Attorney General Lori Swanson Obtains Court Order Awarding Injunction, Penalties, and Restitution for Minnesota School of Business and Globe University Fraudulently Misrepresenting the Job Opportunities Available to their Criminal Justice Graduates
released on September 1, 2017
found in newsletter: September 2017
On September 8, 2016, the Hennepin County District Court issued an order finding the Minnesota School of Business and Globe University—Minnesota corporations under common ownership—engaged in consumer fraud and deceptive trade practices by misrepresenting the job opportunities available to their criminal justice graduates.
The Order is the result of a four-week trial of a lawsuit filed by Minnesota Attorney General Lori Swanson against the schools in 2014. The lawsuit alleged that the schools targeted, marketed, and recommended their criminal justice program to prospective students who told the schools they wanted to become Minnesota police officers, even though it was impossible for a student to become a police officer in Minnesota with a degree from the schools. The schools’ criminal justice program does not satisfy any of the educational requirements for a person to become a licensed police officer under Minnesota law because the schools are not regionally-accredited institutions and do not offer a Professional Peace Officer Education program approved by the Minnesota Peace Officer Standards and Training (“POST”) Board.
The lawsuit further alleged that the schools also targeted, marketed, and recommended their criminal justice associate’s degree program to prospective students who told the schools they wanted to become Minnesota probation officers, even though all 87 counties in Minnesota require, at a minimum, probation officers to hold a bachelor’s degree.
The cost of the schools’ criminal justice program ranged from $39,150 to $78,300. As a result of the schools’ misrepresentations, many students were saddled with large amounts of student loan debt without the ability after graduation to obtain a job in their chosen career field of serving Minnesota’s citizens as police and probation officers.
The Court’s Order found that the schools engaged in fraudulent and deceptive actions by targeting, marketing, and recommending their criminal justice program to prospective students who told the schools they wanted to become Minnesota police and probation officers, in violation of Minnesota’s Prevention of Consumer Fraud Act (Minn. Stat. § 325F.69) and Deceptive Trade Practices Act (Minn. Stat. § 325D.44).
For example, the Court stated that the schools’ marketing and sales of their criminal justice program “ignored or obscured” the requirement that students must graduate from a regionally-accredited or POST-certified program in order to become a police officer in Minnesota and “served as a trap for the unwary.” The Court further found that the schools’ “fraudulent practices in advertising and promoting their criminal justice program to individuals who expressed a desire to work as probation officers” caused such individuals “inevitable and foreseeable” damage.
Unfortunately, the Court did not hold the schools liable or order relief for claims the State brought that did not directly relate to the schools’ criminal justice program (e.g., for students who alleged that the school misrepresented the transferability of their credits, etc.)
The Court’s Order Awarding Injunction, Penalties, and Restitution.
On January 4, 2017, the Court issued an Order awarding an injunction, penalties, and restitution in favor of the State based on the schools’ violations of Minnesota’s consumer protection laws. The Court’s Order imposed the following remedies against the schools:
Injunctive relief that prevents the schools from fraudulently misrepresenting the job opportunities available to their graduates;
Payment of penalties; and
Establishment of a restitution process for all criminal justice students who were enrolled in the program between January 1, 2009 to the present (the timeframe covered by the lawsuit) and who believe the schools misled them about their ability to use their criminal justice degree to become a Minnesota police officer or to become a Minnesota probation or parole officer by completing a two-year associate’s degree. The amount of compensation eligible students may receive includes the amount of tuition, book costs, enrollment fees, other student expenses or fees, and any interest or finance charges the student incurred for taking out a student loan to pay for tuition, expenses or fees.
The schools were ordered to provide the Attorney General’s Office with names and contact information for all criminal justice students eligible to participate in the restitution process. Under the restitution process ordered, the Attorney General’s Office will send a notice and claim form to eligible students to allow them to submit a claim for restitution within 50 days after the State sent the form.
Unfortunately, at MSB’s and Globe’s request and over this Office’s repeated objections, the Court has stayed (i.e., put on hold) the restitution process. The schools first requested to delay the restitution process while they asked the Court to reconsider several issues from the trial and make changes to the restitution process. Over this Office’s objections, the Court granted the schools’ requested stay on February 9, 2017, and has kept the stay in place pending the schools’ appeal of the district court’s rulings.
This Office also expressed our concern to the Hennepin County District Court that the schools may not have adequate funds to pay complete refunds to all eligible criminal justice students if the restitution proceeding is delayed. Accordingly, this Office argued that the restitution process should begin immediately unless the schools posted with the Court enough funds to ensure that all eligible students would receive full refunds once the appeal process is complete. Unfortunately, the Court did not share this Office’s concerns and granted the schools’ request to extend the stay. In doing so, the Court unfortunately did not order the schools to post with it a large amount of funds to ensure the schools have the ability to refund all eligible students following the appeal.
On July 18, 2017, MSB and Globe attempted to appeal the Court’s order finding that they engaged in consumer fraud and deceptive trade practices, but the Minnesota Court of Appeals rejected the appeal as improper. In light of the Court of Appeals’ ruling, the schools have asked the district court to issue an order permitting its previous rulings to be appealed and to continue the stay of the restitution process. This Office opposes the schools’ request.
If the district court permits its prior rulings to be immediately appealed by the schools and continues the stay that is in effect, restitution proceedings will continue to be delayed until the case works its way through Minnesota’s appellate process. The Court recognized in its order that the appeal process could take up to a year. There is a potential it could take even longer. This Office does not have control over how long this appeal process may take, nor do we have any ability to speed up the process.
If you believe you are a criminal justice student who is eligible to submit a claim for compensation under the Court’s Order and have questions about the restitution process, please contact the Attorney General’s Office at (651) 296-3353. In addition, if you believe you are an eligible student and your contact information has changed since you left the schools, please contact the Attorney General’s Office immediately.
The Supreme Court’s Decision Regarding “Educational Opportunities” and “Student Access” Loan Claims
MSB and Globe issued EdOp and StA loans to approximately 6,000 students since January 1, 2009. As part of its lawsuit, this Office asserted that these loans were illegal and should be declared “void” so that student borrowers (and their co-signors and guarantors) could stop making payments on them moving forward and be able to recover payments made on the loans. The Hennepin County District Court sided with the schools. The Minnesota Supreme Court, however, reversed the Hennepin County District Court’s decision on July 26, 2017 and ruled that the schools’ EdOp and StA loans were illegal because the schools were not licensed to make the loans and because the schools charged interest rates higher than allowed by Minnesota law.
Accordingly, on August 3, 2017, this Office filed a motion seeking an order from the Hennepin County District Court declaring that EdOp and StA loans issued on or after January 1, 2009 to any person enrolled at one of the schools’ Minnesota campuses (or any Minnesota resident enrolled in an online program of the schools) are void and cancelled. This Office’s motion also asks the Court to require that the schools refund borrowers for payments of principal, interest, and other charges they have made on the loans, plus interest on those amounts. The motion was heard by the Court on August 31, 2017, and the Court has up to 90 days (i.e., until November 29, 2017) to issue its decision.
Borrower’s Defense to Repayment of Federal Student Loans
Federal law provides that students may submit a claim to the U.S. Department of Education asserting a “borrower’s defense” to repayment of their federal student loans. Students may be eligible to submit a borrower’s defense claim if their school committed fraud against them, misrepresented its services to them, or otherwise violated applicable state law. Students interested in determining if they are eligible to submit a borrower’s defense claim should visit the U.S. Department of Education’s website hereExternal Link Icon for more information. Students can also call the U.S. Department of Education’s borrower defense hotline (855) 279-6207 or send an email to: FSAOperations@ed.gov.
Borrower’s Defense to Repayment of Private Student Loans
A federal regulation called the “Holder Rule” allows consumers to (in some cases) assert defenses to a creditor’s collection of money based on the seller’s false representations. The Federal Trade Commission has stated that private student loans fall within the scope of the Holder Rule. Accordingly, you may be able to cancel existing debt from your private student loans if your school fraudulently induced you to enroll and had some relationship with the private lender that issued your loans. You may wish to consult our flyer, The Holder Rule: When You Take Out a Loan and the Product is Defective or Fraudulent for more information on the Holder Rule.
Our Office cannot give you legal advice or tell you whether the Holder Rule may apply to your situation. As a result, you may wish to consult an attorney about whether the Holder Rule may apply to your situation and how to assert it. You may wish to consult our publication, Hiring an Attorney, for guidance in looking for an attorney.
What Other Regulatory Actions Are Happening?
Minnesota Office of Higher Education Action. As a result of the Court’s finding of fraud against the schools, the Minnesota Office of Higher Education (“OHE”)—the state agency responsible for enforcing the laws that apply to for-profit colleges such as the schools—issued an order on September 15, 2016, revoking the schools’ registration to operate as higher-education institutions in Minnesota. OHE is a separate agency from the Minnesota Attorney General’s Office, and it is acting under laws it is authorized to enforce. The schools have appealed OHE’s revocation order, and the Order will not take effect until the appeal is finally determined. More information about OHE’s actions is available on its website, here.External Link Icon
Accreditor Action. On September 15, 2016, the schools were placed under a “show-cause directive” from their national accreditor, the Accrediting Council for Independent Colleges and Schools (“ACICS”). ACICS ordered the schools to submit information by November 1, 2016, explaining why their accreditation should not be withdrawn.
U.S. Department of Education Action. The U.S. Department of Education has notified the schools that, effective December 31, 2016, all of the schools’ locations nationwide will no longer be eligible to participate in federal student financial aid programs because the schools have been judicially determined to have committed fraud by the Hennepin County District Court and made substantial misrepresentations about the careers available to graduates of their criminal justice program and the transferability of their credits. The federal student aid programs that the schools will no longer be eligible to participate in based on the Department’s action include:
Direct loans (includes subsidized and unsubsidized Stafford loans);
Federal Work-Study grants;
Federal Supplemental Educational Opportunity grants;
Iraq and Afghanistan Service grants; and
Teacher Education Assistance for College and Higher Education (TEACH) grants.
The Department’s announcement and the notifications it sent the schools are available here.External Link Icon The Department’s website indicates that it will be posting additional information for affected students of the schools at the following address: https://studentaid.ed.gov/sa/External Link Icon as the situation develops.
Discharge of Federal Student Loans Due to the Closure of Minnesota School of Business and Globe University
On December 20, 2016, Minnesota School of Business and Globe University notified students that they plan to close their Minnesota campuses by approximately the end of January 2017.
Under federal law, currently enrolled students at schools that close and students who have withdrawn within 120 days of a school’s closure may be eligible to receive a 100% discharge of their federal student loans from the U.S. Department of Education. Students are generally not eligible for this discharge, however, if they: (1) withdrew more than 120 days before a school’s closure; (2) they are completing their program through a teach-out agreement with the closed school, or are transferring the credits they earned at the closed school to a comparable program at another institution; or (3) have completed all the coursework for their program.
Affected students interested in determining if they are entitled to a closed school discharge of their federal student loans should visit the U.S. Department of Education’s website hereExternal Link Icon for more information. Affected students can also call the U.S. Department of Education’s borrower defense hotline (855) 279-6207 or send an email to: FSAOperations@ed.gov.
Affected students interested in participating in a teach-out of their program or transferring the credits they earned at the closed schools to a comparable program offered by another institution should contact the Minnesota Office of Higher Education at (651) 642-0567.
Original Press Release