PEAK settlement over alleged unfair student loan practices

  • The Consumer Financial Protection Bureau (“CFPB”) and 47 states reached a settlement with special purpose entity PEAKS 2009-1 (and its trustees) over allegations that PEAKS assisted ITT Educational Services, Inc. (“ITT”) in its unfair acts and practices with respect to issuing student loans, which violated the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • The CFPB’s complaint alleged that ITT induced students by a variety of unfair practices to take out PEAKS loans even though the students could not afford the loans and did not understand the loans’ conditions, and that PEAKS knew or was reckless in not knowing about the students’ lack of ability to pay and lack of understanding. The complaint further alleged that PEAKS activity in managing and servicing the loans constituted substantial assistance to ITT’s unlawful conduct.
  • Under the terms of the proposed stipulated order sought by the CFPB, PEAKS will stop collecting and will discharge all outstanding PEAKS loans, estimated to total $330 million. PEAKS will also ask credit reporting agencies to delete information it furnished about PEAKS-loan borrowers. In parallel, PEAK entered into an assurance of voluntary discontinuance, with substantially similar terms to the proposed stipulated order, with individual states participating in the settlement.