Last week, the Federal Trade Commission filed a complaint in the Northern District of Illinois against the Saint James School of Medicine (SJSM), an Illinois-based for-profit medical school, claiming its Caribbean medical programs deceived consumers with fake student success rates and offers to finance students’ attendance with illegal lending contracts.
Over the last several years, the FTC has focused on for-profit higher education institutions and allegedly deceptive money-making claims, which the FTC challenges as flawed and costly get-rich-quick schemes. Its move last week suggests that the agency remains highly focused on alleged deception of any type involving paying money to make money, regardless of the format.
The FTC’s complaint alleges that SJSM advertises its Caribbean medical programs as an affordable alternative to American medical schools. However, SJSM also allegedly draws students into the program by advertising that more than 96% of its students pass the USMLE Step 1 exam—a critical standardized medical school test—the first time they take it. In fact, the FTC alleges that the passage rate for SJSM students since 2017 is 35%, and that is only for students who are allowed to take the exam after meeting prerequisites set by the school. The FTC claims that the true passage rates are disclosed to students only in hard-to-find areas of SJSM’s website and are buried in a student handbook that students receive only after SJSM has collected their reservation fees.
According to the FTC’s complaint, SJSM’s malpractice does not stop there. The FTC alleges that SJSM also improperly inflates students’ rates of acceptance into residency programs in the United States. For senior medical students who attend U.S. medical schools, the historic rate for acceptance into a residency program is between 92% and 94%. SJSM advertises that its acceptance rate is between 83% and 90%, but the FTC claims that SJSM actually has an average acceptance rate of 63%.
Finally, the FTC alleges that after students have been lured into attending SJSM, students looking to take out loans for their education costs are then induced to sign lending contracts lacking mandatory disclosures. Federal law requires that borrowers be notified of their right to assert claims against any holder of the borrower’s credit contract. Not only did SJSM allegedly fail to provide the required notice of the student borrower’s rights, but also included provisions in the agreement that attempt to impel student borrowers to waive their legal rights to bring any action against SJSM whatsoever.
To resolve this matter with the FTC, SJSM agreed to enter into a stipulated order for permanent injunction, monetary relief, and other relief. Without admitting to or denying any of the FTC’s allegations, SJSM agreed to pay $1,207,457, which consists of an $850,000 penalty paid to the FTC and $357,457 in forgiven student loan debt. Also, SJSM must stop making any further misrepresentations concerning its students’ potential success on any required exams or potential employment prospects. Furthermore, SJSM is enjoined from participating in any consumer credit contract without the required disclosures of borrower rights to assert claims against any holder of that contract, including SJSM, if necessary.
For-profit higher education institutions should remain vigilant in closely evaluating their advertising for accuracy, particularly as it relates to promises of student success. The attorneys in Venable’s Advertising Group have extensive experience in evaluating the potential risks of advertising campaigns for compliance with advertising and marketing law and representing clients before the FTC.