The Consumer Financial Protection Bureau announced Tuesday it was filing a lawsuit against Corinthian Colleges Inc., saying that its education services were little more than a scam to bilk unsuspecting would-be students.

"We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school. We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans," CFPB director Richard Cordray said.

The suit accuses the college of a "predatory lending scheme" and is seeking $500 million for borrowers who took out the private loans. It charges that after Corinthian Colleges "lured" the students to take on debt, it would pressure them into paying off the loans by preventing them from attending classes or graduating until the debt was paid off.

A spokesman for the colleges could not be reached for comment.

The announcement signals that the bureau will be taking a hard look at the for-profit college system. President Obama has been a critic of the industry, saying it loads students with "enormous" levels of debt.

Corinthian enrolls 72,000 students nationwide, according to the Education Department. The school charged as much as $75,000 and had loans with interest rates that ran as high as 15 percent, about double the rate of federal student loans.

This summer, the for-profit announced it was closing down or selling all of its its 97 U.S.-based schools. Under an agreement reached with the Education Department, operations will continue to allow current students to graduate.

Rep. Maxine Waters, D-Calif., a long-time critic of for-profit colleges, applauded the bureau's announcement, but said the students needed more relief.

"Every student should be able to withdraw and receive a refund from their Corinthian school; and if their school closes, they should all immediately receive a federal loan discharge to wipe out their debt," Waters said.

 

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