Deceptive Trade Practices
Enforcement in Private Student
Loans
Dino Tsibouris
Tsibouris & Associates, LLC
Deceptive Trade Practices:
FTC Act
• Consumer protection statute
• Enforced by the Federal Trade Commission
• Section 5(a): "unfair or deceptive acts or
practices in or affecting commerce
...are...declared unlawful."
• 15 U.S.C. Sec. 45(a)(1))
Deceptive Trade Practices:
FTC Act
• "Unfair" practices are defined as those that
"cause[] or [are] likely to cause substantial
injury to consumers which is not reasonably
avoidable by consumers themselves and not
outweighed by countervailing benefits to
consumers or to competition" (15 U.S.C. Sec.
45(n)).
Deceptive Trade Practices:
FTC Act
• Privacy Violations:
– Deception when a company fails to comply
with its own privacy policy or security
claims
– Unfair practices that caused substantial
injury, not reasonably avoidable by
consumers
Deceptive Trade Practices:
FTC Act
• Marketing Representations:
Deception:
– Using names, seals, logos, or other
representations similar to those of
government agencies
– Using promotions like gift cards, credit
cards, and sweepstakes prizes
to distract
Deceptive Trade Practices:
FTC Act
• Collection Practices:
– Consumers expect debt collection contacts to be
accurate
– Actions based on inaccurate information
(including failing to confirm accuracy) can be
considered false or misleading and constitute
deceptive acts or practices
Deceptive Trade Practices:
FTC Act
• Collection Practices:
– Excessive collection calls without verifying
information provided by lender
– Not resolving disputes
– Not forwarding updated information to credit
bureaus
– Fees not allowed in the loan
– Fees in violation of state law
Deceptive Trade Practices:
State Law
Florida Statutes Title XXXIII Chapter 501
501.204 Unlawful acts and practices.–
Unfair methods of competition,
unconscionable acts or practices,
and unfair or deceptive acts or
practices
Deceptive Trade Practices:
State Law
Florida Statutes Title XXXIII Chapter 501
501.204 Unlawful acts and practices.–
“Due consideration and great weight
given to interpretations of the
Federal Trade Commission Act”
Student Loan Express
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Silver State Helicopters: Failed trade
school
12-18 month course
$69,900 tuition per student
2700 students, 34 schools, 17 states
Bankrupt in 2008
Student Loan Express
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Private loans
Over 50% of borrowers received no
certification
“Business plan destined to fail”
Should lender be liable to forgive
balances?
Student Loan Express
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State claims involving the FTC Holder
Rule
Banks which make purchase money
loans containing the notice will be
subject to all claims and defenses
which the consumer could assert
against the seller.
Student Loan Express
NOTICE
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT
IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE
DEBTOR COULD ASSERT AGAINST THE SELLER OF
GOODS OR SERVICES OBTAINED WITH THE PROCEEDS
HEREOF. RECOVERY HEREUNDER BY THE DEBTOR
SHALL NOT EXCEED AMOUNTS PAID BY THE
DEBTOR HEREUNDER.
Student Loan Express
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State AG’s claimed a violation of state
law and Section 5 of the FTC Act to not
include this language
Claimed that if a seller arranges direct
loan financing, can’t accept proceeds
of the loan as payment for a sale,
unless any loan contract has the
provision
Student Loan Express
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Lender potentially responsible if it has
"referring relationships" with schools
Potential payment refund/cancellation
of debt
Student Loan Express
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Multistate AG settlement forgiving
$112M of balances
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Up to 75% of a borrower’s balance
Citibank – forgave balances in 2008
KeyBank not yet determined
Deceptive Trade Practices:
NY Law
SLATE Act
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No logos on solicitations appearing
to be from the federal government
or the student's current lender
No fake checks/false rebates
No iPods, gift cards, etc.
Deceptive Trade Practices:
NY Law
SLATE Act
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No Referral gifts to friends of the borrower
No false/misleading loan comparisons
No sample rates/benefits only available to small
percentage of borrowers unless disclosed
Guaranty borrower benefits survive
sale of the loan
Deceptive Trade Practices:
Higher Education Opportunity Act
• Section 140
• Preventing Unfair and Deceptive Private
Educational Lending Practices and Eliminating
Conflicts of Interest