- The Washington Times - Wednesday, September 10, 2008

NEW YORK | 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 — following an investigation by the state of New York, the state attorney general said Tuesday.

Seven direct-to-student lenders agreed to pay a combined $1.4 million to settle the probe, Attorney General Andrew Cuomo said. These companies employed bait-and-switch tactics, pushed higher-interest private loans and marketed products so they appeared to be federal loans, he said.

Federal loans 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 Graduate Loan Associates LLC.

An eighth lender, MRU Holdings Inc., was not a target of the investigation but voluntarily agreed to adopt the reforms. MRU Holdings, operating as My Rich Uncle, “wholeheartedly endorsed” the code of conduct, said Raza Khan, president and co-founder of the company.

MRU Holdings, based in Mr. Khan said.

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:

cUsing 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, gift cards and Global Positioning System devices to induce students to take out loans with a particular lender; and
  • Advertising interest rates that are not available to a majority of borrowers.
  • The adoption of the code of conduct by the eight companies will put pressure on the entire industry to reform, said American Association of Collegiate Registrars and Admissions Officers.

    LOAD COMMENTS ()

     

    Click to Read More

    Click to Hide