The old practice of tarring and feathering as a form of public humiliation used to dispense unofficial justice has fallen out of favor lately, but when I read about predatory companies that exploit customers or clients, I can’t help wondering if bringing the practice back might fit some cases.
Earlier this week, the Minnesota Supreme Court found that the Minnesota School of Business/Globe University issued thousands of illegal loans to Minnesota students, according to a release from the state attorney general’s office.
The court found that the schools should have obtained a state license to issue the loans and that the companies charged unlawful rates of interest. The schools issued the loans to as many as 6,000 students, many of whom took out multiple loans.
It’s true that buyers, or, in this case, borrowers, have some degree of responsibility for investigating products or services.
We would all do well to remember the principle of caveat emptor. “Let the buyer beware” is good advice for all of us.
But when a company deliberately targets people who are likely to be vulnerable due to age, inexperience, or other factors, the company should be held accountable for its actions.
The release states, “This is the second major legal ruling against the companies in the last year in a case brought by Minnesota Attorney General Lori Swanson. Last year, the Hennepin County District Court ruled that the companies violated the state consumer fraud laws by enrolling students in a costly criminal justice program that did not prepare them to become police officers or probation officers. The Office of Higher Education thereafter revoked the companies’ authorizations to operate because the court found they engaged in fraud.”
According to the release, these companies charged students up to $42,000 for a two-year degree and $89,000 for a four-year degree. This is almost four times more than a Minnesota community college and two-and-a-half times more than a public university in Minnesota.
The companies issued their own private loans to about 6,000 of their students (many of whom took out two or more loans) at interest rates of up to 18 percent since Jan. 1, 2009.
The release notes that companies in the business of making loans must obtain a lender’s license from the Minnesota Department of Commerce. The schools argued that they did not need to become licensed. The Minnesota Supreme Court found that the schools should have obtained a state license to issue these loans.
The companies called this product a “loan” at least 45 times in a loan contract with students, but claimed in court the product was not a loan but an “open-end consumer credit plan.” This is significant, because the interest rate on a “loan” of this type in Minnesota would be capped at 8 percent, whereas “open-end consumer credit plans” can charge interest of 18 percent under Minnesota law.
The Minnesota Supreme Court found that the products were loans and that the companies unlawfully charged rates of interest that exceeded the allowable 8 percent interest rate.
Under Minnesota law, loans made without a license are “void and the debtor is not obligated to pay any amounts owing” on them. Accordingly, the release states, the attorney general’s office will promptly seek an order from the Hennepin County District Court declaring that loans issued by the schools on or after Jan. 1, 2009 are void and cancelled.
The office will also ask the court to require that the schools refund borrowers for payments of principal, interest, and other charges they have made on the loans and interest on those amounts.
This seems like a reasonable consequence.
Some might argue that the students who took out the loans made poor decisions.
That may be true, but these were students who were presumably trying to better their lot by improving their education. They may not have had the benefit of parents or advisors to counsel them about questionable loans.
Instead of achieving their dreams, it appears some of these students ended up with a mountain of debt and degrees that may not help them find better jobs.
So while cancelling the illegal loans seems like a good start, I wonder if a dose of tar and feathers for those responsible might also be a fitting consequence.