Legislation Would End Forced Arbitration In Student Enrollment Agreements

When Education Credit Management Corporation announced late last year that it would buy 56 of for-profit education chain Corinthian College Inc.’s Everest University and WyoTech campuses, consumer advocates expressed great concern that the new company – which would operate under the name Zenith – would continue the unfair practice of requiring students to sign away their right to seek any legal action against the company if they’re wronged. While ECMC ultimately said it would do away with the practice, new legislation aims to strengthen students’ legal rights when it comes to forced arbitration.

The Court Legal Access & Student Support Act (CLASS) – introduced to the legislature by Sen. Dick Durbin of Illinois and Rep. Maxine Waters of California – would prohibit any school receiving student aid funding from the Department of Education from including any restrictions on students’ ability to pursue legal claims, individually or with others, against higher education institutions in court.

Durbin and Waters say their new bill [PDF] is an attempt to end the growing, strategic use of mandatory arbitration and class action waiver clauses in enrollment agreements by all education institutions.

The use of arbitration clauses have skyrocketed by companies – including those focused on education – since 2011, when the U.S. Supreme Court affirmed that it was perfectly okay for companies to take away a consumer’s right to sue or their ability to join other wronged consumers in a class action case by inserting a paragraph or two of text inside lengthy contracts.

By using arbitration clauses, for-profit colleges such as CCI have shielded themselves from taking responsibility for their own alleged deceptions such as misrepresented job placement statistics.

Colleges that use arbitration clauses also retain the right to choose their own arbitrator and other key aspects of the potential dispute resolution process.

“For years, unscrupulous for-profit colleges have enriched themselves by devouring billions in federal student loan dollars while leaving students with worthless degrees and a mountain of debt,” Durbin said in a statement. “The practices of requiring binding, mandatory arbitration or prohibiting students from seeking a jury trial or bringing class action suits against a company unfairly stacks the deck against students.”

The most recent case of forced arbitration in student enrollment agreements came to a head this week when Corinthian Colleges announced it would close its remaining campuses.

“If this bill had been law in the last several years, students defrauded by the now-failed Corinthian Colleges would have been able to seek redress from the courts and relief directly from the school,” the legislators say in a statement.

CCI, which is party to a number of federal and state investigations, allegedly engaged in fraudulent conduct at its campuses across the country, including misrepresenting the quality and success of its programs.

Although several investigations have found basis for the allegations, students at the schools have had few options for recourse because of the binding arbitration clauses in their enrollment agreements.

“This legislation will take bold action toward eliminating these types of provisions, putting an end to many troubling practices and ultimately giving students’ back the right to their day in court,” Waters says in a statement.

While ECMC, which completed the purchase of more than 50 CCI campuses in February, said it would refrain from using such clauses in its new enrollment agreements with former CCI students, Durbin says that simply isn’t true. He pointed out during a speech on the Senate floor earlier this year that ECMC continues to limit students’ legal rights through the fine print of enrollment agreements, spreading the unfair practice into the non-profit sector.

The CLASS Act was quickly greeted with support from a number of consumer and student advocacy groups including the Center for Responsible Lending, Consumer Action, the Consumer Federation of America, our colleagues at Consumers Union and the National Consumer Law Center.

In a statement [PDF] released about the legislation, NCLC said it strongly endorsed the bill.

“For-profit schools that defraud students should not be allowed to use forced arbitration before a biased, secretive, and lawless system as a get-out-of-jail-free card,” Lauren Saunders, associate director of the National Consumer Law Center, said.

Durbin, Waters Introduce Legislation To Strengthen Students’ Legal Rights [Dick Durbin]