Federal Trade Commission takes action against for-profit medical school for using deceptive marketing to attract students
The Federal Trade Commission has taken action against a for-profit medical school in the Caribbean and its Illinois-based operators, alleging they deceptively marketed medical licensing exam pass rates and correspondence from residence to attract potential students. The school and its operators are also accused of violating the incumbent rule, which safeguards the rights of harmed consumers, and the credit practices rule, which protects consumers in credit agreements.
The $1.2 million judgment against Saint James School of Medicine and its operators will be used to repay and forgive student debt harmed by the misleading marketing.
“Saint James lured college students by lying about their chances of success,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau. “Today’s order demands repayments and cancellation of student debt, while ensuring that their rights under the holder’s rule are upheld.” Schools and others who ignore the incumbent rule do so at their peril.
The complaint alleges that since at least April 2018, Saint James School of Medicine, also doing business as Human Resource Development Services, Inc., and its operator Kaushik Guha have used misleading claims to induce students to enroll. in their faculties of medicine.
Specifically, the Complaint alleges that the Defendants:
- Misrepresented School Medical Licensure Examination Pass Rate: The defendants convinced prospective students to enroll at Saint James with false claims about the pass rate on standardized tests and the students’ residency or employment prospects. They lured consumers with fake guarantees of student success in passing a critical medical school standardized test, the US Medical Licensing Examination Stage 1 exam. In their sales calls, presentations, and marketing materials, the defendants falsely claimed that the first USMLE Step 1 pass rate for Saint James students was very high. For example, Defendants distributed a brochure at their Open Houses that stated: “96.77% FIRST TIME USMLE STEP 1 PASS RATE” and “ST JAMES IS THE FIRST AND ONLY MEDICAL SCHOOL TO OFFER A USMLE STEP 1” SUCCESS GUARANTEE. In fact, the USMLE pass rate is lower than advertised and lower than that reported by other US and Canadian medical schools. Since 2017, only 35% of Saint James students who have taken the courses necessary to take the USMLE Step 1 exam have passed the test.
- Misrepresented residence match rate: Defendants touted Saint James’ student residence match rates and advertised that Saint James’ educational opportunities were “the same” as American medical schools. For example, their telemarketers have been instructed to tell consumers that the match rate for Saint James students is 85-95%. The defendants’ publicity brochure promoted a “high match rate” and their slides included a photo of apparent students posing with signs reading “I MATCHED” and a slide listing more than thirty hospitals across the United States under the heading “WHERE WILL YOU GO? YOU CHOOSE.” The defendants also stated on their website that the residence match rate for Saint James students was 83%; in fact, the student match rate at Saint James is lower than advertised and lower than that reported by US medical schools. Since 2018, the average match rate for defendants has been 63%.
- Illegal credit contracts used: Defendants also marketed funding for tuition and living expenses used to attend their classes. The finance contracts contained language attempting to waive consumer rights under federal law and omit legally required disclosures. Specifically, defendants failed to provide a Notice of Holder Rule in their Credit Agreements, which requires any seller who receives purchase loan proceeds to include, in the underlying Credit Agreement, a notice specific informing the consumer of his right to assert claims against any holder of the credit agreement. Defendants also failed to provide a CPR disclosure in their credit agreements, which requires creditors to inform co-signers of their liability before engaging the co-signer, in a separate document using specific language.
Under FTC law, the FTC has the authority to take action against companies that violate consumer protection laws, including engaging in unfair, deceptive, or deceptive acts or practices. The stipulated order:
- Imposes a judgment of more than $1.2 million to settle charges that Saint James and its operators violated the Telemarketing Sales Rule, the Holder Rule and the CPR. The judgment will go toward repayments and cancellation of debt for students who have funded their education over the past five years.
- Demands that defendants notify consumers whose debts are canceled under the order that Delta, as Saint James’ financial partner, cancels debt owed directly to Delta and that Delta will instruct consumer reporting agencies to remove debt from consumer credit reports.
- Prohibits misrepresentation of defendants’ USMLE pass rate, residency matches, and unsubstantiated claims.
- Prohibits violations of TSR, Holder Rule, and CPR. The settlement also includes holder rule protections by prohibiting Saint James from selling consumer credit agreements unless the buyer agrees, in writing, that its rights are subject to borrowers’ claims and defenses against defendants and that Saint James notifies each borrower whose credit agreement is to be sold.
The Commission’s vote to authorize staff to approve the complaint and proposed order was 4-0. It was filed in the United States District Court for the Northern District of the Eastern Division of Illinois.