FTC Announces Crackdown on Predatory College Abuses
The Federal Trade Commission this morning announced a new initiative to combat deceptive and unfair practices in the for-profit higher education industry. At a press conference, FTC Commissioner Rohit Chopra and Bureau of Consumer Protection Director Samuel Levine explained that the commission had voted to exercise long-unused powers to warn for-profit colleges against making misrepresentations to students — and that the Commission was prepared to impose major fines on schools for continued abuses.
The FTC over the past decade has taken some significant enforcement actions against predatory school operations including the University of Phoenix, Perdoceo, and DeVry University and against deceptive third-party lead generation companies that contract with predatory schools to peddle their programs online.
But the fines paid in connection with the settlement of all those matters were tiny in connection with the profits reaped from taxpayer and student dollars by the offending for-profit companies.
The new announcement signals an intent by the Commission to get tougher, and use long-dormant powers, in order to protect students.
Last November, Chopra and Levine published a research paper arguing that the FTC should revive a key legal authority it stopped using in the 1980’s — the Penalty Offense Authority provided by the FTC Act. Normally, the FTC does not impose civil fines on companies caught for the first time engaged in unfair or deceptive practices. But if the FTC issues a cease-and-desist order against certain practices by one company, other companies that engage in such abuses with knowledge of the FTC order can, under the Penalty Offense Authority, face major fines from the Commission.
As Chopra and Levine noted today, use of this dormant authority is critical to the FTC’s continued effectiveness on consumer protection, in light of a Supreme Court decision in May barring the FTC from using another provision of law, section 13(b), to seek monetary fines for deceptive practices.
The Commission’s five members (who include two appointed by Republicans) voted unanimously to exercise the long-neglected penalty authority with respect to for-profit higher education operations. (And Levine said the public should “stay tuned” because there “may be more announcements in the future” regarding use of these authorities on other industries.)
Levine announced that the FTC was writing to 70 of the largest for-profit school operations — including American Intercontinental University, Capella, ECPI, Florida Career College, Full Sail University, and Walden University — to put them on notice of some specific deceptive practices schools must avoid. They include misrepresenting the facts about a school’s job placement rates and assistance, and about salaries and demands for workers in a field. Levine said the FTC was now better equipped to combat false claims that are “designed to drive students in the door but ultimately drive them into debt.”
Levine explained that the FTC’s authorities allow it to impose civil penalties of up to $43,792 per violation — and he stressed that each misrepresentation made to each student could constitute a separate violation. Which means potentially millions of dollars in fines for a college caught engaged in deceptions.
Levine also stressed that FTC, although it has focused past cases on deceptive advertising publicly distributed to mass audiences, would also be ready to pursue cases against schools in cases where lies were told directly from a recruiter to a prospective student, in person or on the phone.
Levine said that from 2018 to 2020 consumer complaints to the FTC’s Consumer Sentinel portal regarding for-profit colleges had “surged” by 70 percent. This period coincided with Trump education secretary Betsy DeVos’s reign of lax enforcement of and favoritism toward for-profit colleges — signaling that bad behavior would be tolerated.
Levine said the FTC assembled the list of 70 schools receiving the new warnings in consultation with the Department of Education.
The FTC announcement materials didn’t address, but Levine at the press conference did discuss, whether the FTC would go after non-profit colleges tied to for-profit interests. Over the past decade, numerous for-profit colleges have sought to evade accountability, and the stigma their bad behavior created, by converting to non-profit status, often on terms that allow the former owners or related for-profit companies to abuse the new status and keep making big money.
The FTC generally does not have jurisdiction over non-profit organizations, but it has asserted the right to go after non-profits that in reality operate for profit or for the profit of the parties controlling them. Levine stated at today’s event that the FTC was prepared to use its newly-revived powers with respect to purported non-profit schools if they meet that description.
Although almost none of the dubious converted non-profit school operations, such as those run by Zovio, Kaplan, or Keiser University, were among the 70 targeted by the initial FTC letters (Grand Canyon, whose non-profit conversion is presently a matter of dispute, is on the list), Levine said any school operation could potentially be liable if they are shown to have been on notice of the new FTC stance. Predatory and dishonest colleges have plenty of lawyers and lobbyists monitoring DC, so, yeah, they are on notice. And Levine said the FTC would likely send notices to more school operations in the future.
Chopra starkly called out the “chequered record” of the FTC and some prior commissioners whom he said “turned a blind eye” to for-profit college abuses, depriving the Commission staff of tools needed to protect students and other consumers, and even ignoring congressional directives to coordinate with the Department of Veterans Affairs to protect student veterans from predatory abuses.
That record of neglect was upended under the Obama administration’s second FTC chair, Edith Ramirez, who boldly moved to take these consumer abuses seriously, and has been propelled by outstanding work by professional investigators at the Commission.
But the agency, along with the Department of Education and other federal agencies charged with protecting students against deceptive and predatory practices, have not yet come close to getting control of the problem. Chopra noted that federal student loan debt had reached 1.6 trillion dollars — and that there was even more in high interest private student loans. He said that loan defaults ruin the financial lives of many Americans, a disproportionate number of whom attended scam for-profit colleges. He asserted that FTC’s previous use of its equitable authority often at best required schools to refund money to harmed students, meaning that “schools could break even by breaking the law.”
Chopra also announced that the FTC would enhance cooperation on enforcement against college abuses with other agencies, including the Department of Education’s Office of Federal Student Aid and the VA.
Chopra last week was confirmed by the Senate to be the new director of the Consumer Financial Protection Bureau, where he previously worked and pioneered the agency’s efforts to hold for-profit colleges accountable for private student loan abuses, but he hasn’t moved to the bureau just yet.
Today’s FTC’s press release included a statement from new FTC chair Lina Khan putting her squarely behind the initiative. “For too long, unscrupulous for-profit schools have preyed on students with impunity, facing no penalties when they defraud their students and drive them into debt,” Khan said. “The FTC is resurrecting a dormant authority to deter wrongdoing and hold accountable bad actors who abuse students and taxpayers. Working closely with our state and federal partners, we’ll be monitoring this market carefully.”