Federal Trade Commission
April 16, 2022
Agency Secures $1.2 Million in Refunds and Debt Cancellation for Students and Saint James Ordered to Come into Compliance with Two Key FTC Rules
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 the school’s medical license exam test pass rate and residency matches to lure prospective students. The school and its operators are also charged with violating the Holder Rule, which preserves rights for injured consumers, and the Credit Practices Rule, which protects consumers in credit contracts.
The $1.2 million judgment against Saint James School of Medicine and its operators will go toward refunds and debt cancellation for students harmed by the deceptive marketing.
“Saint James lured students by lying about their chances of success,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “Today’s order requires refunds and debt cancellation for students, while ensuring that their rights under the Holder Rule are honored. Schools and others who ignore the Holder 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 used misleading claims to lure students into enrolling in their medical schools.
Specifically, the complaint alleges that the defendants:
- Misrepresented School’s Medical License Exam Pass Rate: The defendants convinced prospective students to enroll at Saint James with phony claims about the standardized test pass rate and students’ residency or job prospects. They lured consumers with false guarantees of student success at passing a critical medical school standardized test, the United States Medical Licensing Examination Step 1 Exam. In their sales calls, presentations, and marketing materials, the defendants falsely claimed that the first time USMLE Step 1 pass rate for Saint James students was very high. For example, the 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 PASS GUARANTEE.” In reality, the USMLE pass rate is lower than touted, and lower than that reported by other U.S. and Canadian medical schools. Since 2017, only 35% of Saint James students who have completed the necessary coursework to take the USMLE Step 1 exam passed the test.
- Misrepresented Residency Match Rate: The defendants touted Saint James students’ residency match rates and advertised the Saint James educational opportunities as “the same” as American medical schools. For example, their telemarketers were instructed to tell consumers the match rate for Saint James students is 85-95%. The defendants’ advertising brochure promoted a “high match rate” and their slides included a photograph of apparent students posing with signs that read “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 have also stated on their website that the residency match rate for Saint James students was 83%; in reality, the match rate for Saint James students is lower than touted, and lower than that reported by U.S. medical schools. Since 2018, the defendants’ average match rate has been 63%.
- Used Illegal Credit Contracts: The defendants also marketed financing for tuition and living expenses used for attending their classes. The financing contracts contained language attempting to waive consumers’ rights under federal law and omit legally mandated disclosures. Specifically, the defendants failed to provide a Holder Rule notice in their credit agreements, which requires that any seller that receives the proceeds of a purchase money loan include, in the underlying credit contract, a specific notice informing the consumer of their right to assert claims against any holder of the credit contract. The defendants also failed to provide a CPR disclosure in their credit agreements, which requires creditors to inform cosigners of their liability prior to obligating the cosigner, in a separate document using specific language.
Under the FTC Act, the FTC has the authority to take action against companies violating consumer protection laws, including engaging in unfair, deceptive, or 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, Holder Rule, and CPR. The judgment will go toward refunds and debt cancellation for students who financed their education in the past five years.
- Requires the defendants to notify consumers whose debts are being canceled under the order that Delta, as Saint James’ financing partner, is cancelling debt owed directly to Delta and that Delta will ask the consumer reporting agencies to delete the debt from consumers’ credit reports.
- Bans misrepresentation of the defendants’ USMLE pass rate, residency matches, and making unsubstantiated claims.
- Prohibits violations of the TSR, Holder Rule, and CPR. The settlement also includes Holder Rule protections by prohibiting Saint James from selling any consumer credit contracts unless the buyer agrees, in writing, that its rights are subject to the borrowers’ claims and defenses against the defendants and Saint James notifies each borrower whose credit contract is being sold.
The Commission vote to authorize the staff to approve the complaint and proposed order was 4-0. It was filed in the U.S. District Court for the Northern District of Illinois Eastern Division.
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