United States: "Abusive" Further Defined By Court As CFPB Case Against ITT Tech Moves Forward

On March 9, District Judge Sarah Evans Barker issued her long-anticipated order on the motion to dismiss in CFPB v. ITT Educational Services, Inc., No. 1:14-cv-00292 (S.D. Ind.). Judge Barker denied ITT's motion to dismiss the Bureau's unfairness and abusiveness claims but granted it on the Bureau's TILA claim. At 67 pages, the order provides one of the longest and most thorough judicial opinions about the Bureau's abusiveness authority to date.

CFPB complaint alleged that ITT coerced students into taking on private loans In its complaint, filed in February 2014, the CFPB alleged that ITT Tech, a for-profit college, pressured students into enrolling by using high-pressure sales tactics and offering no-interest loans, called "Temporary Credit," which were good for the student's first academic year. Students needed these loans to fill the "tuition gap" between what federal loans and grants covered and the cost of ITT's tuition. The Bureau alleged that ITT knew from the outset that many students would not be able to repay their Temporary Credit balances at the end of the first year or fund their next year's tuition gap. Instead, according to the Bureau, ITT's financial aid staff rushed students through a process of refinancing the no-interest loans and paying for the gap with high-cost private loans that ITT had designed and helped manage. It alleged that ITT knew as early as May 2011 that more than 60 percent of the students who received the private loans would default.

Creating oppressive circumstances for consumers satisfies the "abusive" standard The order helps put some meat on the bones of the Bureau's authority to prevent "abusive" acts and practices. The CFPB's complaint alleged abusive practices under two of the four prongs of 12 U.S.C. § 5531(d), highlighted below:

(d) ABUSIVE.—The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice—

  1. materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or
  2. takes unreasonable advantage of
  • a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;
  • the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or
  • the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

First, CFPB alleged that ITT took unreasonable advantage of the inability of consumers to protect their interests in selecting or using a consumer financial product or service. The judge rejected ITT's argument that it did not take "unreasonable" advantage because ITT's conduct is similar to the conduct of college financial aid offices across the country. She wrote, "the Bureau has alleged conduct that—we hope—is not simply par for the course; at any rate, the 'everyone else is doing it' defense does not support a motion to dismiss absent an argument that the allegations are legally invalid or factually implausible." On the meaning of "inability of the consumer to protect" her interests, the judge wrote, a "reasonable reading of the statutory language . . . is that it refers to oppressive circumstances," which the Bureau sufficiently alleged. Interestingly, she cited a law review article that suggests that this prong of the abusive standard "is a statutory codification of the common-law doctrine of unconscionability."

Second, the CFPB alleged that ITT took unreasonable advantage of the reasonable reliance of consumers to act in the consumers' interests. Judge Barker wrote, "'Reasonable reliance' is a familiar concept in tort law, and it is a question of fact generally not appropriate for resolution on a motion to dismiss, or even summary judgment." To the extent that future courts follow Judge Barker's lead, this position could mean that the Bureau in the future will only need to sufficiently plead that the defendant took "unreasonable advantage" to withstand a motion to dismiss.

Abusiveness captures conduct that may not be unfair or deceptive In rejecting ITT's argument that the CFP Act's prohibition of abusive practices is unconstitutionally vague, the judge wrote that the legislative history "suggests that the term was added, in part, to enable the Bureau to reach forms of misconduct not embraced by the more rigid, cost-benefit standard that had grown up around the terms 'unfair' and 'deceptive.'" She wrote that the statute itself provides "significant guidance" as to the term's meaning.

The Bureau's authority and structure are not unconstitutional Judge Barker rejected ITT's arguments that the Bureau and its investigation of ITT and/or its authorities were unconstitutional, noting that two other district courts have also rejected arguments that the Bureau is unconstitutional.

The Bureau has jurisdiction over ITT as both a provider of financial advisory services and as a service provider to the private lenders ITT argued in its motion that the Bureau lacked jurisdiction over it because it was merely an educational institution, and that the financial aid counseling ITT provided did not fall within the CFP Act's definition of "financial advisory services." The judge disagreed, writing that, at a minimum, the Bureau had pleaded conduct that "would fall within the realm of 'credit counseling' and 'assist[ing] a consumer with debt management,'" two of the activities in the Act's definition of financial advisory services. The judge also held that the Bureau had alleged conduct that would qualify ITT as a service provider to the private lenders, citing ITT's involvement in operating and maintaining the loan program, including its payment of credit union membership fees for students and the stop-loss guarantee it provided the private lenders.

The Bureau has sufficiently pleaded unfair practices The judge applied the three-part unfairness test to the CFPB's complaint, holding that: (1) allegations that ITT coerced 8,600 students into private loans with interest rates as high as 16.25 percent and origination fees as high as 10 percent adequately described a substantial financial injury; (2) allegations that ITT threatened to withhold transcripts or expel students if they failed to make up their "tuition gap" described a situation that was not reasonably avoidable; and (3) whether the harm is outweighed by countervailing benefits is a factual question and that the Bureau's detailed allegations of the harm were sufficient to state a claim.

The TILA statute of limitations for civil actions bars the CFPB's TILA claim The only silver lining for ITT and its lawyers is that Judge Barker dismissed the Bureau's TILA claim as time-barred. This ruling may make the Bureau reluctant to bring federal district court claims under TILA for conduct that is not continuing. However, the order does not limit the Bureau's ability to bring such claims in an administrative proceeding.

Nicholas F. B. Smyth is a Senior Litigation Associate in Reed Smith's Financial Industry Group in Pittsburgh and Washington, D.C. Prior to joining Reed Smith, Nick spent four years as an Enforcement Attorney on the CFPB team that investigated and litigated the ITT case. Prior to that, he was at the U.S. Treasury Department, where he helped draft the Consumer Financial Protection Act, including its definition of "abusive" acts and practices.

Reed Smith has more than 250 attorneys in its Financial Industry Group. The Financial Services Regulatory Group's (FSRG) global positioning enables us to arm clients with strategic and operational guidance in the face of challenging compliance, regulatory and legislative requirements at state, national and international levels. For assistance with any matter related to the CFPB or any other financial services regulator, possible future restrictions on arbitration agreements, or if you are concerned that your institution's practices might be considered "unfair" or "abusive," please contact the author of this Alert, Leonard A. Bernstein, FSRG Chair, or any Reed Smith attorney with whom you routinely work.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions