Lenders to adopt code of conduct
Eight student loan companies agreed to adopt a code of conduct that bans deceptive marketing practices -- such as offering prizes to students who sign up for loans -- after an investigation by the state of New York, the state attorney general said Tuesday.
Seven direct-to-student lenders agreed to donate a combined $1.4 million to a fund to educate students and their families on loan practices, New York Atty. Gen. Andrew Cuomo said in a statement.
These companies, Cuomo alleged, employed bait-and-switch tactics, pushed higher-interest private loans and marketed products so they appeared to be federal loans, which have fixed interest rates that are often lower than private loans.
The companies that are settling were identified by the attorney general’s office as Nelnet Inc., Campus Door Inc., GMAC Bank, NextStudent Inc., Xanthus Financial Services Inc., EduCap Inc. and Graduate Loan Associates.
An eighth lender, MRU Holdings Inc., was not a target of the investigation but voluntarily agreed to adopt the reforms. The New York company operates as My Rich Uncle.
Direct-to-student loan companies market to consumers online and through the mail, and don’t necessarily have an on-campus presence.
The new code of conduct bans practices including:
* Using logos that make mailings appear to be from the federal government.
* Paying students to get their friends to take out loans.
* Offering prizes such as iPods and gift cards to induce students to take out loans with a particular lender.
* Advertising interest rates that are not available to a majority of borrowers.
Nelnet spokesman Ben Kiser said the Lincoln, Neb.-based company expected to be fully compliant with the code of conduct by December.
EduCap of McLean, Va., said it welcomed “the opportunity to embrace the attorney general’s proposed code of conduct.”
A call to GMAC Bank was not immediately returned. A phone number listed on Graduate Loan Associates’ website was not working and phone numbers could not be immediately found for Xanthus Financial or Campus Door.
The adoption of the code of conduct by the eight companies will put pressure on the entire industry to reform, said Barmak Nassirian, a spokesman for the American Assn. of Collegiate Registrars and Admissions Officers.
Cuomo’s office said last week that it was preparing to sue Goal Financial of San Diego for similar deceptive practices. Unlike the other lenders, Goal Financial indicated that it was not willing to enter into a settlement, Cuomo’s office said.
