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ITT Educational Services Inc. Message Board

  • apizza21 apizza21 May 22, 2012 10:53 AM Flag

    Civil investigation?

    Never a good thing. Time to but puts.
    On May 18, 2012, ITT Educational Services, Inc. (the "Company") received a Civil Investigative Demand ("CID") from the U.S. Consumer Financial Protection Bureau ("CFPB"). The CID provides that the purpose of the investigation is, in part, "to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans.

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    • I do some consulting work for a small for-profit school in NYC and they get demands for all sorts of things from the department of education as well as from various state and federal regulators. They almost always add up to bupkus.

      • 1 Reply to g_noh
      • The education industry is one of the most regulated industries in the United States. There is not one aspect of the education sector, especially the for-profit sector that is not covered by tough and exacting regulation. Schools have to be accredited, new education programs approved, marketing is restricted, student loans are government controlled, so on and so forth. And if you are a public company, you have the SEC to deal with. All of this in addition to various other federal, state and local oversight.

        So what to make of today's news?

        "On May 18, 2012, ITT Educational Services, Inc. (the "Company") received a Civil Investigative Demand ("CID") from the U.S. Consumer Financial Protection Bureau ("CFPB"). The CID provides that the purpose of the investigation is, in part, "to determine whether for-profit post-secondary companies, student loan origination and servicing providers, or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, or origination of private student loans."

        First off, this a "civil investigative demand". That means it is not a criminal action - no crime has been alleged to have been committed. As I read the press release, the inquiry is a fishing exhibition to see if there has been "in part" any wrongdoing. The wording of the inquiry indicates that all aspects of the private student loan process are being examined (not just the education companies themselves and not just ESI specifically). Second off, there is no press announcement from the US Consumer Financial Protection Bureau regarding their "inquiry", which I find surprising. One can go their website to look at the types of press releases they put out and on what types of actions. There is not one press release to this effect.

        In addition, the "investigation" involves "private" student loans, not those issued by the US government (as I read it). It of course does not make any sense for the bureau to investigate the US government itself. What next, the U.S. Consumer Financial Protection Bureau decides to investigate the US government issuance of US government debt to consumers that it knows it will never be able to repay!

        So what is the investigation going to find? Usurious interest rates? Draconian loan terms? Lenders gouging the borrowers? A job market that is tight and getting a job is difficult? They will find nothing. It will take 6 months to a year paper shuffling. This is no different than that ridiculous SEC inquiry into APOL's revenue recognition policies that went nowhere.

    • I don't buy or sell on Cramer's recommendations but one piece of advice he has is sell now and ask questions later when a criminal/civil investigation is announced.

 
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