Southeast Financial Credit Union in Franklin, Tenn. has filed a lawsuit against The College Network, an Indiana online test preparation company that is facing charges of fraud.
TCN already faces lawsuits from the attorneys general of Indiana and New York, who accused the company of misleading customers as to the nature of the company's online test prep program. According to the suits, TCN overplayed its relationship with universities, demanding up-front payment for a badly managed online learning program.
However, that is not why SFCU -- which provided most of the loans allowing TCN consumers to enroll -- is suing TCN in an Indiana District Court.
Instead, the credit union is alleging that the for-profit company, a business partner since the early 2000s, is violating the terms of its contract, according to a document
Pursuant to the agreement, the non-deferred, 12%-or-more interest loans served to TCN customers were immediately deposited into the company's accounts at the credit union, the suit alleges.
SFCU says TCN was liable to refund the credit union for defaults on its students' loans and pay chargebacks whenever a loan became more than 90 days past due.
But since last January, the credit union asserts, TCN stopped making these payments, and now owes SFCU more than $12 million. SFCU holds approximately $35 million in loans from 10,000 TCN customers, according to the suit. Other credit unions have purchased interests in these loans.
SFCU further alleges that TCN executives are preparing to transfer its online portal and "sole remaining asset" to limited liability companies founded just this year. SFCU is asking the court to place TCN under receivership.
But the credit union itself was targeted in the New York Attorney General's 128-page petition against TCN and its affiliates.
Despite a subpoena and subsequent letter from the attorney general describing the fraud claims, SFCU did not stop servicing TCN customers, according to the suit, also
Instead, its representatives allegedly misled borrowers who sought to back out on their loan by implying the fraudulent behavior of TCN had no bearing on their obligations to the credit union.
"[W]e are filing this complaint in order to protect TCN consumers who have loans through Southeast Financial, our credit union members, and other loan participants," the credit union said in a statement. Through a spokesperson, SFCU declined to answer questions regarding the case.
