Florida, New York Announce Settlement with Student Loan Consolidation Company

BY: FLORIDA STATE ATTORNEY GENERAL BILL MCCOLLUM

Florida State Attorney General Bill McCollum TALLAHASSEE, FL - Florida Attorney General Bill McCollum today joined New York Attorney General Andrew M. Cuomo in announcing a settlement with a student loan consolidation company specializing in the direct marketing of student loans. The agreement resolves allegations that Student Financial Services (SFS), a company that uses marketing campaigns to originate college loans on behalf of other lenders, was involved in a revenue-sharing scheme to provide financial incentives to some of the nation's top universities, school athletic departments and sports marketing firms for generating loan applications. The agreement is the first settlement of its kind in this particular segment of the student lending industry.

"When student loan companies use school insignia, colors and mascots in advertising, they imply that the company is recommended by the university as the "official" loan provider of the university. This is misleading to both students and their parents. Today's settlement ends this practice," said Florida Attorney General Bill McCollum.

A four-month investigation by the two states found that the Clearwater-based company had contracts involving 63 colleges nationwide, including five Florida universities - Florida Atlantic University, University of Central Florida, University of South Florida, Florida State University and Nova Southeastern University. Under these agreements, the company, which also does business under the name University Financial Services, paid for the rights to use school names, team names, colors, mascots and logos to advertise its loans directly to students. This practice, known as "co-branding," was intended to imply that the company was the official lender of the school or that it was actually a part of

The school. Unfortunately, schools, athletic departments and sports marketing firms often made these agreements without evaluating the quality of the loans. Some agreements allowed SFS access to mailing lists of students and/or graduates, which granted the company the opportunity to advertise in university mailings. SFS also frequently had the opportunity to advertise at campus events or sports events and even on athletic department websites.

In some of the agreements, SFS agreed to pay the athletic department or sports marketing company a fixed annual fee while other agreements called for an annual fee plus fees based on the number of substantially completed loan applications traceable to SFS's advertisements. A total of 57 National Collegiate Athletic Association (NCAA) Division I schools had agreements involving SFS.

Under the settlement signed by Florida Attorney General Bill McCollum and New York Attorney General Andrew Cuomo, SFS has agreed to the following provisions:

• The company will end all lending-related agreements at a total of 63 schools nationwide by no later than December 31, 2007.

• SFS will end all lending-related agreements with five sports marketing companies that, in some instances, had signed an agreement with SFS giving them the right to market the school's insignia, colors and mascot.  These companies include ESPN Regional Television, Inc.; International Sports Properties, Inc.; Host Communications; Nelligan Sports Marketing, Inc.; and Learfield Communications, Inc.  SFS has until December 31, 2007 to comply.

• The company will launch a print advertising campaign at all 63 schools alerting students that they should carefully shop for student loans.

• SFS will end the practice of cash-based inducements for signing loans or obtaining referrals.

Under the settlement, SFS has also agreed to adopt a Code of Conduct that prevents false and misleading loan advertising to students.  The Code expressly prohibits the company from buying rights to a college or university's name, team name, colors, logo and mascot for loan marketing purposes.  It also requires important disclosures to students in connection with loan transactions and prohibits a variety of misleading and

Deceptive practices identified by the investigation of the industry.

"When lenders use deceptive techniques to advertise their loans, they are playing a dangerous game with a student's future," said New York Attorney General Cuomo. "Student loan companies incorporate school insignias and colors into advertisements because they know students are more likely to trust a lender if its loan appears to be approved by their college. We cannot allow lenders to exploit this trust with deceptive, co-branded marketing. A student loan is a very serious financial commitment, and choosing the wrong loan can lead to devastating consequences."

Loan companies are increasingly marketing loans directly to students employing a host of deceptive and misleading tactics to entice student borrowers. Today's settlement is a significant milestone in the nationwide investigation into the student loan industry. Last week, Florida made additional progress when the Florida Board of Governors unanimously voted to accept and implement Attorney General McCollum's Code of Conduct for the student loan industry at all of Florida's public universities. The

Florida Code was created to address questionable practices in the student loan industry and to ensure that students and parents are protected from conflicts of interest that might motivate schools to steer students to a particular - and possibly more expensive - lender.

Nationwide, two-thirds of all college graduates leave school with student loans. A copy of the agreement with SFS is available online here.

 

 

A copy of the Florida Code of Conduct for Student Lending is available online here.

 

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