Student CU Connect CUSO, LLC
Documents in this case
- Complaint · · 16 p.
- Stipulation · · 16 p.
Case summary
The Bureau filed a complaint and a proposed stipulated judgment in federal district court for the Southern District of Indiana alleging that CUSO provided substantial assistance to ITT Educational Services, Inc. (ITT) in engaging in unfair acts and practices. ITT operated ITT Technical Institute until it filed for bankruptcy and ceased operations in 2016. The Bureau’s complaint alleges that CUSO was actively involved in the creation and the implementation of the CUSO loan program. The complaint alleges that ITT induced its students to take out the loans by a variety of means, and that CUSO knew or was reckless in not knowing that many student borrowers did not understand the terms and conditions of the CUSO loans and could not afford them.
Under the terms of the proposed stipulated judgment, CUSO must stop collecting on all outstanding CUSO loans, discharge all outstanding CUSO loans, and ask all consumer reporting agencies to which CUSO furnished information to delete tradelines relating to CUSO loans. The order also requires CUSO to provide notice to all consumers with outstanding CUSO loans that their debt has been discharged and is no longer owed and that CUSO is seeking to have the relevant tradelines deleted. The total amount of loan forgiveness is currently estimated to be $168 million.
Forty-four states plus the District of
Columbia have also settled with CUSO on the same terms.
Complaint ()
PDF of this document (16 pages)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION
BUREAU OF CONSUMER FINANCIAL PROTECTION, Plaintiff, v.
STUDENT CU CONNECT CUSO, LLC, Defendant.
) ) ) ) ) ) ) ) ) ) Case No. 1:19-CV-2397
COMPLAINT FOR INJUNCTIVE RELIEF AND DAMAGES
The Bureau of Consumer Financial Protection (the “Bureau”) alleges the following against Student CU Connect CUSO, LLC (“CUSO” or “Defendant”):
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 Defendant’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.
The CUSO is a special purpose entity created in 2008 to fund, Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 1 of 16 PageID #: 1
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purchase, manage, and hold certain private student loans (“CUSO Loans”) offered to students enrolled at an ITT Technical Institute run by ITT Educational Services, Inc. (“ITT”).
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 CUSO Loan program originated approximately $189 million in student loans to ITT students. CUSO Loans were available only to ITT students. 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 CUSO Loans was provided primarily by the CUSO through an automatic purchase agreement with a credit union that originated the CUSO Loans. The CUSO continues to hold the outstanding loans, and contracts for servicing and collections through a third-party servicer. 6.
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 CUSO Loans and violated the Truth in Lending Act. 7.
Among other things, the Bureau alleged that ITT unfairly pushed students into CUSO Loans, which caused consumers substantial injuries that were not reasonably avoidable and were not outweighed by benefits to consumers or Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 2 of 16 PageID #: 2
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competition.
8.
The CUSO provided substantial assistance to ITT in operating the loan program. The CUSO helped to create the CUSO Loan program, raised money for the CUSO Loan program, ratified the loan criteria, and oversaw the origination and servicing of the loans.
9.
The CUSO knew, or was reckless in not knowing, the risks and problems associated with the CUSO Loan program. In particular, the CUSO knew, at least as of August 2010, 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 the CUSO Loans, did not understand the terms of their CUSO Loans, or did not realize they had taken out loans at all. Despite these red flags, the CUSO participated in the CUSO Loan program, ensuring that ITT students faced the harmful consequences of the high cost debt.
JURISDICTION AND VENUE 10.
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.
11.
Venue is proper in this district because a substantial part of the events Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 3 of 16 PageID #: 3
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giving rise to the claims occurred in, and the Defendant does business in, the Southern District of Indiana. 12 U.S.C. § 5564(f). PARTIES Plaintiff 12.
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. 12 U.S.C. § 5491(a). It has independent litigating authority. 12 U.S.C. § 5564(a)-(b). Defendant 13.
The CUSO is a Delaware limited liability company created in 2008 for the specific purpose of funding, purchasing, holding, and managing private student loans offered to ITT students.
14.
At least from July 21, 2011 through the present, the CUSO engaged in providing “consumer financial products or services” pursuant to the CFPA, 12 U.S.C. § 5481(5), (15)(A)(i), by extending credit and servicing loans through the CUSO Loan program.
FACTUAL ALLEGATIONS ITT’s Temporary Credit Program
15.
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 Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 4 of 16 PageID #: 4
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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”).
16.
In 2011, about 89% of ITT’s cash receipts came from Title IV loans and grants, and around 7% came from private loans, such as the CUSO Loans. 17.
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.
18.
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 they 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. 19.
ITT had detailed information about students’ credit histories and Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 5 of 16 PageID #: 5
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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
20.
In 2008, the same year ITT began offering Temporary Credit, it began to build two private loan programs from scratch, later called the CUSO and PEAKS loan programs (together, the “ITT Private Loan Programs” or the “ITT Private Loans”).
21.
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 the plan all along.” Likewise, the CUSO’s offering materials noted that the CUSO Loan program was a means for ITT to shift its student lending from Temporary Credits to a “private student lending solution.” 22.
Indeed, ITT’s Temporary Credit program operated as a tool to prequalify students for the CUSO Loan program regardless of their credit profile. Pursuant to the written underwriting criteria for the CUSO Loan program, a continuing ITT student who had received Temporary Credit was automatically Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 6 of 16 PageID #: 6
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eligible for a CUSO Loan so long as he or she had not declared bankruptcy within 24 months (“Temporary Credit Exception”). The CUSO accepted these underwriting criteria, including the Temporary Credit Exception. 23.
Approximately $149 million, or 79% of the entire CUSO Loan portfolio, went to students who qualified under the Temporary Credit Exception. ITT’s Financial Aid Practices 24.
ITT students obtained CUSO 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 signing or the terms and conditions of the financial products. 25.
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.
26.
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 Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 7 of 16 PageID #: 7
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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.
27.
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. 28.
In 2009, the CUSO 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 CUSO 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 saddled with federal student loan debt.
29.
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 Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 8 of 16 PageID #: 8
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applications and promissory notes.
CUSO Loans Featured High Interest Rates and High Default Rates
30.
The interest rate for the CUSO Loans, which carried a ten-year term, was based on a student’s credit score. For borrowers with credit scores under 600, the interest rate initially went as high as the prime rate plus 10.5%, with an origination fee as high as 10%. Starting in or around April 2011, borrowers with credit scores under 600 were charged an interest rate of prime plus 13%, in addition to the 10% origination fee. For most of the period since the loans were made, the prime rate has been 3.25%; thus the effective interest rate for borrowers with credit scores under 600 has been 13.75% or 16.25%. Approximately 46% of the CUSO borrowers had credit scores under 600, and thus were subject to interest rates of 13.75% or 16.25% and origination fees of 10%. Recent increases in the prime rate have increased the interest rates of the CUSO Loans, further impacting borrowers.
31.
In May 2011, ITT’s consultant for loan default analysis projected a gross default rate of 61.3% for the existing CUSO Loans. Despite clear indications that the vast majority of students would be unable to afford the CUSO Loans, ITT and the CUSO continued the CUSO Loan program.
32.
The CUSO Loans carry a high monthly payment, with higher interest rates, more rigid conditions, and fewer options to reduce monthly payments than Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 9 of 16 PageID #: 9
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federal loans offer. For most former ITT students, this monthly payment, on top of all other loan obligations, is unaffordable.
33.
Former ITT students, having been pushed by ITT into the high-cost, high-risk CUSO Loans, subsequently defaulted in large numbers, as predicted by ITT and the CUSO. As a consequence, former ITT students have had their defaults, delinquencies, and negative payment histories reported to consumer reporting agencies.
34.
In September 2016, ITT filed for bankruptcy protection and ceased all operations. In a filing in bankruptcy court in January 2017, the CUSO projected a gross cumulative default rate of 94% for the CUSO Loans. The CUSO Was a Crucial Participant in ITT’s Loan Program
35.
The CUSO facilitated the CUSO Loan program by helping ITT recruit investors for the program, by immediately purchasing the CUSO Loans from the originating entity, by participating in the management and oversight of loan servicing activities, by participating in setting the interest rates and terms of the loans, and by distributing payments from students and ITT to investors. 36.
The CUSO knew that the purpose of the CUSO Loan program was to convert Temporary Credit into revenue for ITT. The CUSO knew that the primary source of 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 Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 10 of 16 PageID #: 10
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credit to be able to repay the loans.
37.
Prior to the inception of the CUSO Loan program, the architects of the program knew that many students ultimately placed into CUSO Loans were likely to default. According to models constructed by ITT and the CUSO prior to the beginning of the CUSO Loan program, 30% of the debt was projected to default. For the largest category of ITT students, those with credit scores below 600, the projected rate was 58.9%.
38.
Despite these significant default predictions, the CUSO proceeded with the loan program. It did so in part because ITT, through a risk share agreement, guaranteed the program’s performance above certain loss thresholds. When charge-offs exceeded those thresholds, ITT was required to make a series of payments to the CUSO, which incentivized the CUSO to continue to make available and service the loans.
39.
At approximately the mid-point of the loan program, the CUSO became aware that the projected default rate of the CUSO Loan portfolio would be much higher than anticipated, due to the use of Temporary Credit as a prequalifying tool for CUSO loan eligibility. Despite this, and other, early indications that the CUSO Loan program would have a much higher default rate, the CUSO continued to make the loans available to consumers through the end of 2011, the duration of the loan program agreement with ITT. Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 11 of 16 PageID #: 11
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40.
During the period when the CUSO Loan program was actively making loans, numerous students lodged complaints with the CUSO Loan origination agent and the program’s servicer claiming that they did not realize they had taken out loans, were not aware of the terms of the loans, were not aware that the loans were not federal loans, and that ITT Financial Aid employees had used high pressure tactics during their financial aid appointments. Despite knowledge of numerous consumer complaints, the CUSO continued funding, servicing, and collecting CUSO Loans in accordance with the loan program agreement with ITT.
COUNT I
Providing Substantial Assistance to ITT’s Unfair Conduct
41.
The allegations in paragraphs 1-X are incorporated here by reference.
42.
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).
43.
ITT is a covered person and a service provider under the CFPA. 12 U.S.C. § 5481(6), (26).
44.
The CUSO Loans are consumer financial products. Offering, providing, and brokering the CUSO Loans and offering and providing financial advisory services are consumer financial services. 12 U.S.C. § 5481(5), (15)(A)(i), Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 12 of 16 PageID #: 12
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(15)(A)(viii).
45.
An act or practice is unfair under the CFPA where “(A) the act or 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).
46.
ITT subjected consumers to undue influence or coerced them into taking out high cost, high risk CUSO 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, designed to interfere with the consumers’ ability to make informed, uncoerced choices.
47.
These acts and practices have caused substantial injury to consumers. As a result of being pressured into doing so by ITT, approximately 8,600 consumers entered into high risk CUSO Loans that they could not afford, did not want, did not understand, or did not even know they had. CUSO Loans were highfee, high-interest rate, ten-year loans, with expected high default rates, which have more rigid conditions and fewer options to reduce monthly payments than federal loans, and which are not dischargeable in bankruptcy without a special showing of Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 13 of 16 PageID #: 13
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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 the impending harm of the CUSO Loans. The significant majority of students who took out the CUSO Loans have defaulted on or are expected to default on those loans.
48.
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 CUSO Loans was not outweighed by countervailing benefits to consumers or to competition.
49.
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). 50.
The CUSO provided substantial assistance to the unlawful conduct of ITT by its active involvement in the creation of the CUSO Loan program, by facilitating access to capital for the loans, by overseeing the loan originations, and by actively servicing and managing the loan portfolio. 51.
When the CUSO provided this substantial assistance, it knew, or was reckless in not knowing, that student borrowers, as part of ITT’s business strategy underlying the CUSO Loan program, were being pushed from the initial nointerest Temporary Credits offered by ITT into the CUSO Loans; that ITT’s financial aid practices left many students unaware of the terms, conditions, risks, or Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 14 of 16 PageID #: 14
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even existence of their CUSO Loans; and that students were defaulting on their loans at significantly high rates. 52.
Therefore, the CUSO provided substantial assistance to the unlawful conduct of ITT, in violation of 12 U.S.C. § 5536(a)(3). DEMAND FOR RELIEF
The Bureau requests that the Court award: 1. Equitable relief against Defendant; 2. Restitution to affected consumers against Defendant; 3. Injunctive relief against Defendant; 4. Disgorgement against Defendant; 5. Rescission against Defendant; 6. Civil Money Penalties against Defendant; 7. Plaintiff’s costs against Defendant; and 8. Additional relief as the Court may determine to be just and proper.
Dated: June 14, 2019
Respectfully submitted,
Cara Petersen (DC Bar #476990) Acting Enforcement Director
David Rubenstein (DC Bar #458770) Deputy Enforcement Director
Cynthia Gooen Lesser (NY Bar #2578045) Assistant Deputy Enforcement Director Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 15 of 16 PageID #: 15
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s/ Jonathan Reischl Jonathan Reischl (IL Bar # 6305260) Manuel Arreaza (DC Bar#1015283) 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
Case 1:19-cv-02397-JRS-DLP Document 1 Filed 06/14/19 Page 16 of 16 PageID #: 16
Stipulation ()
PDF of this document (16 pages)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA INDIANAPOLIS DIVISION BUREAU OF CONSUMER FINANCIAL PROTECTION, Plaintiff, v.
STUDENT CU CONNECT CUSO, LLC, Defendant.
) ) ) ) ) ) ) ) ) ) Case No. 1:19-cv-2397-JRS-DLP STIPULATED FINAL JUDGMENT AND ORDER Plaintiff, the Bureau of Consumer Financial Protection (the “Bureau”), commenced this civil action (the “Action”) on June 14, 2019 to obtain relief from Defendant, Student CU Connect CUSO, LLC (the “CUSO”). The Bureau brought its Complaint (the “Complaint”) under sections 1031(a), 1036(a), 1054(a), and 1055 of the Consumer Financial Protection Act of 2010 (the “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 CUSO (together, the “Parties”) have agreed to settle the Bureau’s claims against the CUSO and, by and through their counsel, request that Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 1 of 16 PageID #: 61
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this Court enter this Stipulated Final Judgment and Order (this “Order”). 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 the CUSO about any individual consumer in connection with the 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.
“Effective Date” means the date on which this Order is issued. Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 2 of 16 PageID #: 62
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5.
“Enforcement Director” means the Assistant Director for the Office of Enforcement for the Bureau, or his/her delegee. 6.
“ITT” means ITT Educational Services, Inc.
7.
“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 Loan Program (as defined below), and currently owned by the CUSO. 8.
“Loan Program” means the private student loan program established by ITT and the CUSO together with other parties, pursuant to certain agreements, which provided funding for students attending ITT schools. 9.
“Redress Plan” means the comprehensive written plan for the CUSO’s implementation of this Order.
10.
“Servicer” means the servicer of one or more of the Loans. FINDINGS 11.
This Court has jurisdiction over the Parties and the subject matter of the Action.
12.
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.
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13.
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.
14.
The CUSO neither admits nor denies any of the allegations in the Complaint except that, for the purposes of this Order, the CUSO admits the facts necessary to establish this Court’s jurisdiction over it and over the subject matter of the Action.
15.
The Parties acknowledge that the discontinuance of collection of the Loans, as described in this Order, is based on alleged infirmities in the original creation of the Loans, stemming from alleged unlawful actions or other alleged misconduct, perpetrated at the time of the Loans’ origination, that allegedly render the Loans unenforceable. The cessation of collection is for the purpose of correcting the alleged unlawful business practices and alleged misconduct.
16.
The CUSO is an entity that was created for the Loan Program. In connection with the Loan Program, the CUSO owns the Loans and, subject to certain conditions and limitations contained in certain Loan Program agreements, provides for the servicing of the Loans by the Servicer. 17.
The CUSO has not acquired, and will not acquire, loans other than the Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 4 of 16 PageID #: 64
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Loans, does not conduct business other than Loan Program business, and intends to cease conducting all business upon the completion of its obligations as set out in this Order. Given that the CUSO will not conduct any additional business, the Bureau has agreed not to seek injunction, compliance, and reporting requirements beyond those specified in this Order.
18.
The CUSO waives service under Rule 4(d) of the Federal Rules of Civil Procedure and waives all rights to seek judicial review of or otherwise to challenge or to contest the validity of this Order. The CUSO also waives any claim it 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. 19.
Entry of this Order is in the public interest. Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 5 of 16 PageID #: 65
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ORDER I.
ORDER TO CEASE AND DESIST AND TO TAKE OTHER AFFIRMATIVE ACTION IT IS ORDERED that:
20.
As of the Effective Date, the CUSO will:
a. Cease all collections activities and cease accepting payments from consumers related to any Loan; and b. Take no further action to enforce or to collect any Loan. c. Notwithstanding the requirements of subparagraphs (a) and (b) of this Paragraph, the CUSO will not be regarded as in violation of this Order if it sends out routine statements or notices that could be considered collection activity within 20 days after the Effective Date; nor will the CUSO 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 the CUSO, or the Servicer acting on the CUSO’s behalf, makes efforts to return the payment to the consumer as specified in the Redress Plan. 21.
Within 30 days of the Effective Date, the CUSO will discharge and cancel Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 6 of 16 PageID #: 66
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all outstanding balances of all Affected Consumers’ Loan accounts, including associated fees, charges, and interest. 22.
Within 30 days of the Effective Date, the CUSO will submit written requests to all Consumer Reporting Agencies to which the CUSO 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.
23.
Within 30 days of the Effective Date, the CUSO 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.
24.
Except as and to the extent provided herein and in the Redress Plan, the CUSO 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 the Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 7 of 16 PageID #: 67
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CUSO.
25.
In the event that Loan payments made after the Effective Date are unreturnable funds as defined in the Redress Plan, the CUSO 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. The CUSO will have no right to challenge any actions that the Bureau or its representatives may take under this Section. 26.
Upon the Effective Date, the CUSO promptly will begin implementation of the Redress Plan. The Enforcement Director has reviewed the Redress Plan and has made a determination of non-objection. The CUSO will implement and adhere to the steps, recommendations, deadlines, and timeframes outlined in the Redress Plan.
27.
The Redress Plan, among other things:
a. Specifies how the CUSO will notify Affected Consumers, consistent Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 8 of 16 PageID #: 68
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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 by the CUSO or the Servicer 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 the CUSO will undertake to prevent any payment made on a Loan from being accepted after the Effective Date, and the methods by which the CUSO will attempt to return to the payor any payment received after the Effective Date. 28.
The CUSO 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.
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II.
CONSUMER INFORMATION IT IS FURTHER ORDERED that:
29.
The CUSO, and its 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; b. Consumer Information may be used to effectuate and to carry out the obligations set forth in this Order; and c. The restriction on the use of Consumer Information does not apply to the CUSO’s participating credit unions.
III.
REPORTING REQUIREMENTS IT IS FURTHER ORDERED that:
30.
The CUSO will notify the Bureau of any development that may affect its compliance with obligations arising under this Order, including but not limited to dissolution, assignment, sale or merger of the CUSO, or other action that would result in the emergence of a successor entity to the CUSO; Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 10 of 16 PageID #: 70
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the creation of a subsidiary, parent, or affiliate of the CUSO that engages in any acts or practices subject to this Order; the filing of any bankruptcy or insolvency proceeding by or against the CUSO; or a change in the CUSO’s name or address. The CUSO 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.
31.
Within 120 days of the Effective Date, the CUSO will submit to the Enforcement Director an accurate written compliance progress report that: a. Describes in detail the manner and form in which the CUSO has 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:
32.
Within 30 days of the Effective Date, the CUSO will deliver a copy of this Order to the Servicer and to the CUSO’s board, as well as to any CUSO manager, employee, service provider, or other agent or representative who has responsibilities related to compliance with this Order. Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 11 of 16 PageID #: 71
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33.
The CUSO 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 32 hereof.
V.
RECORDKEEPING IT IS FURTHER ORDERED that:
34.
The CUSO will maintain, until the first to occur of (a) the expiration of three years from the Effective Date or (b) the CUSO’s dissolution, all documents and records necessary to demonstrate full compliance with this Order, including all submissions made to the Bureau pursuant to Paragraph 31(a) hereof.
35.
Subject to the retention limitations provided in Paragraph 34 hereof, the CUSO must make the documents identified in Paragraph 34 hereof available to the Bureau upon the Bureau’s request.
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VI.
NOTICES IT IS FURTHER ORDERED that:
36.
Unless otherwise directed in writing by the Bureau, the CUSO 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: Student CU Connect CUSO, LLC, Case No. 1:19-CV-2397 (S.D. Ind.),” and will send those materials by overnight courier or first class mail to the below address and contemporaneously by email to: [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:
37.
Until the CUSO’s dissolution, the CUSO 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. The CUSO will provide truthful Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 13 of 16 PageID #: 73
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and complete non-privileged, non-work product information, evidence, and testimony. The CUSO will appear and will cause its officers, employees, representatives, or agents to appear for interviews, discovery, hearings, trials, and any other proceedings that the Bureau reasonably may request upon 10 days written notice, or other reasonable notice, at such places and times as the Bureau may designate, without the service of compulsory process.
38.
Nothing in this Order will limit the Bureau’s lawful use of civil investigative demands under 12 C.F.R. § 1080.6, examinations under 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 the CUSO’s ability to seek a protective order. VIII.
RELEASE IT IS FURTHER ORDERED that:
39.
The Bureau releases and discharges the CUSO 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 Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 14 of 16 PageID #: 74
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Effective Date. The Bureau may use the practices described in the Complaint in future enforcement actions against the CUSO, 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 this Order, or to seek penalties for any violations of this Order.
40.
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:
41.
Each of the Parties is responsible for its own costs and expenses, including, without limitation, attorneys’ fees.
42.
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, Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 15 of 16 PageID #: 75
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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 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:
43.
This Court will retain jurisdiction over matters pertaining to this Order for purposes of its construction, modification, and enforcement. IT IS SO ORDERED.
Distribution to all parties of record via CM/ECF.
Deputy Clerk, U.S. District Court Laura A. Briggs, Clerk BY:
Date: 6/20/2019 Case 1:19-cv-02397-JRS-DLP Document 9 Filed 06/20/19 Page 16 of 16 PageID #: 76