PEAKS Trust 2009-1 et al.
Documents in this case
- Complaint · · 19 p.
- Stipulation · · 19 p.
Case summary
On September 15, 2020, the Consumer Financial Protection Bureau (Bureau) filed a proposed stipulated judgment against PEAKS Trust 2009-1, along with Deutsche Bank National Trust Company, Deutsche Bank Trust Company Delaware, and Deutsche Bank Trust Company Americas, in their capacity as trustees to PEAKS Trust 2009-1 (collectively, PEAKS). In its complaint, filed in the District Court for the Southern District of Indiana, the Bureau alleged that PEAKS provided substantial assistance to ITT Educational Services, Inc. (ITT) in engaging in unfair acts and practices in violation of the Consumer Financial Protection Act of 2010. PEAKS owned and managed private loans for students at ITT Technical Institute. PEAKS allegedly knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of those loans, could not afford them, or in some cases did not even know they had them. As entered by the court on October 1, 2020, the stipulated final judgment and order requires PEAKS to stop collecting on all outstanding PEAKS loans, discharge all outstanding PEAKS loans, and ask all consumer reporting agencies to which PEAKS furnished information to delete information relating to PEAKS loans. The total amount of loan forgiveness is currently estimated to be $330 million, which will be provided to all borrowers with outstanding principal balances on their PEAKS loans, approximately 35,000 consumers.
Complaint ()
PDF of this document (19 pages)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
BUREAU OF CONSUMER FINANCIAL PROTECTION,
Plaintiff,
v.
PEAKS Trust 2009-1; Deutsche Bank National Trust Company, solely in its capacity as lender trustee of the PEAKS Trust 2009-1;
Deutsche Bank Trust Company Delaware, solely in its capacity as owner trustee of PEAKS Trust 2009-1; Deutsche Bank Trust Company Americas, solely in its capacity as indenture trustee and collateral agent;
Defendants.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 1:20-CV-2386
COMPLAINT
The Bureau of Consumer Financial Protection (the “Bureau”) alleges the following against PEAKS Trust 2009-1, Deutsche Bank National Trust Company (“DBNTC”), solely in its capacity as lender trustee of PEAKS, Deutsche Bank Trust Company Delaware (“DBTCD”), solely in its capacity as owner trustee of PEAKS, and Deutsche Bank Trust Company Americas (“DBTCA”), solely in its Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 1 of 19 PageID #: 1
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capacity as indenture trustee and collateral agent of PEAKS (collectively “PEAKS” or “Defendants”):
INTRODUCTION 1.
The Bureau brings this action under sections 1031(a), 1036(a), 1054(a), and 1055 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531(a), 5536(a), 5564(a), 5565, based on PEAKS’s violations of section 1036(a)(3) of the CFPA, 12 U.S.C. § 5536(a)(3), which prohibits providing substantial assistance to a covered person or service provider engaging in unfair, deceptive, or abusive acts and practices.
2.
PEAKS Trust 2009-1 is a special purpose entity created in 2009 to purchase, own, and manage certain private student loans (“PEAKS Loans”) offered to students enrolled at an ITT Technical Institute run by ITT Educational Services, Inc. (“ITT”), with DBNTC, DBTCD, and DBTCA serving as trustee entities in a variety of roles to effectuate the PEAKS loan program under the terms of the program agreements that established the PEAKS Trust 2009-1. 3.
ITT was a publicly traded, for-profit corporation, which enrolled consumers in classes at 149 locations throughout the country until September 2016, when it ceased all operations and filed for bankruptcy protection. 4.
The PEAKS loan program originated approximately $350 million in student loans to ITT students. PEAKS Loans were available only to ITT students. Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 2 of 19 PageID #: 2
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They were disbursed directly to ITT and proceeds were required to be used only to pay ITT and could not be used by students for any other purposes. 5.
Funding for the PEAKS Loans was provided primarily by PEAKS through an automatic purchase agreement with a bank that originated the PEAKS Loans. PEAKS continues to hold the outstanding loans, and contracts for servicing and collections through a third-party servicer. 6.
For the duration of the PEAKS loan program, ITT offered a similar private loan program operated by the Student CU Connect CUSO, LLC (CUSO) (together with the PEAKS Loans, the “ITT Private Loan Programs” or the “ITT Private Loans”).
7.
In February 2014, the Bureau sued ITT in federal district court, alleging that ITT had engaged in unfair and abusive acts and practices in connection with the ITT Private Loan Programs and violated the Truth in Lending Act.
8.
Among other things, the Bureau alleged that ITT unfairly pushed students into ITT Private Loans, which caused consumers substantial injuries that were not reasonably avoidable and were not outweighed by benefits to consumers or competition.
9.
Following its oversight and participation in the loan origination process prior to July 21, 2011, PEAKS has provided substantial assistance to ITT Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 3 of 19 PageID #: 3
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in operating the PEAKS loan program by directing the servicing and collection of the loans.
10. PEAKS knew, or was reckless in not knowing, the risks and problems associated with the PEAKS loan program. In particular, PEAKS knew, as of at least June 2012, if not earlier, that the majority of borrowers were likely to default on their loans and knew or was reckless in not knowing that, because of ITT’s financial aid practices, many students were pushed into PEAKS Loans, did not understand the terms of their PEAKS Loans, or did not realize they had taken out loans at all. Despite these red flags, PEAKS continued the PEAKS loan program, servicing and collecting on the loans, ensuring that ITT students faced the harmful consequences of the high cost debt.
11. Over 35,000 former ITT students currently owe outstanding balances on their PEAKS Loans. The current balance of the PEAKS Loans, including principal, outstanding interest, and outstanding fees, is approximately $330 million.
JURISDICTION AND VENUE 12.
This Court has subject matter jurisdiction over this action because it concerns 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.
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13.
Venue is proper in this district because the Defendants conduct business in the Southern District of Indiana. 12 U.S.C. § 5564(f).
PARTIES Plaintiff 14.
The Bureau is an independent agency of the United States charged with regulating the offering and provision of consumer financial products and services under federal consumer financial laws. It has independent litigating authority. 12 U.S.C. § 5564(a)-(b).
Defendants 15.
PEAKS Trust 2009-1 is a Delaware statutory trust created in 2009 for the specific purpose of purchasing, owning, and managing private student loans offered to ITT students.
16.
At least from July 21, 2011 through the present, PEAKS Trust 2009-1 engaged in servicing loans and collecting debt through the PEAKS loan program. 17.
DBNTC is a non-depository national banking association. As lender trustee of PEAKS Trust 2009-1, DBNTC holds legal and record title to the PEAKS Loans on behalf of and for the benefit of PEAKS Trust 2009-1. 18.
At least from July 21, 2011 through the present, DBNTC served as an agent for PEAKS Trust 2009-1.
19.
DBTCD is a Delaware banking corporation and an affiliate of Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 5 of 19 PageID #: 5
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DBTCA. As owner trustee of PEAKS Trust 2009-1, DBTCD executes contracts and maintains agreements on behalf of PEAKS Trust 2009-1. 20.
At least from July 21, 2011 through the present, DBTCD served as an agent for PEAKS Trust 2009-1.
21.
DBTCA is a New York banking corporation with total assets in excess of $10 billion. As indenture trustee and collateral agent for the PEAKS Trust 2009-1, DBTCA entered into and is a party to the servicing agreements for the PEAKS Loans.
22.
At least from July 21, 2011 through the present, DBTCA served as an agent for PEAKS Trust 2009-1.
FACTUAL ALLEGATIONS ITT’s Temporary Credit Program
23.
ITT’s revenues came from student tuition and fees. The primary method by which students paid their ITT tuition and fees, and the main source of ITT’s cash receipts, were loans and grants provided to students by the federal government under Title IV of the Higher Education Act of 1965, 20 U.S.C. §§ 1070 et seq. (“Title IV loans and grants”). 24.
In 2011, about 89% of ITT’s cash receipts came from Title IV loans and Title IV, state, and Department of Veterans Affairs grants, and around 7% came from private loans, such as the PEAKS Loans. Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 6 of 19 PageID #: 6
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25.
Beginning in or about 2008, ITT began offering its students loans that it called Temporary Credit to cover the difference between the amount they could obtain in Title IV loans and grants and the cost of attending ITT. ITT’s Temporary Credit was a no-interest loan payable in a single lump sum payment, with a due date typically nine months after enrollment at the end of the academic year for which it was offered.
26.
Temporary Credit was offered and provided by ITT during rushed financial aid appointments controlled by Financial Aid staff who frequently provided students with incomplete or inaccurate information about these loans. As a result, some students who had Temporary Credit loan obligations did not know they had received Temporary Credit, did not know the terms of the loans, or did not even know that Temporary Credit were loans that would have to be repaid. ITT’s own financial aid training materials noted that students were not a “reliable source” as to whether they had ever received Temporary Credit. 27.
ITT had detailed information about students’ credit histories and financial resources and knew that the vast majority of students who received Temporary Credit did not and would not have the resources or access to credit to make the lump sum payments when they came due.
The ITT Private Loan Programs
28.
In 2008, the same year ITT began offering Temporary Credit, it Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 7 of 19 PageID #: 7
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began to build two private loan programs from scratch, later called the PEAKS and CUSO loan programs.
29.
ITT disclosed to its auditors and its investors that the ITT Private Loan Programs were specifically intended, and would be used, to reduce the amount of Temporary Credit outstanding on its books and to help ITT avoid lending students any further amounts after their first year. As noted by ITT’s former Chief Financial Officer, the refinancing of Temporary Credit through the ITT Private Loan Programs “was our plan all along.” 30.
Indeed, ITT’s Temporary Credit program operated as a tool to prequalify students for the PEAKS loan program regardless of their credit profile. Pursuant to the written underwriting criteria for the PEAKS loan program, a continuing ITT student who had received Temporary Credit was automatically eligible for a PEAKS Loan so long as he or she had not declared bankruptcy within 24 months (“Temporary Credit Exception”). PEAKS accepted these underwriting criteria, including the Temporary Credit Exception. ITT’s Financial Aid Practices 31.
ITT students obtained PEAKS Loans through an application process controlled by ITT’s Financial Aid staff. ITT made a practice of having its Financial Aid staff take control of the students’ loan applications and rush them through the process of signing up for loans, leaving many unsure what they were Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 8 of 19 PageID #: 8
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signing or the terms and conditions of the financial products. 32.
ITT provided its Financial Aid staff with software called “SmartForms,” which automatically populated and submitted financial aid applications for its students to the federal government or other lenders, requiring only e-signatures from students.
33.
The financial aid appointments for continuing students were called “repackaging” or “repack” appointments. In order to ensure that continuing students (including graduating students) came to the repack appointments, which often occurred months in advance of the applicable academic term, ITT instructed and incentivized its Financial Aid staff to use aggressive tactics such as calling students at home, finding them in the bookstore or the library or the student lounge, pulling them from class, barring them from class, enlisting the aid of other ITT staff (including instructors), and withholding course materials, diplomas, and transcripts. In some instances, Financial Aid managers placed notes in staff reports indicating that students “must apply for PEAKS” at their next Financial Aid appointment.
34.
In other instances, Financial Aid staff were able to gain unauthorized access to student SmartForms accounts and complete the repack process, including e-signing loan documents, without the knowledge or participation of students. ITT’s headquarters had to remind Financial Aid staff that they were not allowed to Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 9 of 19 PageID #: 9
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take over the PEAKS application process, including admonishing staff that they were not to create and electronically sign PEAKS loan documents on behalf of students.
35.
In 2009, the PEAKS loan program began offering private loans, and Financial Aid staff began pushing students, using the repackaging tactics described above, into refinancing their Temporary Credit with PEAKS Loans. Some students objected to the ITT Private Loans, but they were told by ITT that if they refused to use them they either had to pay any outstanding Temporary Credit and the next year’s tuition gap—which most could not do—or leave the school in the middle of their program and forfeit the investment they had made while still being left with federal student loan debt.
36.
Some ITT students did not even realize they took out the ITT Private Loans. For some students, this was because of the rushed and automated manner in which ITT Financial Aid staff processed their paperwork. For other students, this was because of flaws in the loan origination process and the SmartForms system which allowed ITT Financial Aid staff unauthorized access to student loan applications and promissory notes.
The PEAKS Loans’ High Interest Rates and High Default Rates
37.
The interest rate for the PEAKS Loans, which carried a ten-year term, was based on a student’s credit score. For borrowers with credit scores under 600, Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 10 of 19 PageID #: 10
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the interest rate initially went as high as the prime rate plus 11.5%, with an origination fee as high as 10%. Starting in February 2011, borrowers with credit scores under 600 were charged an interest rate of prime plus 12.5%, in addition to the 10% origination fee. Since the loans were made, the prime rate has been 3.25% to 5.5%; thus the effective interest rate for borrowers with credit scores under 600 has been 14.75% to 18%. Approximately 47% of the PEAKS borrowers had credit scores under 600, and thus were subject to the highest interest rates and origination fees.
38.
PEAKS Loans carry a high monthly payment, with higher interest rates, more rigid conditions, and fewer options to reduce monthly payments than federal student loans offer. For most former ITT students, this monthly payment, on top of all other loan obligations, is unaffordable. 39.
ITT knew that many students ultimately placed into ITT Private Loans were likely to default. According to models constructed by ITT and the administrators of the CUSO loan program based on the historic performance of private student loans provided to ITT students, 30% of ITT students were projected to default on their loans. For ITT students with credit scores below 600, the projected rate was 58.9%. Prior to the inception of its loan program, PEAKS estimated that 45.8% of loan recipients would have a credit score below 600. 40.
Defaults on PEAKS Loans exceeded ITT’s predictions. By 2013, ITT Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 11 of 19 PageID #: 11
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projected defaults across the PEAKS portfolio to reach 49.4% to 55.4%. 41.
Soon after the loans entered repayment, ITT took steps to temporarily reduce the number of defaults. A key feature of the PEAKS loan program was a guarantee agreement with ITT. When loan defaults caused the asset/liability ratio in the trust to fall below certain thresholds, ITT was obligated to make payments to PEAKS. This ensured PEAKS investors received full payments of the amounts due on their investments. From October 2012 until early 2014, ITT made “Payments on Behalf of Borrowers” (POBOBS)—direct payments on students’ loan accounts— to prevent PEAKS loans from defaulting and thereby defer ITT’s financial obligations related to the loans under the guarantee agreement. These payments were undisclosed to PEAKS, student loan borrowers, and ITT’s investors until September 2013. Without the POBOBS, the early years of the PEAKS program would have demonstrated more clearly the eventual scale of default, which is now approximately 80%. An agreement between PEAKS and ITT ended the POBOB program in March 2014.
42.
In June 2012, PEAKS’s servicer stated, “Based on the portfolio performance, it would not be surprising if 70% or more of loan balances ultimately default.”
43.
In September 2016, ITT filed for bankruptcy protection and ceased all operations.
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44.
Approximately 80% of PEAKS loans have defaulted. 45.
As a consequence, these former ITT students have had their defaults, delinquencies, and negative payment histories reported to consumer reporting agencies.
PEAKS’s Crucial and Ongoing Role in ITT’s Private Loan Program
46.
PEAKS facilitated the PEAKS loan program by helping ITT recruit investors for the program, by immediately purchasing the PEAKS Loans from the originating entity, by participating in setting the interest rates and terms of the loans, by distributing payments from students and ITT to investors, and by conducting the management and oversight of loan servicing and collection activities, which continues through the present day. 47.
PEAKS knew that the purpose of the PEAKS loan program was to convert Temporary Credit into revenue for ITT. PEAKS knew that many of the borrowers consisted of students who held Temporary Credit issued by ITT and were repack-eligible, but who did not have the resources or the access to credit to be able to repay the loans.
48.
PEAKS was also on notice about ITT’s financial aid practices: during the period when the PEAKS loan program was actively making loans, numerous students lodged complaints with the PEAKS Loan origination agent and the program’s servicer claiming that they did not realize they had taken out loans, were Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 13 of 19 PageID #: 13
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not aware of the terms of the loans, were not aware that the loans were not federal student loans, and that ITT Financial Aid employees had used high pressure tactics during their financial aid appointments. Additionally, students lodged complaints that Financial Aid staff had signed PEAKS Loan applications and promissory notes without the students’ knowledge or authorization. 49.
But PEAKS had reason to continue with the loan program because ITT, through an “out-of-the-money” corporate guarantee agreement, guaranteed the PEAKS investors’ returns. ITT unconditionally guaranteed payment of the investors’ and program participants’ fees, principal, and interest “as and when due.” When the asset-to-liability ratio in the trust fell below certain thresholds, ITT was required to make payments to PEAKS. This guarantee incentivized PEAKS to make available and service the loans.
50.
The guarantee agreement allowed ITT to continue to exert control over the PEAKS loan program after origination of the loans. The governing documents of the PEAKS loan program, including the guarantee agreement, gave ITT certain servicing rights, and guarantee payments were only made if PEAKS continued to actively collect the loans.
51.
Despite the significant default predictions, actual defaults that exceeded projections, ITT’s efforts to manipulate the default rate of the loans, knowledge of numerous consumer complaints, and the Bureau’s lawsuit against Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 14 of 19 PageID #: 14
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ITT alleging unlawful practices related to the ITT Private Loan Programs, PEAKS continued servicing and collecting PEAKS Loans in accordance with the loan program agreement with ITT.
COUNT I
Providing Substantial Assistance to ITT’s Unfair Conduct
52.
The allegations in paragraphs 1-50 are incorporated here by reference.
53.
Under the CFPA, it is unlawful for any person to “knowingly or recklessly provide substantial assistance to a covered person or service provider in violation of the provisions of section 1031, or any rule or order issued thereunder.” 12 U.S.C. § 5536(a)(3).
54.
ITT is a covered person and a service provider under the CFPA because it has engaged in offering or providing consumer financial products or services and has provided a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service, including extending credit, servicing loans, and collecting consumer debts. 12 U.S.C. § 5481(6), (15)(A)(i), (15)(A)(x), (26). 55.
The PEAKS Loans are consumer financial products. Servicing and collecting the PEAKS Loans are consumer financial services. 12 U.S.C. § 5481(5), (15)(A)(i), (15)(A)(x).
56.
An act or practice is unfair under the CFPA where “(A) the act or Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 15 of 19 PageID #: 15
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practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or competition.” 12 U.S.C. § 5531(c)(1).
57.
Since at least July 21, 2011, ITT, through its agents, caused the collection of high-cost, high-risk PEAKS Loans, with the knowledge that consumers were subjected to undue influence or were coerced into taking out the loans through a variety of unfair acts and practices, including pulling students out of class, rushing students through financial aid packaging appointments, and using no interest, short-term Temporary Credit to meet initial funding gaps without disclosing the future refinancing scheme involving this credit. 58.
These acts and practices have caused substantial injury to consumers. As a result of ITT’s actions, thousands of consumers have been subjected to continued collections on PEAKS Loans that they could not afford, did not want, did not understand, or did not even know they had. PEAKS Loans are high-fee, high-interest rate, ten-year loans, with expected high default rates, more rigid conditions and fewer options to reduce monthly payments than federal loans, and are not dischargeable in bankruptcy without a special showing of undue hardship. ITT never informed students that it anticipated that a majority of students that received the loans would default, leaving students without the ability to anticipate Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 16 of 19 PageID #: 16
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the impending harm of the PEAKS Loans. The significant majority of students who took out PEAKS Loans have defaulted on those loans. 59.
The injury to consumers caused by ITT’s unfair practices to consumers that took out the high-fee, high-interest rate, high expected—and realized—default rate PEAKS Loans was not outweighed by countervailing benefits to consumers or to competition.
60.
Therefore, ITT violated the CFPA by engaging in unfair practices, 12 U.S.C. § 5536(a)(1)(B), as defined in 12 U.S.C. § 5531(c)(1). 61.
Since July 21, 2011, PEAKS has provided substantial assistance to the unlawful conduct of ITT by actively servicing and managing the loan portfolio, including collection of the loans.
62.
When PEAKS provided this substantial assistance, it knew, or was reckless in not knowing, that student borrowers, as part of ITT’s business strategy underlying the PEAKS loan program, had been pushed from the initial no-interest Temporary Credits offered by ITT into the PEAKS Loans; that ITT’s financial aid practices left many students unaware of the terms, conditions, risks, or even existence of their PEAKS Loans; and that students were defaulting on their loans at significantly high rates.
63.
Therefore, PEAKS has provided substantial assistance to the unlawful conduct of ITT, in violation of 12 U.S.C. § 5536(a)(3). Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 17 of 19 PageID #: 17
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DEMAND FOR RELIEF
The Bureau requests that the Court award: 1. Equitable relief against Defendants; 2. Restitution to affected consumers against Defendants; 3. Injunctive relief against Defendants; 4. Disgorgement against Defendants; 5. Rescission against Defendants; 6. Civil Money Penalties against Defendants; 7. Plaintiff’s costs against Defendants; and 8. Additional relief as the Court may determine to be just and proper.
Dated: September 15, 2020
Respectfully submitted,
Thomas G. Ward (DC Bar #462158) Enforcement Director
David Rubenstein (DC Bar #458770) Deputy Enforcement Director
Cynthia Gooen Lesser (NY Bar #2578045) Assistant Deputy Enforcement Director
s/ Jonathan Reischl Jonathan Reischl (IL Bar # 6305260) Manuel Arreaza (DC Bar#1015283) Case 1:20-cv-02386-JRS-MJD Document 1 Filed 09/15/20 Page 18 of 19 PageID #: 18
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Maureen McOwen (DC Bar #976749) Enforcement Attorneys
Bureau of Consumer Financial Protection 1700 G Street, NW Washington, DC 20552 Telephone: (202) 435-9202 Facsimile: (202) 435-7722 e-mail: [email protected] Attorneys for Bureau of Consumer Financial Protection
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Stipulation ()
PDF of this document (19 pages)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION BUREAU OF CONSUMER FINANCIAL PROTECTION, Plaintiff, v.
PEAKS Trust 2009-1; Deutsche Bank National Trust Company, solely in its capacity as lender trustee of the PEAKS Trust 2009-1; Deutsche Bank Trust Company Delaware, solely in its capacity as owner trustee of PEAKS Trust 2009-1; Deutsche Bank Trust Company Americas, solely in its capacity as indenture trustee and collateral agent;
Defendants.
) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No. 1:20-CV-2386-JRS-MJD STIPULATED FINAL JUDGMENT AND ORDER Plaintiff, the Bureau of Consumer Financial Protection (“Bureau”), commenced this civil action (“Action”) on September 15, 2020 to obtain relief from PEAKS Trust 2009-1 (“PEAKS”), a Delaware statutory trust, Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 1 of 19 PageID #: 69
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Deutsche Bank National Trust Company (“DBNTC”), solely in its capacity as lender trustee of PEAKS, Deutsche Bank Trust Company Delaware (“DBTCD”), solely in its capacity as owner trustee of PEAKS, and Deutsche Bank Trust Company Americas (“DBTCA”), solely in its capacity as indenture trustee and collateral agent of PEAKS (collectively “Defendants,” as defined below). The Bureau brought its Complaint (“Complaint”) under sections 1031(a), 1036(a), 1054(a), and 1055 of the Consumer Financial Protection Act of 2010 (“CFPA”), 12 U.S.C. §§ 5531(a), 5536(a), 5564(a), and 5565, alleging violations of section 1036(a)(3) of the CFPA, 12 U.S.C. § 5536(a)(3), which prohibits any person from providing substantial assistance to a covered person or service provider engaging in unfair, deceptive, or abusive acts or practices.
The Bureau and the Defendants (together, the “Parties”) have agreed to settle the Bureau’s claims against Defendants and, by and through their counsel, request that this Court enter this Stipulated Final Judgment and Order (“Order”).
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DEFINITIONS In addition to the definitions set forth in the provisions above, the following definitions apply to this Order: 1.
“Affected Consumer” means any student borrower who received a Loan (as defined below) that was not paid in full as of the Effective Date (as defined below).
2.
“Consumer Information” means identifying information obtained by Defendants about any individual consumer in connection with the PEAKS Private Student Loan Program (as defined below), including that consumer’s name, address, telephone number, email address, social security number, or any data that enables access to any account of that consumer (including a credit card, bank account, or other financial account). Consumer Information does not include any compilation or summary of Consumer Information if such compilation or summary does not include identifying information of individual consumers.
3.
“Consumer Reporting Agency” has the same meaning as set forth in the Fair Credit Reporting Act, 15 U.S.C. § 1681a(f). 4.
“Defendants” means PEAKS, and each of its successors and assigns, Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 3 of 19 PageID #: 71
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and DBNTC, DBTCD, and DBTCA, in their respective capacities as lender trustee, owner trustee, and indenture trustee and collateral agent, and each of their successors and assigns. 5.
“Effective Date” means the date on which this Order is issued. 6.
“Enforcement Director” means the Assistant Director for the Office of Enforcement for the Bureau, or his/her delegee. 7.
“ITT” means ITT Educational Services, Inc. 8.
“Loan” means one of the private student loans entered into by or originated to students of ITT schools by a third party pursuant to the PEAKS Private Student Loan Program (as defined below) and purchased by PEAKS, including active loans and defaulted loans. 9.
“PEAKS Private Student Loan Program” means the private student loan program which provided funding for students attending ITT schools established pursuant to a loan origination and sale agreement between the bank that originated loans to ITT students, ITT, PEAKS, and DBNTC, as lender trustee; a servicing agreement between PEAKS, DBTCA, as indenture trustee and collateral agent, ITT, and the Servicer; as well as an indenture and credit agreement and the PEAKS 2009-1 statutory trust agreement, to which DBTCA, as Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 4 of 19 PageID #: 72
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indenture trustee and collateral agent, and DBTCD, as owner trustee, respectively, were parties.
10.
“Redress Plan” means the comprehensive written plan for the Defendants’ implementation of this Order. 11.
“Servicer” means the third party contracted by PEAKS to perform servicing of the Loans, including performing all collections actions and acceptance of payments related to the Loans. FINDINGS 12.
This Court has jurisdiction over the Parties and the subject matter of the Action.
13.
The Complaint alleges claims upon which, if the Bureau were to prevail, relief may be granted under the CFPA. The relief provided in this Order is appropriate and available pursuant to sections 1054 and 1055 of the CFPA, 12 U.S.C. §§ 5564 and 5565. 14.
The Parties agree to entry of this Order, without adjudication of any issue of fact or law, to settle and to resolve all matters arising from the conduct alleged in the Complaint.
15.
Defendants neither admit nor deny any of the allegations in the Complaint except that, for the purposes of this Order, Defendants Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 5 of 19 PageID #: 73
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admit the facts necessary to establish this Court’s jurisdiction over them and over the subject matter of the Action. 16.
PEAKS is an entity that was created for the PEAKS Private Student Loan Program for the purposes of, among other things, purchasing and holding beneficial ownership of the Loans. In connection with the PEAKS Private Student Loan Program, DBNTC, as lender trustee, holds legal title to the Loans on behalf of and for the benefit of PEAKS. Subject to certain conditions and limitations contained in certain PEAKS Private Student Loan Program agreements, servicing of the Loans is performed by the Servicer. PEAKS and the other Defendants will take the actions in this Order with respect to the Loans in accordance with their roles and responsibilities in the program documents, including, where applicable, acting through agents and contractors including the Servicer 17.
The current balance of the Loans, including principal, outstanding interest, and outstanding fees, is approximately $330 million. 18.
PEAKS has not acquired, and will not acquire, loans other than the Loans, does not conduct business other than the PEAKS Private Student Loan Program, and intends to cease conducting that business Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 6 of 19 PageID #: 74
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upon the completion of its obligations as set out in this Order. Given that PEAKS will not conduct any additional business, the Bureau has agreed not to seek injunction, compliance, and reporting requirements beyond those specified in this Order.
19.
Defendants waive service under Rule 4(d) of the Federal Rules of Civil Procedure and waive all rights to seek judicial review of or otherwise to challenge or to contest the validity of this Order. Defendants also waive any claim they may have under the Equal Access to Justice Act, 28 U.S.C. § 2412, concerning the prosecution of the Action to the date of this Order. 20.
Entry of this Order is in the public interest. ORDER I.
ORDER TO CEASE AND DESIST AND TO TAKE OTHER AFFIRMATIVE ACTION IT IS ORDERED that:
21.
As of the Effective Date :
a.
PEAKS will terminate all collections activities and terminate the acceptance of payments from consumers related to any Loan; and Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 7 of 19 PageID #: 75
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b. Defendants will take no further action, directly or through any agent or contractor, to enforce or to collect any Loan. c. Notwithstanding the requirements of subparagraphs (a) and (b) of this Paragraph, Defendants will not be regarded as in violation of this Order if they or the Servicer send out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; nor will Defendants be regarded as in violation of this Order in the event that a payment from a consumer related to any Loan is discovered to have been accepted or processed after the Effective Date, provided that Defendants or the Servicer make efforts to return the payment to the consumer as specified in the Redress Plan.
22.
Within 30 days of the Effective Date, PEAKS, DBNTC, as lender trustee, and DBTCA, as indenture trustee and collateral agent, will discharge and cancel all outstanding balances of all Affected Consumers’ Loan accounts, including associated fees, charges, and interest.
23.
Within 30 days of the Effective Date, PEAKS will cause the Servicer Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 8 of 19 PageID #: 76
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to submit written requests to all Consumer Reporting Agencies to which Defendants or the Servicer has reported information about the Affected Consumers’ Loans, directing those Consumer Reporting Agencies to delete the consumer trade lines associated with the Affected Consumers’ Loans by updating those consumer trade lines with the appropriate codes to reflect that each of those consumer trade lines has been deleted and, if an explanation is required, with the codes referencing a negotiated court settlement. 24.
Within 30 days of the Effective Date, PEAKS will send notifications to the Affected Consumers, by first class mail to the most recently available postal address contained in the Servicer’s system of record for each Affected Consumer, informing them of the new status of their Loans, and the requested updated status of the credit reporting related to their Loans, consistent with this Order. 25.
Except as and to the extent provided herein and in the Redress Plan, Defendants will relinquish all dominion, control, and title to all Loan payments made after the Effective Date. No part of those funds may be retained by Defendants.
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26.
In the event that Loan payments made after the Effective Date are Unreturnable Funds as defined in the Redress Plan, Defendants will pay any such funds to the Bureau, by wire transfer to the Bureau or to the Bureau’s agent, according to the Bureau’s wiring instructions. The Bureau may make continued attempts to distribute those funds to consumers. If the Bureau determines, in its sole discretion, that such additional distribution is wholly or partially impracticable or otherwise inappropriate, or if funds remain after the additional distribution is completed, the Bureau will deposit the remaining unreturnable funds with the United States Treasury as a miscellaneous receipt. Defendants will have no right to challenge any actions that the Bureau or its representatives may take under this Section. 27.
Upon the Effective Date, Defendants will promptly begin implementation of the Redress Plan. The Enforcement Director has reviewed the Redress Plan and has made a determination of nonobjection. Defendants will implement and adhere to the steps, recommendations, deadlines, and timeframes outlined in the Redress Plan.
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28.
The Redress Plan, among other things:
a. Specifies how Defendants or the Servicer will notify Affected Consumers, consistent with this Order, of (i) the new status of their Loans and (ii) the request to the Consumer Reporting Agencies for updated status of the credit reporting related to their Loans.
b. Provides an exemplar of written communications to be sent to Affected Consumers regarding their Loans or the redress provided in this Order.
c. Identifies a Servicer telephone number that will be active for 150 days after the Effective Date to assist Affected Consumers who have questions about the status of their Loan accounts, and describes the types of questions to which the Servicer will be prepared to respond.
d. Specifies the efforts that Defendants and the Servicer will undertake to prevent any payment made on a Loan from being accepted after the Effective Date, and the methods by which Defendants and the Servicer will attempt to return to the payor any payment received after the Effective Date. Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 11 of 19 PageID #: 79
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29.
Defendants may not condition the cancellation or discharge of debt, or the return of any payment made after the Effective Date, on any Affected Consumer or any person who made payments on the Loans waiving any right.
II.
CONSUMER INFORMATION IT IS FURTHER ORDERED that:
30.
Defendants, and their officers, employees, representatives, and agents who receive actual notice of this Order, whether acting directly or indirectly, may not disclose, use, or benefit from Consumer Information, except as follows:
a. Consumer Information may be disclosed if requested by a government agency or required by law, regulation, or court order; and b. Consumer Information may be used to effectuate and to carry out the obligations set forth in this Order. Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 12 of 19 PageID #: 80
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III.
REPORTING REQUIREMENTS IT IS FURTHER ORDERED that:
31.
Defendants will notify the Bureau of any development that may affect their compliance with obligations arising under this Order, including but not limited to dissolution, assignment, sale or merger of PEAKS, or other action that would result in the emergence of a successor entity to PEAKS; the creation of a subsidiary, parent, or affiliate of PEAKS that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against PEAKS; a change in PEAKS’s name or address; or any change in the status of DBNTC, DBTCD, or DBTCA in their capacity as lender trustee, owner trustee, or indenture trustee and collateral agent of PEAKS. Defendants will provide this notice, if practicable, at least 30 days before the development, but in any case no later than 14 days after the development.
32.
Within 120 days of the Effective Date, Defendants will submit to the Enforcement Director an accurate written compliance progress report that:
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a. Describes in detail the manner and form in which Defendants have complied with this Order; and b. Attaches a copy of each Order Acknowledgment obtained under Section IV of this Order, unless previously submitted to the Bureau.
IV.
ORDER DISTRIBUTION AND ACKNOWLEDGEMENT IT IS FURTHER ORDERED that:
33.
Within 30 days of the Effective Date, Defendants will deliver a copy of this Order to the Servicer and to any manager, employee, service provider, or other agent or representative who has responsibilities related to compliance with this Order.
34.
Defendants will secure a signed and dated statement acknowledging receipt of a copy of this Order, ensuring that any electronic signatures comply with requirements of the E-Sign Act, 15 U.S.C. § 7001 et seq., within 30 days of delivery, from all persons and entities receiving a copy of this Order under Paragraph 33 hereof. Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 14 of 19 PageID #: 82
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V.
RECORDKEEPING IT IS FURTHER ORDERED that:
35.
For three years from the Effective Date, Defendants will maintain all documents and records necessary to demonstrate full compliance with this Order, including all submissions made to the Bureau pursuant to Paragraph 32(a) hereof.
36.
Defendants must make the documents identified in Paragraph 35 hereof available to the Bureau upon the Bureau’s request. VI.
NOTICES IT IS FURTHER ORDERED that:
37.
Unless otherwise directed in writing by the Bureau, Defendants will provide all submissions, requests, communications, or other documents relating to this Order that need to be sent to the Bureau in writing, with the subject line, “Re: PEAKS Trust 2009-1, Case No. 1:20-CV-2386 (S.D. Ind.),” and will send those materials by overnight courier or first class mail to the below address and contemporaneously by email to:
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[email protected] Assistant Director for Enforcement Bureau of Consumer Financial Protection ATTENTION: Office of Enforcement 1700 G Street, N.W.
Washington, D.C. 20552 VII.
COOPERATION WITH THE BUREAU IT IS FURTHER ORDERED that:
38.
Defendants will cooperate fully with the Bureau in this matter and in any Bureau investigation related to or associated with the conduct alleged in the Complaint. Defendants will provide truthful and complete non-privileged, non-work product information, evidence, and testimony. Defendants will appear and will cause their officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau reasonably may request upon 10 business days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process. 39.
Nothing in this Order will limit the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6, examinations under Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 16 of 19 PageID #: 84
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Federal Rules of Bankruptcy Procedure 2004, or any other discovery device available under federal statute or the Bankruptcy Code, 11 U.S.C. § 101 et seq., subject to Defendants’ ability to seek a protective order.
VIII.
RELEASE IT IS FURTHER ORDERED that:
40.
The Bureau releases and discharges PEAKS, DBNTC solely in its capacity as lender trustee of PEAKS, DBTCD solely in its capacity as owner trustee of PEAKS, and DBTCA solely in its capacity as indenture trustee and collateral agent of PEAKS, from all potential liability for violations of law 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 the Complaint 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 Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 17 of 19 PageID #: 85
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release does not preclude or affect any right of the Bureau to determine and ensure compliance with this Order, or to seek penalties for any violations of this Order.
41.
This Order will not prejudice or otherwise negatively affect the Bureau’s claims against any other party. Nothing in this Order will be deemed to preclude the Bureau from pursuing claims against other parties based on the practices described in the Complaint. IX.
MISCELLANEOUS IT IS FURTHER ORDERED that:
42.
Each of the Parties is responsible for its own costs and expenses, including, without limitation, attorneys’ fees. 43.
Notwithstanding the provisions of Section X hereof, any time limit for performance fixed by this Order may be extended by mutual written agreement of the Parties and without further Court approval. Additionally, details related to the administration of Sections III through VIII of the Order may be modified by written agreement of the Parties and without further Court approval. Any other Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 18 of 19 PageID #: 86
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modification to this Order may be made only upon approval of the Court, upon motion by either of the Parties. X.
RETENTION OF JURISDICTION IT IS FURTHER ORDERED that:
44.
This Court will retain jurisdiction over matters pertaining to this Order for purposes of its construction, modification, and enforcement. IT IS SO ORDERED.
Date: 10/1/2020 Case 1:20-cv-02386-JRS-MJD Document 9 Filed 10/01/20 Page 19 of 19 PageID #: 87