicer. If the Borrower does not make such an election, he or she will be required to pay the Current Payment Amount and the loan will not be re-amortized. For Borrowers as to whom Defendants, the Receiver on behalf of Defendants or the applicable servicer timely have received affirmative notice of election of the Re-Amortization Payment Amount, within 30 days following the expiration of the 90 day election period, Defendants, or the Receiver on behalf of Defendants, will re-amortize loans and adjust the monthly payment amount for all future unbilled and un-accrued loan payments to the Re-Amortization Payment Amount. Notwithstanding the foregoing, for any Active Aequitas Genesis Loan which already has been amended or modified pursuant to a forbearance plan to provide a Borrower with a monthly payment that is less than the applicable Re-Amortization Payment Amount and the Borrower has elected to accept the re-am01tization option, Defendants, or the Receiver on behalf of Defendants, shall not be required to adjust the monthly payment until the end of the applicable forbearance period. Defendants, or the Receiver on behalf of Defendants, will adjust the monthly payment to a Re-Amortization Payment Amount based on the principal balance of the Borrower's loan at the end of the applicable forbearance period. 37.
Defendants, or the Receiver on behalf of Defendants, must provide each Borrower of an Active Aequitas Genesis Loan with the following notice pursuant to f'fi BP@SFQ]•STIPULATED FINAL JUDGlvfENT AND ORDER- 14 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 14 of 23
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paragraph 35. Nothing else but such notice shall be sent in combination with the mailing of this notice and such mailing will be sent to the most recently available postal address as contained on the servicer's system of record. The notice shall contain the following information:
a. Identification information that associates the loan to the Borrower; b. The amount of principal owed as of the Record Date of each Active Aequitas Genesis Loan associated with such Borrower; c. The amount of principal owed for each such Active Aequitas Genesis Loan after the reduction required in paragraph 32 has been applied; d. A statement notifying the Borrower that the principal has been reduced by 55% pursuant to this Order;
e. A Re-Amortization Payment Amount option whereby the Borrower has 90 days from the mailing date of such notice to inform the servicer of his or her election to opt-in and have his or her loan re-amortized with the minimum monthly payment modified from the Current Payment Amount to a Re- Amortization Payment Amount;
f. The fact that if the Borrower does not make such an election by the required date, the Current Payment Amount will continue as the amount due on his or her loan each month;
g. The fact that replacing the Current Payment Amount with the Re- Amortization Payment Amount may reduce the amount such Borrower pays each month but will cost the Borrower more over the life of the loan than if he or she continued with the Current Payment Amount;
1J1It&OSED] STIPULATED FINAL JUDGMENT AND ORDER- 15 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 15 of 23
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h. The fact that a Borrower's election will not waive any rights, claims or defenses that the Borrower and any co-borrower or guarantor may have with respect to the loan.
i. The fact that continuing to pay the Current Payment Amount (or more) each month will result in full satisfaction of his or her loan before the payment term has expired, and will cost the Borrower less overall than if he or she elected to use the Re-amortization Payment Amount;
j. The following specific information individualized for each Borrower on an Active Aequitas Genesis Loan:
i.
The estimated total amount of principal and interest the Borrower will pay if the Borrower pays each current Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances;
ii.
The estimated total amount of principal and interest that the Borrower will pay if the Borrower elects his or her option to pay the Re- Amortization Payment Amount and pays such Re-Amortization Payment Amount as scheduled, as well as the estimated date of pay-off of the Active Aequitas Genesis Loan under these circumstances; k. Any reduction, discharge or cancellation of principal may result in tax liabilities of the borrower to the Internal Revenue Service and state taxing authorities;
1. A statement notifying the Borrower that, if the Borrower desires, the Borrower at any time may make payments larger than the Re-Amortization [I ROI ('i)J§l!ilij STIPULATED FINAL JUDGMENT AND ORDER - 16 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 16 of 23
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Payment Amount, which if the loan is current would result in a shorter payoff period and interest savings; and m. A statement notifying Borrowers on forbearance plans of their alternative payment options as set forth in paragraph 36.
n. A statement notifying Borrowers that the relief described does not waive or extinguish any rights, claims or defenses that the Borrower, any co-borrower and/ or guarantor may have with respect to his or her loan. 38. A proposed form of the notices required by paragraph 34 and 35 shall be provided to the Enforcement Director for his non-objection within 30 days of the Effective Date.
39. Defendants, or the Receiver on behalf of Defendants, shall include no materials other than the notices provided in paragraphs 34 and 35 in any envelope containing such notices, unless Defendants, or the Receiver on behalf of Defendants, have obtained written confirmation from the Enforcement Director that the Bureau does not object to the inclusion of such materials.
C. REPORTING REQUIREMENTS IT IS FURTHER ORDERED that:
40. Defendants, or during the pendency of the Receivership Receiver on behalf of Defendants, shall notify the Bureau of any development that may affect their obligations arising under this Order, including, but not limited to, the replacement of the Receiver or the filing of any bankruptcy or insolvency proceeding by or against Defendants. Defendants, or the Receiver on behalf of Defendants, must provide this notice at least 30 days before the development or as soon as practicable after learning about the development, whichever is sooner.
[f RBF 0 Bl!i:li'j STIPULATED FINAL JUDGMENT AND ORDER - 17 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 17 of 23
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41. Within 180 days of the Effective Date, and again one year after the Effective Date, Defendants, or the Receiver on behalf of Defendants, must submit to the Enforcement Director an accurate written compliance progress report, which, at a mm1mum:
a. Describes in detail the manner and form in which Defendants, or the Receiver on behalf of Defendants, as applicable, have complied with this Order; and b. Attaches a copy of each Order Acknowledgment obtained under Section D, unless previously submitted to the Bureau.
42. Defendants, or the Receiver on behalf of Defendants, in carrying out the provisions of this Order, are permitted to make such adjustments to loan balance amounts, accrual of interest and Borrower payment amounts and process refunds to Borrowers (including providing Borrower refunds or reimbursements not expressly required by this Order) as may be necessary to assure compliance with this Order, but in any event in a manner that is fair and transparent to Borrowers subject to such adjustments and in a manner that is otherwise in compliance with this Order. D. ORDER DISTRIBUTION AND ACKNOWLEDGEMENT IT IS FURTHER ORDERED that:
43. Within 15 days of the Effective Date, Defendants, or the Receiver on behalf of Defendants, must deliver a copy of this Order to each employee or agent of the Receiver who or which is, as of the Effective Date, employed or retained by the Receiver and who or which has responsibilities that extend beyond the Effective Date related to the subject matter of this Order.
[~ ROl USED] STIPULATED FINAL JUDGJVIBNT AND ORDER - 18 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 18 of 23
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44. Within 30 days of the Effective Date, the Receiver shall provide a signed and dated statement to the Bureau of the Receiver's compliance with paragraph 43, and shall provide a signed and dated statement from the servicer, or any other third-party service provider tasked with canying out responsibilities under this Order, acknowledging receipt of this Order, ensuring that any electronic signatures comply with the requirements of the E-SignAct, 15 U.S.C. §§ 7001 et. seq .. E. RECORDKEEPING IT IS FURTHER ORDERED that:
45. Defendants, or the Receiver on behalf of Defendants, must maintain for 3 years from the Effective Date or the duration of the Receivership, whichever is lesser, all documents and records necessary to demonstrate full compliance with this Order, including all submissions to the Bureau.
46. Aequitas, or the Receiver onAequitas's behalf, must make the documents identified in paragraph 45 available to the Bureau upon the Bureau's request. F. NOTICES IT IS FURTHER ORDERED that:
47. Unless otherwise directed in writing by the Bureau, Defendants, or the Receiver on behalf of Defendants, must provide all submissions, requests, communications, or other documents relating to this Order in writing, with the subject line CFPB v. Aequitas Management, LLC, 17-cv-1278 (D. Or.) and send them either a. By overnight courier (not the U.S. Postal Service), as follows: Assistant Deputy Enforcement Director Consumer Financial Protection Bureau 'fi'P QPQSfQj STIPULATED FINAL JUDGMENT AND ORDER - 19 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 19 of 23
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ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552; or b. By first-class mail to the below address and contemporaneously by email to Enforcement_ [email protected]:
Assistant Deputy Enforcement Director ATTENTION: Office of Enforcement 1700 G Street NW Washington, DC 20552 G. COOPERATION WITH THE BUREAU IT IS FURTHER ORDERED that:
48. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully with the Bureau as necessary to achieve the goals and carry out the requirements of this Order.
49. Defendants, or during the pendency of the Receivership the Receiver on behalf of Defendants, will cooperate fully to help the Bureau determine the identity and the location of, and the relief provided pursuant to this Order for each Affected Consumer, from the information within Defendants' or the Receiver's possession and control or a servicer's system of record.
H. MODIFICATIONS TO NON-MATERIAL REQUIREMENTS IT IS FURTHER ORDERED that:
50. Notwithstanding the provisions of paragraph 53 (section K), any time limits for performance fixed by this Order may be extended by mutual written agreement of the flFROPOOF?j STIPULATED FINAL JUDGMENT AND ORDER-20 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 20 of 23
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parties (or, as applicable, the Receiver) and without further Court approval. Additionally, details related to the administration of Sections C through G of this Order may be modified by written agreement of the parties (or, as applicable, the Receiver) and without further Court approval. Any other modifications to this Order may be made only upon approval of the Court, upon motion by any party. I. RELEASE IT IS FURTHER ORDERED that:
51. The Bureau releases and discharges Defendants from all potential liability for law violations that the Bureau has or might have asserted based on the practices described in the Complaint, to the extent such practices occurred before the Effective Date and the Bureau knows about them as of the Effective Date. The Bureau may use the practices described in this Order in future enforcement actions against Defendants, including, without limitation, to establish a pattern or practice of violations or the continuation of a pattern or practice of violations or to calculate the amount of any penalty. This release does not preclude or affect any right of the Bureau to determine and ensure compliance with the Order, or to seek penalties for any violations of the Order.
J. LIMITATION OF LIABILITY UNDER RECEIVERSHIP ORDER IT IS FURTHER ORDERED that:
52. Notwithstanding any other terms, conditions or provisions of this Order, pursuant to the Receivership Order, the Receiver and the Retained Personnel are entitled to rely on all outstanding rules of law and the orders of the Receivership Court and shall not be liable to any person or party (including, without limitation, the Bureau) ji[R©I OSE!iili] STIPULATED FINAL JUDGlvIENT AND ORDER- 21 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 21 of 23
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for their own good faith compliance with this Order. Pursuant to the Receivership Order, in no event shall the Receiver or Retained Personnel be liable to any person or party (including, without limitation, the Bureau) for their good faith compliance with their duties and responsibilities as Receiver or Retained Personnel, nor shall the Receiver or Retained Personnel be liable to anyone for any actions taken or omitted by them except upon a finding by the Receivership Court that they acted or failed to act as a result of malfeasance, bad faith, gross negligence, or in reckless disregard of their duties. K. RETENTION OF JURISDICTION IT IS FURTHER ORDERED that:
53. This Court retains jurisdiction of this matter for purposes of construction, modification, and enforcement of this Order.
IT IS SO ORDERED.
Dated this J_ day of~' 2017.
'WD@P@iJFD] STIPULATED FINAL JUDGMENT AND ORDER - 22 Case 3:17-cv-01278-PK Document 8 Filed 09/01/17 Page 22 of 23
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17-cv-01278-PK Document8 Filed 09/01/17 Page 23 of 23
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