Admittedly, it can get tiresome thinking about or hearing about the Boogeyman coming for us the first time our businesses make an honest mistake that runs afoul of our complex regulatory scheme. In fact, it might be a little like living in a coastal town that hears time and time again that a major hurricane is coming, only to watch it turn and head out to sea, leaving them unscathed. (You might even say that this resembles the compliance policy for the most reckless businesses in our industry.)
But when the hurricane does finally hit…?
This story comes from Mortgage Sentinel Managing Director Richard Douglass, who recounts his experience with one such business.
“ITT Tech was a technical school that ran afoul of the law, was investigated by the CFPB and, around 2014, put out of business.
My company was promoting our mystery shopping services to all of the for-profit education companies. The purpose was to ensure that their staff, for example, admissions reps, were not misrepresenting to consumers things like placement rates, ability to get financial aid, credit terms, accreditation, transferability of credits and the like. If a school was found to misrepresent these items, they could be banned from receiving Title IV funding. Title IV funding allows schools to offer students Pell grants and Stafford loans from the government to cover the cost of schooling. All of the for -profit companies have a 90/10 rule enacted by Congress, which stipulates that these for-profit companies can receive up to 90% of their revenue from the government through student loans. So ultimately, the CFPB alleged that ITT Tech’s business model was to misrepresent the school to potential students (borrowers), whether it be the type of income they could expect after graduation; accreditation and other such things—all to get as many students enrolled in their programs as possible. That is, enroll; sign up for financial aid; enable the school to collect the finances and then the student with the debt.
Anyway, this was one of the few companies that would not use our mystery shopping services. They said they were not interested, and they did not use any other company to monitor their admissions representatives. We were convinced, and ultimately proven correct, that senior management knew that the admissions reps were misrepresenting the school. Of course, they didn’t want a record of it. In fact, before the CFPB cracked down on the industry, their admissions reps were compensated based solely upon how many people they enrolled, in lieu of salary. As you can imagine this was not a good recipe for honesty in their marketing.
In the end they were shut down, and several executives were fined significantly for financial impropriety.”
The moral of the story is that occasionally, that hurricane does hit the coastal town. Even if—in fact, especially if—a firm is trying to play by the rules (most violations aren’t as systemic as they appear to have been in the case of ITT Tech), ignorance is not a valid excuse. Consider having a mystery shopping service monitor your services, make sure you are in compliance. Don’t find out a painful truth the hard way!”
Of course, we’d like your input on this as well. Got an idea or a topic for the upcoming summer series of LLL? Send it our way! Email me at firstname.lastname@example.org.
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