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Office of Postsecondary Education - U.S. Department of Education Office of Postsecondary Education - U.S. Department of Education

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WReier-Aviles on DSKGBLS3C1PROD with RULES266914 Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulationsconfused by the regulations. If studentshave questions about the regulations,they have a variety of sources to assistthem in understanding them, includingby contacting the Department with theirquestions.We disagree with the commenterswho opined that the proposedregulations are too vague and subjective.Section 487 of the HEA provides thatinstitutions participating in the title IV,HEA programs shall not engage insubstantial misrepresentation of thenature of the institution’s educationalprogram, its financial charges, or theemployability of its graduates. Theregulations in subpart F of part 668 setforth the types of activities thatconstitute misrepresentation by aninstitution and describe the actions thatthe Secretary may take if the Secretarydetermines that an institution hasengaged in substantialmisrepresentation. The proposedchanges to the regulations strengthenthe Department’s regulatoryenforcement authority againstinstitutions that engage in substantialmisrepresentation and clarify whatconstitutes misrepresentation.The commenters who stated that theproposed regulations are unfair becausethey only apply to for-profit institutionsare incorrect. Subpart F of part 668applies to all institutions thatparticipate in the title IV, HEAprograms.Changes: None.Comment: Some commenters arguedthat the proposed regulations are legallydeficient on their face, redundant, andprovide no insight or guidance onconduct that may constitute ‘‘substantialmisrepresentation.’’ They stated that theproposed regulations do not contain anystandards of intent, harm, or materiality.In addition, some commenters statedthat the regulations are missing aquantitative element because they donot identify what exactly would triggerpenalties (e.g., a single complaint, apattern of misrepresentation, a dollaramount of title IV, HEA aid). Thesecommenters stated that a degree ofmateriality of misrepresentation shouldbe taken into account when determiningwhether to impose a sanction on aninstitution.Discussion: We disagree with thecommenters who opined that theDepartment does not have the legalauthority to regulate in this area.Current subpart F of part 668 has beenin place for over 25 years. The proposedchanges strengthen the Department’sregulatory enforcement authority overinstitutions that engage in substantialmisrepresentation and further clarifywhat constitutes misrepresentation.The U.S. Government AccountabilityOffice (GAO) was recently asked toconduct undercover testing to determinewhether for-profit colleges’representatives engaged in fraudulent,deceptive, or otherwise questionablemarketing practices. The undercovertests at 15 for-profit institutions foundthat four institutions encouragedfraudulent practices and that all 15made deceptive or otherwisequestionable statements to GAO’sundercover applicants. Institutionalpersonnel engaged in deceptivepractices, including by encouragingapplicants to falsify their FAFSAinformation, by exaggerating applicants’potential salary after graduation, and byfailing to provide clear informationabout the institution’s programduration, costs, and graduation rate. Insome instances, the undercoverapplicants received accurate and helpfulinformation from institutionalpersonnel, such as not to borrow moremoney than necessary.The information uncovered by theGAO during its investigation reinforcesthe Department’s decision to amend themisrepresentation regulations in subpartF.We disagree with commenters whoclaim the regulations are legallydeficient because they fail to establishthe need for specific intent as anelement of misrepresentation or do notdefine a requisite degree of harm beforethe Department may initiate anenforcement action.The Department has always possessedthe legal authority to initiate a sanctionunder part 668, subpart G for anyviolation of the title IV, HEA programregulations. However, the Departmenthas also always operated within a ruleof reasonableness and has not pursuedsanctions without evaluating theavailable evidence in extenuation andmitigation as well as in aggravation.The Department intends to continueto properly consider the circumstancesurrounding any misrepresentationbefore determining an appropriateresponse. Depending on the factspresented, an appropriate responsecould run the gamut from no action atall to termination of an institution’s titleIV, HEA eligibility depending upon allof the facts that are present.We disagree with the commenterswho stated that the proposedregulations are redundant. Although theFTC publishes guidelines for consumersto use to avoid deceptive advertising,promotional, marketing, and salespractices by vocational trainingproviders, the FTC guidelines areconsidered administrativeinterpretations of the statutes that theVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00084 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2FTC is charged with implementing asopposed to implementing the statutoryrequirement in section 487 of the HEA,which the Department is charged withimplementing.We disagree with the commenterswho stated that the proposedregulations do not provide guidance onwhat constitutes ‘‘substantialmisrepresentation.’’ The proposedregulations define ‘‘substantialmisrepresentation’’ as ‘‘anymisrepresentation on which the personto whom it was made could reasonablybe expected to rely, or has reasonablyrelied, to that person’s detriment.’’In determining whether an institutionhas engaged in substantialmisrepresentation and whether toimpose penalties, the Department uses arule of reasonableness and considersvarious factors.Changes: None.Comment: Some commenterssuggested that we adopt more concreteand narrowly defined terms in subpartF of part 668 to address abuses whileprotecting legitimate institutions andprograms from baseless charges. Thesecommenters stated that the proposedregulations on misrepresentationcontain a number of vague and broadphrases that leave the door wide openfor interpretation by States, accreditingagencies, and the Department. Thesecommenters expressed concern that thelack of specificity in the regulations willfuel the potential for frivolous lawsuitsbrought as class actions againstinstitutions. One commenter opinedthat the proposed regulations wouldfunction as a ‘‘perpetual employment actfor lawyers’’ because, under theregulations, routine marketing claimswould become a potential source oflawsuits and claims for years.Some commenters also expressedconcern about allegations ofmisrepresentation from disgruntledstudents and employees or formeremployees and as a result of journalistsmisreporting facts. These commentersargued that it is not appropriate for theactions of a single individual or a singleincident, whether malicious orunintended in nature, to dramaticallyaffect an institution.Discussion: We disagree with thecommenters who stated that theproposed regulations are too broad andopen for interpretation. We proposedspecific changes to the currentregulations to clarify the types of false,erroneous, or misleading statementsabout an institution’s educationalprogram, the cost of the program,financial aid available, and theemployability of its graduates thatwould be prohibited as

Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulations66915WReier-Aviles on DSKGBLS3C1PROD with RULES2misrepresentations under subpart F ofpart 668.We understand that some commentershave concerns about baseless chargesand frivolous lawsuits that may bebrought by students and employeesincluding by dissatisfied students anddisgruntled employees as well as fearsthat ‘‘routine marketing claims’’ wouldlead to lawsuits. We do not believe thatthe proposed regulations will increaselitigation by students and employeesagainst the institution. Theseregulations do not provide an additionalavenue for litigation for students,employees and other members of thepublic. Instead, the regulations specifythe conditions under which theDepartment may determine that aninstitution has engaged in substantialmisrepresentation and the enforcementactions that the Department may chooseto pursue. As the Department does inevaluating any regulatory violation, indetermining whether an institution hasengaged in substantialmisrepresentation and the appropriateenforcement action to take, theDepartment will consider the magnitudeof the violation and whether there wasa single, isolated occurrence.Changes: None.Comment: Many commentersexpressed concern that the proposedchanges would eliminate due processprotections for institutions in the case ofsubstantial misrepresentation. Thecommenters requested that we retain theprocedures from current § 668.75,arguing that the removal of theseprocedures conflicts with the HEA andexceeds the Department’s statutoryauthority to regulate in this area.Several commenters also expressedconcern about the proposed removal ofcurrent § 668.75 because that sectionrequired the Department to reviewcomplaints and to dispose of theminformally if the complaints weredetermined to be minor and could bereadily corrected. The commentersargued that the proposed regulationswould eliminate this sensible approachin exchange for using other procedures.These commenters recommended thatwe amend § 668.71(a) to include anoption for the Department to allow aninstitution to correct minor, inadvertent,and readily correctablemisrepresentations and to makeappropriate restitution. They noted thatthese types of misrepresentations arebound to occur given the amount ofinformation institutions must report andthat simple human error should notconstitute misrepresentation. Othercommenters expressed concern that,under the proposed regulations, simplemistakes could trigger sanctions even ifan institution has no history ofmisrepresentation problems.Discussion: The Department isremoving the provisions in § 668.75because they are formulaic and havebeen proven unnecessary. TheDepartments takes its enforcementresponsibilities seriously, and its historydemonstrates that it does not overreactto single, isolated transgressions. Weintend to enforce the misrepresentationregulations with the same degree offairness that we enforce all other titleIV, HEA program requirements. To theextent the Department chooses toinitiate an action based upon a violationof the misrepresentation regulations,nothing in the proposed regulationsdiminishes the procedural rights that aninstitution otherwise possesses torespond to that action.Changes: None.Comment: Some commenters statedthat enforcement by the Department isnot necessary and is not the best way toallocate the Department’s resourcesbecause State agencies, accreditingagencies and the FTC already enforcelaws prohibiting misrepresentation. Forexample, some commenters noted thataccrediting agencies have standards oninstitutional integrity and review theways in which each institutionrepresents itself as part of theaccrediting process. The accreditingagencies perform regular reviews of alladvertising and promotional materialand publish specific guidelines forinstitutions regarding acceptablestatements by staff. The commentersrecommended that the Departmentcontinue to rely on this process, ratherthan adopting the proposed regulations,which they argue, will result in anunnecessary duplication of enforcementefforts. Another commenter asked us toclarify whether the Department—andnot State authorizing agencies—isresponsible for monitoring compliancewith the misrepresentation regulations.While a number of commentersargued that it is not appropriate for theDepartment to take enforcement actionsto prevent misrepresentation, othercommenters stated that in cases of truemisrepresentation strong enforcementsteps would go a long way ineliminating fraud and abuse andlimiting the need for other measures tocombat abuse that arises in the absenceof such enforcement.Discussion: We disagree with thecommenters who stated that theDepartment should not be responsiblefor enforcement of thesemisrepresentation regulations becauseothers, including State agencies,accrediting agencies, and the FTC arealready enforcing laws againstVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2misrepresentation. The Department isresponsible for ensuring thatinstitutions participating in the title IV,HEA programs comply with section 487of the HEA, which prohibits institutionsfrom engaging in substantialmisrepresentation of the nature of theinstitution’s educational program, itsfinancial charges, or the employabilityof its graduates. We acknowledge thatother agencies and entities also enforcevarious laws and standards that guardagainst misrepresentation and arepleased that we have partners inensuring that institutions do not makefalse, erroneous, or misleadingstatements to students, prospectivestudents, and members of the public.We agree with the commenters whosupported strong enforcement in thisarea. We believe that strengthening themisrepresentation regulations andenforcement of these regulations iscritical to maintaining the integrity ofthe title IV, HEA programs.Changes: None.Comment: Many commenters arguedthat we should revise the regulations tolink enforcement to situations in whichthe institution or its employees aremaking a conscious decision to misleadthe consumer. The commenterssuggested that the definition ofmisrepresentation be amended toinclude an element of intent to deceive;under this definition, institutions wouldface sanctions only if the Departmentdetermined that the misleadingstatement was made with the intent todeceive.Discussion: In determining whetheran institution has engaged in substantialmisrepresentation and the appropriatesanctions to impose if substantialmisrepresentation has occurred, theDepartment considers a variety offactors, including whether themisrepresentation was intentional orinadvertent.Changes: None.Comment: Some commentersexpressed concern that they will beunable to comply with themisrepresentation regulations becausethey are required to comply with somany regulations that inadvertentmisrepresentations are bound to occur.Discussion: As previously discussed,before initiating any action, theDepartment carefully evaluates all of thecircumstances surrounding an allegedmisrepresentation. However, theDepartment rejects the notion thatinstitutions are incapable of complyingwith multiple title IV, HEA programregulations, while at the same timeensuring that they do not makemisrepresentations, inadvertent orotherwise.

Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulations66915WReier-Aviles on DSKGBLS3C1PROD with RULES2misrepresentations under subpart F <strong>of</strong>part 668.We understand that some commentershave concerns about baseless chargesand frivolous lawsuits that may bebrought by students and employeesincluding by dissatisfied students anddisgruntled employees as well as fearsthat ‘‘routine marketing claims’’ wouldlead to lawsuits. We do not believe thatthe proposed regulations will increaselitigation by students and employeesagainst the institution. Theseregulations do not provide an additionalavenue for litigation for students,employees and other members <strong>of</strong> thepublic. Instead, the regulations specifythe conditions under which the<strong>Department</strong> may determine that aninstitution has engaged in substantialmisrepresentation and the enforcementactions that the <strong>Department</strong> may chooseto pursue. As the <strong>Department</strong> does inevaluating any regulatory violation, indetermining whether an institution hasengaged in substantialmisrepresentation and the appropriateenforcement action to take, the<strong>Department</strong> will consider the magnitude<strong>of</strong> the violation and whether there wasa single, isolated occurrence.Changes: None.Comment: Many commentersexpressed concern that the proposedchanges would eliminate due processprotections for institutions in the case <strong>of</strong>substantial misrepresentation. Thecommenters requested that we retain theprocedures from current § 668.75,arguing that the removal <strong>of</strong> theseprocedures conflicts with the HEA andexceeds the <strong>Department</strong>’s statutoryauthority to regulate in this area.Several commenters also expressedconcern about the proposed removal <strong>of</strong>current § 668.75 because that sectionrequired the <strong>Department</strong> to reviewcomplaints and to dispose <strong>of</strong> theminformally if the complaints weredetermined to be minor and could bereadily corrected. The commentersargued that the proposed regulationswould eliminate this sensible approachin exchange for using other procedures.These commenters recommended thatwe amend § 668.71(a) to include anoption for the <strong>Department</strong> to allow aninstitution to correct minor, inadvertent,and readily correctablemisrepresentations and to makeappropriate restitution. They noted thatthese types <strong>of</strong> misrepresentations arebound to occur given the amount <strong>of</strong>information institutions must report andthat simple human error should notconstitute misrepresentation. Othercommenters expressed concern that,under the proposed regulations, simplemistakes could trigger sanctions even ifan institution has no history <strong>of</strong>misrepresentation problems.Discussion: The <strong>Department</strong> isremoving the provisions in § 668.75because they are formulaic and havebeen proven unnecessary. The<strong>Department</strong>s takes its enforcementresponsibilities seriously, and its historydemonstrates that it does not overreactto single, isolated transgressions. Weintend to enforce the misrepresentationregulations with the same degree <strong>of</strong>fairness that we enforce all other titleIV, HEA program requirements. To theextent the <strong>Department</strong> chooses toinitiate an action based upon a violation<strong>of</strong> the misrepresentation regulations,nothing in the proposed regulationsdiminishes the procedural rights that aninstitution otherwise possesses torespond to that action.Changes: None.Comment: Some commenters statedthat enforcement by the <strong>Department</strong> isnot necessary and is not the best way toallocate the <strong>Department</strong>’s resourcesbecause State agencies, accreditingagencies and the FTC already enforcelaws prohibiting misrepresentation. Forexample, some commenters noted thataccrediting agencies have standards oninstitutional integrity and review theways in which each institutionrepresents itself as part <strong>of</strong> theaccrediting process. The accreditingagencies perform regular reviews <strong>of</strong> alladvertising and promotional materialand publish specific guidelines forinstitutions regarding acceptablestatements by staff. The commentersrecommended that the <strong>Department</strong>continue to rely on this process, ratherthan adopting the proposed regulations,which they argue, will result in anunnecessary duplication <strong>of</strong> enforcementefforts. Another commenter asked us toclarify whether the <strong>Department</strong>—andnot State authorizing agencies—isresponsible for monitoring compliancewith the misrepresentation regulations.While a number <strong>of</strong> commentersargued that it is not appropriate for the<strong>Department</strong> to take enforcement actionsto prevent misrepresentation, othercommenters stated that in cases <strong>of</strong> truemisrepresentation strong enforcementsteps would go a long way ineliminating fraud and abuse andlimiting the need for other measures tocombat abuse that arises in the absence<strong>of</strong> such enforcement.Discussion: We disagree with thecommenters who stated that the<strong>Department</strong> should not be responsiblefor enforcement <strong>of</strong> thesemisrepresentation regulations becauseothers, including State agencies,accrediting agencies, and the FTC arealready enforcing laws againstVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00085 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2misrepresentation. The <strong>Department</strong> isresponsible for ensuring thatinstitutions participating in the title IV,HEA programs comply with section 487<strong>of</strong> the HEA, which prohibits institutionsfrom engaging in substantialmisrepresentation <strong>of</strong> the nature <strong>of</strong> theinstitution’s educational program, itsfinancial charges, or the employability<strong>of</strong> its graduates. We acknowledge thatother agencies and entities also enforcevarious laws and standards that guardagainst misrepresentation and arepleased that we have partners inensuring that institutions do not makefalse, erroneous, or misleadingstatements to students, prospectivestudents, and members <strong>of</strong> the public.We agree with the commenters whosupported strong enforcement in thisarea. We believe that strengthening themisrepresentation regulations andenforcement <strong>of</strong> these regulations iscritical to maintaining the integrity <strong>of</strong>the title IV, HEA programs.Changes: None.Comment: Many commenters arguedthat we should revise the regulations tolink enforcement to situations in whichthe institution or its employees aremaking a conscious decision to misleadthe consumer. The commenterssuggested that the definition <strong>of</strong>misrepresentation be amended toinclude an element <strong>of</strong> intent to deceive;under this definition, institutions wouldface sanctions only if the <strong>Department</strong>determined that the misleadingstatement was made with the intent todeceive.Discussion: In determining whetheran institution has engaged in substantialmisrepresentation and the appropriatesanctions to impose if substantialmisrepresentation has occurred, the<strong>Department</strong> considers a variety <strong>of</strong>factors, including whether themisrepresentation was intentional orinadvertent.Changes: None.Comment: Some commentersexpressed concern that they will beunable to comply with themisrepresentation regulations becausethey are required to comply with somany regulations that inadvertentmisrepresentations are bound to occur.Discussion: As previously discussed,before initiating any action, the<strong>Department</strong> carefully evaluates all <strong>of</strong> thecircumstances surrounding an allegedmisrepresentation. However, the<strong>Department</strong> rejects the notion thatinstitutions are incapable <strong>of</strong> complyingwith multiple title IV, HEA programregulations, while at the same timeensuring that they do not makemisrepresentations, inadvertent orotherwise.

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