After hinting for months that it intends to use its enforcement powers to police lending in the higher education arena, the CFPB dropped the hammer on ITT Educational Services, filing suit against the for-profit college over alleged predatory lending practices.

On February 26, the CFPB filed a complaint against ITT in the Southern District of Indiana, accusing the educator of violating the Dodd-Frank ban on unfair, deceptive, or abusive practices by misleading borrowers about job placement rates and salaries after graduation, misrepresenting information about accreditation and the transferability of credits, and strong-arming students into high-interest loans that the company knew students would be unable to repay.

The complaint also alleges that ITT violated the Truth in Lending Act by failing to accurately disclose finance charges.  In particular, the complaint alleges that ITT offered graduating students the ability to repay their loan balance in a lump sum with a discount applied, or in installments without a discount.  The CFPB alleges that the “foregone discount” associated with the installment plan constituted a finance charge that should have been disclosed to the borrowers.  The CFPB seeks an injunction against ITT’s allegedly improper acts, as well as unspecified civil penalties and restitution for all affected consumers.

The complaint highlights the broad scope of the enforcement authority claimed by the CFPB over for-profit education lending, as it asserts four separate ways in which ITT is subject to the jurisdiction of the Consumer Financial Protection Act.  In particular, the CFPB asserts claims against ITT in its capacity as: (a) a lender (offering ITT loan products); (b) a broker (brokering loans by other lenders); (c) a financial advisory service (providing advice to students through ITT’s financial aid staff); and (d) a service provider to other lenders (based on its designing, operating, and maintaining a private loan program).

While this is the first enforcement action filed by the CFPB against a for-profit education company, other for-profit educators may also be the subject of CFPB scrutiny. “We believe ITT used high-pressure tactics to push many consumers into expensive loans destined to default,” Director Cordray said. “Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics.”

The CFPB is not alone in its investigation of for-profit education companies.  Several state attorneys general have initiated investigations of the marketing practices of for-profit education companies, and the CFPB suit against ITT coincided with the announcement by the attorney general of New Mexico that he was filing suit against ITT for alleged misrepresentations with respect to its nursing program.

While the recent actions and pronouncements have focused on the for-profit education business, nonprofit schools are not necessarily immune from lawsuits of this nature.