U.S. consumer watchdog accuses Corinthian Colleges of predatory loans

By Elvina Nawaguna WASHINGTON (Reuters) - The U.S. consumer finance watchdog on Tuesday sued Corinthian Colleges for alleged predatory lending, saying that the for-profit institute lured students into taking out private student loans by touting "bogus" job prospects and using illegal debt-collection methods. The Consumer Financial Protection Bureau said it wants the for-profit college company to pay $500 million in relief for the tens of thousands of students affected. The CFPB's move is another blow for the company, which in July announced it had reached a deal with the Department of Education to sell most of its campuses or close them down within six months, part of a severe government crackdown on the sector. The for-profit college industry, which relies heavily on federal student aid funds, has come under fire in recent years for high student debt loads, low graduation rates and poor employability of graduates. Corinthian describes itself as one of the largest higher education companies in the United States and Canada and also operates under the names Heald, Everest, and WyoTech. The Santa Ana, California-based company did not immediately respond to a request for comment. Its shares were down 30 percent on Tuesday afternoon to $0.09. The CFPB suit says that Corinthian led students to believe that upon graduation, they would get good enough jobs to pay off their private student loans, that it inflated job placement rates and used illegal tactics to force students to pay their loans while still enrolled in school. To lure students, the CFPB said, Corinthian created fake employers, paid off legitimate employers to hire its graduates on a temporary basis, just long enough to count them as employed, and also created fake job placement services. "Our investigation found that students were denied computer access, blocked from signing up for classes, prevented from buying books, and they even had their diplomas held hostage unless they paid up," CFPB director Richard Cordray told reporters at a press call. Last year, California also sued the company for misrepresenting job placement rates to its students and investors, false and predatory advertising and securities fraud. U.S. for-profit colleges, including Apollo Education Group, Strayer Education Inc, and ITT Educational Services Inc, have struggled over the last few years amid the increased scrutiny. The CFPB in February sued Indiana-based ITT, which also operates as ITT Tech and Daniel Webster College, for predatory lending. The 2010 Dodd-Frank law gave the CFPB oversight of several consumer issues, including student loans. "We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian's private student loans," Cordray said. (Reporting by Elvina Nawaguna; editing by Chizu Nomiyama, G Crosse and Cynthia Osterman)