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66916 Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and RegulationsWReier-Aviles on DSKGBLS3C1PROD with RULES2Changes: None.Comment: Some commentersexpressed concern with the effect theseproposed misrepresentation regulationscould have on students. They arguedthat the regulations would conflict withState laws and create confusion in anarea long regulated by the States. Forexample, given that students filecomplaints with the State, thecommenters stated that an additionalFederal remedy would be duplicativeand would create uncertainty forstudents.Other commenters expressed concernabout institutions that require studentsto sign arbitration and confidentialityagreements as part of their enrollmentcontracts. These agreements serve tolimit access to qualified legal counselfor students who may want to pursue amisrepresentation claim. Somecommenters stated that the regulationsshould not be interpreted to create anexpress or implied private right ofaction against an institution formisrepresentation.Discussion: We disagree with thecommenters who stated that studentswill be confused by themisrepresentation regulations becausethey otherwise typically pursue claimsof misrepresentation under State law.Nothing in the proposed regulationsalters a student’s ability to pursueclaims of misrepresentation pursuant toState law and nothing in the proposedregulations creates a new Federalprivate right of action. The regulationsare intended to make sure thatinstitutions are on notice that theDepartment believes thatmisrepresentations constitute a seriousviolation of the institutions’ fiduciaryduty and that the Department willcarefully and fairly evaluate claims ofmisrepresentation before determining anappropriate course of action.Changes: None.Scope and Special Definitions (§ 668.71)Comment: Many commentersexpressed concern about the expansionof the misrepresentation regulations tocover false or misleading statementsmade by representatives of theinstitution or any ineligible institution,organization or person with whom theinstitution has an agreement. Thecommenters believed that this changewill result in holding institutionsaccountable for what is said, may besaid, or inadvertently is said, byindividuals or organizations that mayhave no official connection to aninstitution, and that institutions cannotmonitor inadvertent and unofficialcomments. Commenters argued that theproposals would expose goodinstitutions to sanctions based onactions beyond their control. Manycommenters sought clarification aboutwhich representatives of the institutionare covered by the regulations. Forexample, commenters pointed tostatements that may be made bystudents through the use of socialmedia. One commenter suggested wemodify the definition ofmisrepresentation to clarify thatinstitutions are responsible forstatements made by representatives orentities compensated by the institution.Another commenter recommended thatwe include only individuals under thedirect control of the institution,including spokespersons andenrollment management companies.We received another suggestion tolimit covered agreements to thoserelating to marketing or admissions.Many commenters expressed concernthat, without this change, the proposedregulations would apply to thehundreds of contracts a large institutionmay have with various vendors andservice providers. They suggested thatthe institution only be responsible forcommunications from and statements byindividuals or entities authorized tospeak for the institution or who haverepresentative authority to respond tothe subject in question.Commenters were particularlyconcerned about the penalties thatcould result from misinformationprovided by an entity other than theinstitution. The commenters argued thatthe institution should not be subjectedto undue penalties if the institution tooksteps to monitor and mitigate suchpossible misrepresentations, and in fact,took action upon identifying anyincidences. For example, institutionsprovide information to companies thatcompile college rankings that are oftenderided as inaccurate, incomplete orfalse. Commenters believed that anypenalties should be limited tostatements related to the relationshipbetween the institution and the entity.Discussion: As noted elsewhere inthis preamble, the Department enforcesits regulations, including those insubpart F of part 668 within a rule ofreasonableness. We strongly believe thatthe concerns voiced by manycommenters have ignored this fact. Wedo not expect, for example, to findactionable violations in the commentsmade by students and routine vendors.However, the Department acknowledgesthat the language in § 668.71 may beunnecessarily broad. For this reason, weagree to limit the reach of the ban onmaking substantial misrepresentationsto statements made by any ineligibleinstitution, organization, or person withVerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00086 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2whom the eligible institution has anagreement to provide educationalprograms or those that providemarketing, advertising, recruiting, oradmissions services. We have done thisby narrowing the language in § 668.71(b)and the definition of the termmisrepresentation. As a result,statements made by students throughsocial media outlets would not becovered by these misrepresentationregulations. Also, statements made byentities that have agreements with theinstitution to provide services, such asfood service, other than educationalprograms, marketing, advertising,recruiting, or admissions services wouldnot be covered by thesemisrepresentation regulations.Changes: We have revised § 668.71(b)and the definition of the termmisrepresentation in § 668.71(c) toclarify that the ban onmisrepresentations for which aninstitution is responsible only extendsto false, erroneous, or misleadingstatements about the institution that aremade by an ineligible institution,organization, or persons with whom theinstitution has an agreement to provideeducational programs or to providemarketing, advertising, recruiting, oradmissions services.Comment: Some commenters noted aneed for the regulations to clearlydifferentiate between‘‘misrepresentation’’ and ‘‘substantialmisrepresentation.’’ Other commentersquestioned how we will determine whatconstitutes ‘‘substantialmisrepresentation.’’ These commentersasked what the standards are fordetermining what constitutes harm,materiality, or intent to misrepresent.Another commenter suggested that werevise the definition of substantialmisrepresentation to includemisrepresentations that aredisseminated—not only those that are‘‘made’’.Discussion: The Department iscomfortable with its ability to make thedistinction between a misrepresentationand a substantial misrepresentation. Webelieve that the regulatory definitionswe are establishing are clear and caneasily be used to evaluate allegedviolations of the regulations. Moreover,as previously stated, we routinelyevaluate the seriousness of title IV, HEAprogram violations before determiningwhat, if any, action is appropriate.There is nothing in the proposedmisrepresentation regulations that willalter the manner in which theDepartment reviews any violation ofpart 668, subpart F before deciding howit should respond.Changes: None.

Federal Register / Vol. 75, No. 209 / Friday, October 29, 2010 / Rules and Regulations66917WReier-Aviles on DSKGBLS3C1PROD with RULES2Comment: Some commenterssupported the proposed definition ofmisrepresentation in § 668.71(c), which,as applied in these regulations,prohibits making false, erroneous, ormisleading statements directly orindirectly to students, prospectivestudents, or any member of the public,an accrediting agency, a State agency orthe Secretary. They stated that thesechanges provide much needed updatesto the current regulations and that theremedies give the Department neededflexibility. The commenters noted thatthe Department should not tolerateinstitutions that knowinglymisrepresent facts and providemisinformation on purpose to students,their families and the public, and thatwe should hold institutions accountablethat encourage students to enroll but failto deliver on statements regardingaccreditation and employability.Other commenters expressed concernabout broadening the list of entities towhich an institution may not make afalse, erroneous, or misleadingstatement to include accreditingagencies, State agencies or any memberof the public. These commentersremarked that the effect of thisregulatory change is that the list nowincludes anyone. The commentersargued that the determination ofwhether an institution has mademisleading statements to an accreditingagency or State agency should be madeby that agency, not the Department, andthat the agency should take appropriateaction. One commenter suggested thatthe list of entities should also includeparents who may be signing orcosigning loans.Discussion: The Department believesthat in its stewardship of the title IV,HEA programs, it is essential to monitorthe claims made by institutions not onlyto students and prospective students,but also those made to the Department’spartners who help maintain the integrityof these programs. While it is likely thatother oversight agencies will respondappropriately to any substantialmisrepresentations that are made tothem, only the Department has theoverall responsibility for preserving thepropriety of the administration of thetitle IV, HEA programs.In addition, because parents are alsomembers of the public, and most, if notall, statements made to them will alsobe made to students or prospectivestudents, the Department does notbelieve that further enumeration toinclude parents is necessary.Changes: None.Comment: Some commenters notedthat the term ‘‘misleading statement’’ isnot defined by the FTC, and opinedthat, because the term’s definitionmerely reiterates what has always beenrequired for a finding of a substantialmisrepresentation, it is unnecessary forthe Department to define the term in itsregulations. Some commenterssuggested that, instead, the Departmentfollow the FTC’s practice ofacknowledging that a finding ofmisrepresentation is a fact-specificinquiry based on a flexible standard.Many commenters appeared to beparticularly concerned about the use ofthe phrase ‘‘capacity, likelihood, ortendency to deceive or confuse’’ in thedescription of a ‘‘misleading statement’’.Some commenters stated that they donot believe that an enforceable ordefensible basis for misrepresentation iscreated by including the likelihood ofany form of communication to confuseor ‘‘have the capacity’’ to confuse astudent or potential student. Onecommenter suggested we clarify that inorder to constitute misrepresentation,the statement must have the ‘‘capacity ortendency’’ to deceive or confuse and be‘‘likely’’ to deceive or confuse. Thecommenter cited examples of statementsfrequently made in marketing materialsby institutions, such as ‘‘there is a placefor everyone at XYZ.’’ Other commentersnoted that institutions provideinformation on a variety of complexissues that students and others may findconfusing. In particular, certain terms ofart such as ‘‘cost of attendance’’ and‘‘graduation rate’’ may not be familiar tothe general public and may be confusingto them. Another commenter requestedthat we clarify that a misrepresentationis not made if confusion results from theaccurate reporting of disclosuresrequired under various laws.These commenters expressed concernthat attempts to comply with recentlypromulgated regulations on college cost,transparency, and outcomes measuresmay result in confusion and lead toreported complaints ofmisrepresentation.Several commenters argued that theDepartment needs to address the issueof misrepresentation through omissionsof important information. Onecommenter suggested that we addlanguage in the description of the termmisleading statement to include anomission, if in the absence of anaffirmative disclosure is likely to resultin a person assuming something that isincorrect.One commenter stated that oralstatements should not be included inthe definition of misrepresentation. Thecommenter questioned how theDepartment would know that an oralmisleading statement was made.VerDate Mar2010 14:10 Oct 28, 2010 Jkt 223001 PO 00000 Frm 00087 Fmt 4701 Sfmt 4700 E:\FR\FM\29OCR2.SGM 29OCR2Many commenters expressed concernthat the proposed misrepresentationregulations will restrict their capabilityto use the Internet for fear ofmisrepresentation. These commentersnoted that their top lead source is theInternet and that Internet marketing isthe bloodline of all institutions. Thecommenters also pointed out thatInternet marketing has issues relating todomain name ownership, nameconfusion, and pirating, and that, whenthe Department enforces theseregulations, it needs to be careful inensuring that it has the correctinstitution.Discussion: The Department believesthat it is appropriate to define the termmisrepresentation in its regulations inorder to distinguish misrepresentationfrom substantial misrepresentation. Asdiscussed elsewhere in this preamble,the Department agrees that determiningwhether a misrepresentation has beenmade should be accomplished througha fact-specific inquiry and thatenforcement actions should only bebrought when reasonable.With regard to the comments whostated that the ‘‘capacity, likelihood, ortendency to deceive or confuse’’language will be confusing, we have noreason to believe that this language willhave any such effect. Moreover, we donot believe that it is necessary to revisethe regulations to state that a misleadingstatement must have both the capacityor tendency and likelihood to deceivebecause we believe that a statement thathas any of the characteristics of thecapacity, likelihood, or tendency todeceive or confuse is misleading.By adopting these proposedregulations, the Department is notseeking to create extraneous bases uponwhich it can initiate enforcementactions. Rather, we want to ensure thatthe regulations help, rather than hinder,our ability to protect students,prospective students, and others frommisleading statements made about aneligible institution, the nature of itseducational program, its financialcharges, or the employability of itsgraduates. The Department believes itcan be trusted to properly evaluatewhether a claim is confusing to a degreethat it becomes actionable. It is alsoimportant to remember that it is onlysubstantial misrepresentations that riseto the level where the Department maycontemplate action.As far as the failure of the proposedregulations to address affirmativeomissions, the Department believes thatthe purpose of these regulations is tomake sure that all statements aninstitution makes are truthful.Separately, the Department requires an

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