For Profit Colleges-Buyer Beware

For Profit Colleges - Buyer Beware

I represented more than 85 students who had enrolled in Medical Assistant and Medical Laboratory Assistant  programs at a certain “for profit” college owned and operated by a large corporation headquartered out of state and listed on the New York Stock Exchange. The students had taken out large federal loans to pay for the nine to twelve month programs which turned out to be very different than advertised. Among other things, the school misrepresented its national accreditation, its job placement rates, and the transferability of its credits. Many students were told near the end of the program that they had to find and arrange their own clinical externships to graduate on time or be rolled back to the next class and pay more tuition. Some students were expelled for getting sick or missing class and there were no refunds.

What Is a For-Profit College?

A for-profit college is an institution that operates like a business. Its focus and first priority is on earning a profit for its shareholders and meeting the needs of their stakeholders. For-profit colleges operate under an ownership structure and are often subsidiaries of larger corporations traded on the major stock exchange or owned by private equity firms that are focused on profitability.   

Caveat Emptor

Caveat emptor is a Latin phrase meaning “let the buyer beware.” It is an old commercial law doctrine that makes buyers responsible for diligently checking the quality and condition of anything before they buy it. In short, the buyer assumes the risk of product defects especially those that were either open and obvious or would have been discoverable had the buyer conducted a reasonable inspection.   

The Buyer's Responsibility

The doctrine of caveat emptor places the burden on the buyer to perform due diligence, inspection, and research before completing a purchase. A seller is not liable for defects unless they were actively concealed or misrepresented. 

Modern limitations

The doctrine of caveat emptor or buyer beware has been significantly limited in modern times by state and federal consumer protection and warranty laws which hold sellers to a higher standard of disclosure when advertising or selling products or services to the public. Buyers often have less information than the seller about the condition or quality of goods or services they are buying. Defects in the good or service may be known to the seller but hidden or misrepresented by the buyer. 

If and when the seller of a product or service has an affirmative legal duty to disclose information to the buyer in various kinds of transactions depends on the facts and circumstances including the relationship between the parties.

Application in real estate

While some states still apply Caveat Emptor to real estate transactions, Washington has laws that require many sellers to disclose known defects in a so-called Form 17.

False and Deceptive Advertising

This could be you next year! We have a career placement office to help you find a high paying job in the medical field within 30 days of graduation. We place 90% of our graduates! We are fully accredited and any course credits will transfer. All of our teachers are highly qualified and provide you with all the classroom instruction and hands on training you need to succeed. Best of all, we help you get money from the federal government to pay for your books and tuition and even a stipend to pay household expenses while you are in school! 

What the school did not disclose:

The real post-graduation job placement rate was below 50%. The program was not accredited and credits did not transfer as claimed. The student dropout and loan default rates were high. There were not enough externship slots to go around so many students could not complete the program or graduate on time resulting in rollback and more tuition fees or outright expulsion. Of course, there were no refunds.

The Disclaimer

The school employed a team of commissioned sales representatives to pitch the product and close the deals. At time of closing, the student was required to sign a stack of forms  including one document which denied they relied on anything they were told by the sales representatives or school officials, whether true or false. The school’s defense counsel pulled that document out in every deposition and beat the plaintiffs over the head with it while arguing it destroyed any false advertising or fraud claims. 

The defendant used aggressive recruitment practices to target low-income students, minorities, single mothers, and veterans who were eligible for federal student aid. High pressure sales tactics were used to get people to sign the day they arrived for a tour and interview. The pitches emphasized 90+% job placement and no or limited money down. They helped prepare and submit all federal loan and grant applications. As soon as the loan was approved, the school was paid in full, $15,000 to $25,000+, which the federal government then had to collect from students who ended up drowning in debt with no reasonable job prospects. 



Substandard teaching quality

I learned from my research that there had been many court cases involving students who sued their schools for fraud or breach of contract for allegedly failing to teach them any useful skill or information as they had promised.  These cases usually fail because schools cannot promise or guarantee success, which depends in large part on the student’s own abilities, aptitudes, time and effort. 

This why our legal claims focused on the school’s statements of fact which we could prove to be false or deceptive by reference to the school’s own records including accreditation, graduation, job placement and loan default rates. This is also why claims were asserted under the state Unfair Business Practices--Consumer Protection Act which prohibits the use of false or deceptive statements to market or sell a product or service and authorizes recovery of both compensatory and punitive damages.   

RCW Chapter 19.86  UNFAIR BUSINESS PRACTICES—CONSUMER PROTECTION ACT 

Declares unlawful all “unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”

Forced Arbitration 

The student enrollment agreements contained a waiver of the right to jury trial and required any legal claims to be resolved one by one in private arbitration. Private arbitration is a good way to resolve various kinds of claims and can be cheaper and quicker than trial. However, in the school case, we had to arbitrate dozens of cases over several months which was time consuming, costly, and inconvenient to the plaintiffs and their witnesses. Therefore, it was exactly what the defense insisted on doing. 

What is Arbitration?

Arbitration is an alternative method of resolving legal disputes in which two parties present their individual sides of a complaint to an arbitrator or panel of arbitrators. The arbitrator decides the rules, weighs the facts and arguments of both parties, and then decides the dispute. Arbitration may be voluntary or mandatory.

What is voluntary arbitration?

In voluntary arbitration, both sides in the dispute voluntarily agree to submit their disagreement to arbitration after it arises, and they have an opportunity to investigate their best options for resolving their claim.

What is forced arbitration?

In forced arbitration, a company requires a consumer or employee to submit any dispute that may arise to binding arbitration as a condition of employment or buying a product or service. The employee or consumer is required to waive their right to sue, to participate in a class action lawsuit, or to appeal. Forced arbitration is mandatory, the arbitrator’s decision is binding, and the results are not public.

What's wrong with arbitration?

Nothing, if its “voluntary” arbitration. In fact, you always have the right to arbitrate. But you never want to give away the right to sue if arbitration does not work. Companies want you to give away that right because they have advantage in arbitration and can evade accountability.

Do companies use forced arbitration in their own disputes with other companies?

No, most refuse to use forced arbitration in their dealings with other businesses. As a matter of fact, car dealers were so afraid of forced arbitration for their disagreements with manufacturers that they spent millions lobbying Congress to pass a federal law that prohibits automobile manufacturers from requiring forced arbitration in disputes related to dealership franchise contracts. The law passed in 2002.

Is arbitration cheaper?

One of the alleged benefits of arbitration is that it costs less than litigation, but frequently this is not true for consumers and employees. Forced arbitration frequently costs more than taking a case to court and can cost thousands of dollars. Individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration. In the end, the loser (usually the individual) often pays the company’s legal fees.

Why do so many consumers and employment and civil rights groups oppose forced arbitration?

Forced arbitration is preferred by companies because it benefits companies, not the employee or consumer. Here are problems and dangers noted by consumer advocates:

Individuals are often unaware they've agreed to forced arbitration. Most Americans have accepted good or services or a job with forced arbitration as a condition; and yet, very few individuals report having noticed a forced arbitration clause in the terms of agreements or contracts they’ve accepted.

Forced arbitration severely limits consumer options for resolving a dispute. Before any problem arises, you lock yourself into only one option—forced arbitration—for resolving all future disputes or problems. The contract typically also names the arbitration company that must be used: the one preferred by the company.

Forced arbitration clauses generally bind the consumer—not the company. The way many forced arbitration clauses are written, the seller retains its rights to take any complaint to court while the consumer can only initiate arbitration.

Arbitration is a private system without a judge, jury, or a right to an appeal. Arbitrators aren't required to take the law and legal precedent into account in making their decisions. There is no appeal or public review of decisions to ensure the arbitrator got it right.

See https://www.consumeradvocates.org/for-consumers/arbitration/

Running It Fifty Times

(Malden to provide insert for this section)

Postscript

Washington State Attorney General's Action: The Washington State Attorney General's office was involved in investigations and collaborative efforts with federal agencies and other states regarding Corinthian Colleges' deceptive practices. While the main, large-scale lawsuits were often led by the U.S. Consumer Financial Protection Bureau (CFPB) and the California Attorney General, Washington's AG actively pursued relief for local students. In 2017 and subsequent years, the WA Attorney General announced that thousands of Washington students who attended Corinthian schools in Tacoma, Seattle, and elsewhere were eligible for millions of dollars in federal student loan discharges as a result of the findings of widespread misrepresentations about job placement rates.

Federal Lawsuits

The CFPB filed a major lawsuit against Corinthian Colleges in 2014, alleging a predatory lending scheme and the use of illegal debt collection practices, which affected students nationwide, including those in Washington. The U.S. Department of Education also fined the company nearly $30 million for misleading students about job prospects, which ultimately led to the closure of the remaining campuses.   

More Information

This video from PBS explains why so many students from for-profit schools are left in limbo.

ABC News investigates for-profit schools accused of misleading prospective students about job prospects post-graduation in this video.