33 Firms Probed on Student Loan Tactics
Friday, October 12, 2007
J.P. Morgan Chase, Bank of America and Wells Fargo are among 33 companies New York Attorney General Andrew Cuomo subpoenaed or requested documents from in a probe of deceptive tactics for marketing college loans.
Cuomo is investigating whether the companies used misleading offers, fraudulent solicitations or illegal incentives to get students to apply for loans or loan consolidations, he said in a statement.
"Our ongoing investigation of the student-loan industry has now shifted focus to the aggressive, misleading and harmful tactics of many companies who market student loans directly to students and their parents," Cuomo said in the statement.
Cuomo's nine-month probe of the $85-billion-a-year student-loan industry first focused on conflicts of interest between lenders and schools. At least a dozen loan companies and 26 colleges and universities eventually reached agreements with his office to abide by a new code of conduct.
Many of the major lenders contacted in the latest probe, including Bank of America, J.P. Morgan Chase and Wachovia, are among those who reached the accords.
In the marketing probe, Cuomo said J.P. Morgan Chase's Collegiate Funding Services and six other companies were being investigated about mail offers and Web sites designed to appear as if they were from the federal government.
Cuomo subpoenaed Student Loan Xpress, a unit of CIT Group, and Nelnet, among others, over the practice of mailing fake checks or false rebates on loans to entice students to call.
Nelnet was also subpoenaed for $25 Simon Visa gift cards it offers students for recommending friends.
Wells Fargo, Wachovia and Bank of America are being probed for using sweepstakes to entice students to apply for loans, Cuomo said. SunTrust Banks is being investigated for both sweepstakes and gift cards.
Cuomo said such practices may violate New York state consumer-protection laws and the anti-inducement provisions of the federal Higher Education Act.
Cuomo said his office and others were concerned about a spike in deceptive practices in the direct marketing of student loans.
Rashmi Vasisht, a spokeswoman for Cuomo, said in an interview that 28 companies were subpoenaed and five received document requests. Those receiving letters were Wachovia, KeyBank, Wells Fargo, Bank of America and J.P. Morgan Chase.
Spokesmen for CIT Group, Nelnet and J.P. Morgan Chase did not return calls for comment. SunTrust, Bank of America, Wells Fargo and Wachovia and Elite Financial Group declined to comment.