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College accreditor, lawmakers challenge CFPB’s reach

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Inside the Beltway
Friday, October 30, 2015

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray defended the CFPB’s authority to investigate the Accrediting Council for Independent Colleges and Schools (ACICS) at a Politico Morning Money event Oct. 28.

“Our authority is over those who provide financial products or services, or provide material, substantial assistance to those who do,” Cordray said. “If an accrediting agency is facilitating for-profit colleges’ misleading consumers, treating them unfairly and deceptively, then that’s something that we should look at.”

The CFPB’s authority had been challenged in an Oct. 23 letter signed by Sen. Lamar Alexander (R-Tenn.) and Rep. John Kline (R-Minn.). Alexander is chairman of the Senate Committee on Health, Education, Labor and Pensions, and Kline is chairman of the House Committee on Education and the Workforce.

In their letter, the lawmakers requested that the CFPB rescind the civil investigative demand (CID) it sent to ACICS in August and halt any other investigations regarding accreditors or the accreditation process, calling the CFPB’s action an “unprecedented overreach.”

“These accreditors have no experience, expertise or purview with regard to any financial product or financial service that may or may not be offered by an institution of higher education. They also do not offer any consumer financial product that would trigger the jurisdiction of the CFPB,” the letter stated.

Institutions are eligible to participate in federal student aid programs if they are accredited by an accrediting agency recognized by the Department of Education, are authorized to operate by a state and are certified as eligible by the Department of Education.

The lawmakers argued further that the accreditation review of an institution had no direct and immediate impact on the financial activity between the students and the institutions.

“Receiving accreditation by an accreditor recognized by the Department of Education affirms an institution offers education or training that meets a standard of quality sufficient to provide eligible students enrolled at the institution access to federal aid. However, given that a consumer eligible to receive federal student aid has the option of choosing from over 6,000 institutions of higher education, it by no means forces or coerces a consumer toward a particular institution,” the letter stated.

ACICS submitted a petition for the CFPB to set aside its CID on Sept. 14, arguing that it was not a “covered person,” “affiliate” or “service provider” under the Dodd-Frank Act, and therefore not under the CFPB’s jurisdiction. ACICS argued that it does not provide any financial product or service nor assist or support its accredited institutions in procuring and maintaining loan grants from the Department of Education.

The petition also stated that the CFPB failed to identify the nature of the conduct under investigation and was overly broad and unduly burdensome.

According to its website, ACICS was founded in 1912 and is the largest national accrediting organization for degree-granting institutions. It is one of two national accreditors recognized by both the Department of Education and the Council for Higher Education Accreditation. The other national accreditor is the Distance Education Accrediting Commission.

With student loan debt totaling around $1.3 trillion, the CFPB has taken a particular interest in student lending, campus card accounts and for-profit colleges.

The CFPB received a final default judgment against Corinthian Colleges, Inc. on Oct. 28 in its lawsuit alleging that the company – according to a CFPB news release – “lured students into taking out private loans [known as Genesis loans] to cover tuition costs by advertising bogus job prospects and career services.”

As a result of the judgment from the U.S. District Court for the Northern District of Illinois, Corinthian will be required to pay more than $530 million in damages to affected consumers (any consumer who took out a Genesis loan to pay tuition and/or fees to Corinthian from July 2011 through July 2014).

Corinthian filed for bankruptcy and was liquidated earlier this year, so despite this ruling, the company cannot pay the judgment because it was dissolved and its assets distributed according to the liquidation plan in its bankruptcy case. The CFPB had secured more than $480 million in debt relief for Corinthian students from a settlement agreement between the CFPB and ECMC Group, the new owner of certain Corinthian schools.

“The CFPB will continue to pursue relief for consumers harmed by Corinthian’s unlawful conduct. The CFPB remains concerned about efforts to collect on loans made in association with Corinthian’s illegal conduct,” the CFPB stated.

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