## Facts

- A federal consumer-protection agency sued a for-profit college operator alleging violations of the Consumer Financial Protection Act (CFPA) and the Truth in Lending Act (TILA) and its implementing regulations.
- The school derived most revenue from federal student aid, but many students faced a “tuition gap” between aid and tuition/fees.
- To address the gap, the school offered short-term, no-interest “Temporary Credit” that became due roughly nine months later.
- The complaint alleged the Temporary Credit program served as an entry point to pressure students into high-cost private loans when they could not repay the Temporary Credit at maturity.
- The complaint alleged misrepresentations about job placement and earnings outcomes, including recruiter statements that conflicted with the school’s own disclosures.
- The complaint alleged misleading statements about accreditation and credit transferability, creating the impression that credits would readily transfer to other institutions.
- The complaint alleged high-pressure recruiting and sales tactics, including repeated contacts and intensive presentations, and use of an admissions test alleged to be “virtually impossible to fail” to imply selectivity.
- The complaint alleged recruiters were vague about total program cost and steered conversations toward financial aid rather than total price.
- The complaint alleged students relied on the school’s guidance; staff assisted with private-loan applications and paperwork, and students did not fully understand the loans’ terms and risks.

## Issues

1. Whether challenges to the agency’s structure or the Director’s appointment required dismissal at the pleading stage.
2. Whether CFPA claims were impermissibly retroactive to the extent the complaint described conduct predating the CFPA’s effective date.
3. Whether the complaint plausibly alleged “unfair” acts or practices under the CFPA.
4. Whether the complaint plausibly alleged “abusive” acts or practices under the CFPA.
5. Whether the complaint plausibly alleged violations of TILA and related regulations, or whether some theories failed as a matter of pleading.

## Decision

- The court granted the motion to dismiss in part and denied it in part.
- The court declined to dismiss the enforcement action based on the defendant’s constitutional/structural objections at the Rule 12 stage.
- The court rejected a broad retroactivity bar, allowing pre-effective-date allegations as context while limiting CFPA liability to post-effective-date conduct.
- The court held the CFPA “unfairness” claims were plausibly pleaded and could proceed.
- The court held the CFPA “abusiveness” claims were plausibly pleaded and could proceed.
- The court dismissed some TILA-based theories for failure to state a claim, while allowing other TILA allegations to proceed.

## Legal Principles

- On a motion to dismiss, well-pleaded factual allegations are accepted as true, and dismissal is inappropriate where the complaint plausibly states a claim for relief.
- A statute’s presumption against retroactivity generally bars imposing liability for pre-effective-date conduct, but earlier conduct may be pleaded as background and context when the challenged practices plausibly continued into the covered period.
- CFPA “unfairness” requires plausible allegations of (1) substantial consumer injury, (2) injury not reasonably avoidable by consumers, and (3) injury not outweighed by countervailing benefits; cost-benefit determinations are often unsuitable for resolution on the pleadings where the complaint alleges disproportionate harm.
- CFPA “abusiveness” may be plausibly alleged by facts supporting that a defendant materially interfered with consumer understanding of material terms or took unreasonable advantage of consumers’ lack of understanding, inability to protect their interests, or reasonable reliance on the defendant.
- TILA and implementing regulations require theory-specific pleading that connects alleged conduct to applicable statutory or regulatory disclosure and practice requirements; theories not tied to the relevant provisions or not fitting the pleaded loan category are subject to dismissal.

## Conclusion

The court largely allowed the case to proceed past the pleading stage, holding that the complaint plausibly alleged CFPA unfair and abusive practices tied to the school’s student financing and recruitment methods, while limiting any CFPA liability to post-effective-date conduct and narrowing the action by dismissing some, but not all, TILA theories.


Consumer Fin. Prot. Bureau v. ITT Educ. Servs., Inc., No. 1:14-cv-00292-SEB-TAB, 2015 WL 1013508 (S.D. Ind. Mar. 6, 2015)