Southeast Financial Credit Union is suing an online educationprovider for more than $12 million. SFCU claimed the company hidits financial condition and then shirked obligations to repay loansthe credit union made to students.

The lawsuit has shed light on the long relationship between SFCUand The College Network, both of which the New York Attorney General named in a lawsuit in June. Thatagency alleged TCN and SFCU used false and deceptive businesspractices and failed to disclose to students that their loans werefrom a credit union, among other accusations.

In the new suit filed on Sept. 25, however, the $441 million,Franklin, Tenn.-based SFCU appeared to distance itself from TCN,which sells modules and other study materials it said helpstudents earn college credit by passing end-of-courseequivalency exams.

According to the complaint, in July 2003 SFCU agreed to providefinancing for TCN customers. That agreement indicated TCN mustrepay outstanding principal and would accrue interest on loans thatwere more than 90 days past due, SFCU said.

In January 2014, however, TCN began failing to repay SFCU fordelinquent loans, according to the complaint.

Five months later, on May 30, 2014, the two entities signed asecond direct loan agreement. But TCN hid something, SFCUalleged.

“In those negotiations, TCN never informed SFCU it wasinsolvent, a necessary piece of information for SFCU to consider indetermining whether to continue the relationship,” the complaintsaid. “Rather, TCN assured SFCU that, while it had had some recentfinancial difficulties, it had a plan to resume sufficient cashflow to cover obligations.”

Those difficulties apparently surfaced again in October 2014,when TCN began failing to repay loans that customers canceled, SFCUclaimed. The May 2014 agreement required TCN to make SFCU whole forthose loans too, SFCU said.

In total, the bill is now $12 million and rising, SFCU said.

SFCU said TCN is the credit union's largest book of business. Inall, the $441 million credit union holds approximately $35 millionin loans for approximately 10,000 TCN customers, the complaintsaid.

SFCU also claimed TCN representatives told customers they didn'thave to repay the loans and that their loans were canceled.

“This results in TCN keeping the money it has been paid underthe (subsequently canceled) loan, SFCU being out the same amount,and the consumer being reported as either having a loan or having aloan past due because SFCU was not notified by TCN of the loan'scancelation,” according to the complaint.

The big fireworks began in September of this year, when TCNallegedly told SFCU it was selling its online portal, which givesstudents access to learning modules. According to SFCU, the portalis TCN's “sole remaining asset of value.”

The buyers are two companies allegedly run by the person whoalso runs TCN, and the move is an attempt by TCN to dodge itsliabilities, according to the complaint. The price for the portal,which might already be sold, was $1.25 million, it said.

But that wasn't all that ticked off SFCU.

“Perhaps most disturbing, in conjunction with advising SFCU ofthe sale of the portal, these individuals advised SFCU that accessto the portal for those consumers with SFCU-financed loans would beterminated or severely impacted unless SFCU agreed to payapproximately $70,000 per month to the consortium,” the complaintsaid.

The three companies allegedly imposed a Sept. 28 deadline forthe payment, which SFCU called “ransom.”

“Terminating access to the portal for SFCU borrowers would haveserious consequences,” the credit union said in the complaint.“Approximately 10,000 TCN students, who paid in full – through SFCUfinancing – for their modules would no longer be able to accessthose courses through the portal. TCN consumers without access tothe portal and unable to continue their education would undoubtedlycease to pay on their loans with SFCU.”

SFCU isn't the only credit union with an iron in the fire,either. An undisclosed number of smaller credit unions participatedin approximately 40% of SFCU's loans to TCN students.

According to SFCU, the blow could be fatal for the smallercredit unions.

TCN CEO Gary Eyler disputed the allegations.

“There has been a misunderstanding by Southeast Financial CreditUnion (SFCU) regarding a proposal that was designed to help theirmembers complete a program they purchased,” he told CUTimes in a statement. “Our only goal has been to help theirmembers, our customers. With regards to the proposal, there was noprofit built into it nor did any representative from our companygive them an ultimatum. There has always been room fordiscussion.”

He continued, “It's important to note that we are activelyworking with SFCU, and this matter has already been taken off thecourt's calendar by a mutual stipulation agreement. We will bemeeting with SFCU soon to resolve any remaining issues. As for ourcustomers, including SFCU members, they have continued to receiveaccess to their programs, and there has not been any disruption ofservice.”

Eyler added SFCU has benefited from the program by gaining20,000 new members and earning more than $40 million in interestincome during the relationship.

In a statement to CU Times, SFCU provided more detailson the status of its case against TCN.

“All portions of Southeast Financial Credit Union's case againstThe College Network (TCN) remain active and on the court'scalendar.” SFCU spokesperson Lisa Reitmeyer said. “SoutheastFinancial intends to actively prosecute this case in order toprotect its members, its business, its participants and loanholders. On October 1, 2015, the parties entered into an AgreedOrder which will keep any of the Defendants from restricting accessto the Portal until a further ruling by the Court. The hearing on afinal injunction is set for December 8. The December 8 hearing isone small part of the overall ongoing suit, which consists of theComplaint against TCN, the Motion for an Injunction, and a motionfor a Receivership. The parties have been ordered to submit to anexpedited discovery schedule with regard to the Injunction.Southeast Financial plans to fight tirelessly to stop the proposedtortious and fraudulent conduct by TCN.”