When students apply to one of the for-profit schools owned by Corinthian Colleges Inc., they sign away their right to seek any legal action against the company if they’re wronged. Now that CCI is selling off 56 of its Everest and WyoTech campuses, the new owners have a chance to end this anti-consumer practice, but will they?
For the second time since November, when embattled CCI announced it was selling these campuses to Education Credit Management Corporation – purchasing under the name Zenith Education Group Inc. – consumer advocates are warning the federal government that the deal could be dangerous to current and future students if new buyers are allowed to continue using binding mandatory arbitration clauses in student enrollment documents.
Fair Arbitration Now, a group of more than 70 consumer, labor, legal and community organizations, sent a letter [PDF] to the U.S. Department of Education urging the agency to ensure that the legal rights of students are fully restored in ECMC’s $24 million acquisition of the CCI campuses by barring the nonprofit company from using arbitration clauses.
In the letter, the groups warn the Dept. of Education that if ECMC – a nonprofit debt collector and loan servicer – is allowed to continue the use of arbitration clauses, the company could continue to perpetrate the same “aggressive recruiting and sleek marketing ploys” previously used by CCI while also shielding themselves from being held accountable for actual and potential wrongdoing.
The use of arbitration clauses have skyrocketed by companies since 2011, when the U.S. Supreme Court affirmed that it was perfectly okay for companies to take away a consumer’s right to sue or their ability to join other wronged consumers in a class action case by inserting a paragraph or two of text inside lengthy contracts.
“Increasingly, Corinthian and other for-profit colleges have buried terms in their enrollment contracts that eliminate students’ constitutional rights to legal protections and access to the federal and state courts,” the letter states. “Instead, according to the enrollment terms, students with legal claims must resolve the disputes in secret and often costly arbitration proceedings.”
By using arbitration clauses, for-profit colleges such as CCI have shielded themselves from taking responsibility for their own alleged deceptions such as misrepresented job placement statistics.
Colleges that use arbitration clauses also retain the right to choose their own arbitrator and other key aspects of the potential dispute resolution process.
“The terms, inserted in contracts without any input or understanding from students, specify the arbitration process, including the for-profit institution’s preferred arbitration provider, the arbitration venue and fee payments,” the letter states. “Arbitration providers face a risk of losing income if they decide disputes against their repeat customers, for-profit colleges.”
Fair Arbitration Now specifically calls out CCI’s current arbitration clauses that deny students the rights to seek redress for the company’s alleged misconduct and violations of consumer protection laws, including use of false, misleading and deceptive misrepresentations, such as providing false data about job placement rates to induce students to enroll in its schools.
While the crux of the group’s letter to the Dept. of Education surrounds CCI’s use of arbitration clauses, advocates fear that if the new owners of CCI’s campuses leave such clauses in place they would only further hurt the students they claim to be rescuing.
Fair Arbitration Now warns that if the Dept. of Education allows ECMC to continue the use of arbitration clauses and class action bans in enrollment documents, the agency will be failing to do its due diligence to ensure proper safeguards are in place to protect students.
Additionally, the groups say that ECMC’s plan to take the CCI campuses it purchases from the for-profit sector to the nonprofit sector presents further challenges.
The group says the nonprofit designation would go against current practices in which nonprofit colleges generally do not impose forced arbitration on their students.
If ECMC is successful in purchasing the 56 Corinthian Campuses, the company would become the nation’s largest nonprofit career college chain, despite the fact ECMC has no experience running an institution of higher education.
Sources with insight on the proposed deal report that ECMC has not made any final determination regarding the use of arbitration clauses should the company successfully purchase the CCI campuses.
A spokesperson for ECMC tells Consumerist that the company has heard from a number of interested parties regarding the potential use of arbitration clauses.
“Discussions about enrollment agreement requirements for Everest and WyoTech schools under Zenith leadership remain ongoing,” the spokesperson says. “This is an issue that remains under active discussion and no final determinations have yet been made.”
While consumer advocates’ concerns surrounding the possibility that ECMC would continue the use of stifling legal clauses is no doubt warranted, a recent report from MainStreet calls into question the viability of the CCI sale.
In fact, two proposed closing dates – January 5 and January 12 – have already been missed by ECMC and CCI. A new closing date of February 2 has been announced.
The first sale of CCI schools was announced nearly four months after the company reached a deal with the Dept. of Education to sell or close its campuses.
That deal was necessitated earlier this summer when CCI failed to turn over documents related to a number of state and federal investigations related to the company’s recruitment and marketing practices. At that point the Dept. of Education put a hold on CCI’s access to loan funds, effectively signing its death certificate.
Despite its plan to close or sell off campuses, CCI continues to be face criticism and a plethora of issues from regulators, states and investors.
In September the Consumer Financial Protection Bureau filed a complaint seeking to provide nearly $560 million in restitution to students who were pushed into predatory loans with through the for-profit institution.
Then in October, the state of Wisconsin filed a suit against CCI, alleging that its Everest brand misrepresented information, like graduation rates and job-placement statistics, in order to attract students.
Use of Forced Arbitration in Corinthian College Acquisition [PDF] [Fair Arbitration Now]
by Ashlee Kieler via Consumerist
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