New York Attorney General Andrew M. Cuomo has reached a settlement with a student loan consolidation company specializing in the direct marketing of student loans -- the first such settlement in this growing segment of the student lending industry.
A four-month investigation found that Clearwater, Florida-based Student Financial Services Inc. (SFS), which also operates under the banner of University Financial Services (UFS), had agreed to pay some of the nations top universities, school athletic departments, and sports marketing firms for generating loan applications, in a kickback scheme euphemistically known as revenue sharing.
The company had contracts at 63 colleges nationwide, 57 of which are National Collegiate Athletic Association (NCAA) Division I schools.
Under these agreements, the company also paid for the rights to use school names, team names, colors, mascots, and logos to advertise their 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. Schools, athletic departments, and sports marketing firms made these agreements without evaluating the quality of the loans.
When lenders use deceptive techniques to advertise their loans, they are playing a dangerous game with a students future, said Cuomo. Student loan companies incorporate school insignia 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, he said.
Under the settlement, which was joined by Florida Attorney General Bill McCollum, SFS has agreed to:
• End all lending-related agreements at a total of sixty-three schools including Georgetown University, Wake Forest University, University of Kansas, Central Michigan University, St. Johns University, University of Washington, University of Oregon, University of Texas El Paso, Rutgers University, Georgia Tech, Florida State University, Florida Atlantic University, the University of Central Florida, and the University of Pittsburgh. SFS has until December 31, 2007 to comply;
• End all lending-related agreements with five sports marketing companies that, in some instances, were sold the right to market the schools insignia, colors, and mascot, and in turn signed an agreement with SFS. These companies are 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;
• Launch a print advertising campaign at 63 schools alerting students through their top-circulating newspapers that they must protect themselves when shopping for a loan;
• End the practice of cash-based inducements, including paying students up to $50 to refer their peers to the company and encouraging students to apply for SFS loans by creating contests where they could win up to $1,000.
Also under the settlement, SFS has agreed to adopt a new Code of Conduct that prevents false and misleading direct loan marketing to students. The Code expressly prohibits lenders and marketers from buying rights to a college or universitys name, team name, colors, logo, and mascot for loan marketing purposes.
It also requires lenders and marketers to provide 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.
