A Tennessee credit union agreed Wednesday to pay $2.25 million in refunds to nursing students of an online education company that allegedly used false and deceptive business practices.

The $377 million Southeast Financial Credit Union in Franklin, Tenn., also agreed to clean up any students' negatively affected credit ratings, said New York Attorney General Eric T. Schneiderman.

SFCU was named in the attorney general's June 2015 lawsuit against the Indianapolis, Ind.-based The College Network and its CEO Gary Eyler of Las Vegas.

The lawsuit charged TCN with inducing prospective nursing students to pay thousands of dollars for ineffective study guides through false and deceptive business practices, including preying on as many as 2,000 New York consumers who sought to obtain associate degrees in nursing.

The lawsuit also alleged that through an agreement with TCN, the credit union provided financing to TCN customers. The credit union held $35 million in loans for approximately 10,000 TCN customers. What's more, an undisclosed number of smaller credit unions participated in approximately 40% of SFCU's loans to TCN students.

Even though the credit union initially argued that being named in Schneiderman's lawsuit was without merit, SFCU's loan agreements, as required by federal law, stipulated that the credit union as the holder of consumer credit contracts, are subject to all claims and defenses that consumers hold against TCN, Schneiderman explained.

“This agreement supports our position that SFCU took no part in the misconduct alleged against The College Network,” SFCU President/CEO John Jacoway said. “While we are confident that SFCU would have prevailed at trial based on the merits of our case, resolution of this matter allows us to avoid protracted legal action and focus our attention on continuing to provide excellent products and services to our members.”

Using misleading advertising and high-pressure sales tactics, TCN also created the false impression that it was offering online nursing degrees, and that it was affiliated with Excelsior College, an accredited institution based in Albany, N.Y., that offers such degrees, according to Schneiderman.

SFCU has maintained that its only role was to service loans to customers who chose to do business with TCN, and that it did not participate in the development, marketing or sales of TCN products.

In the coming months, the attorney general's office will be mailing claim forms to consumers who are potentially eligible to receive a refund based on the terms of the settlement.

The settlement resolves Schneiderman's lawsuit claims against SFCU. The lawsuit, which is pending in Albany County Supreme Court, will continue against the remaining parties.

In September 2015, SFCU sued TCN and Eyler for more than $12 million, claiming the company hid its financial condition and then shirked obligations to repay loans the credit union made to students.

In July 2003, SFCU agreed to provide financing for TCN customers. That agreement stipulated that TCN must repay outstanding principal and would accrue interest on loans that were more than 90 days past due, according to the credit union's lawsuit.

In January 2014, however, TCN began failing to repay SFCU for delinquent loans, according to the complaint. Five months later, the two organizations signed a second direct loan agreement. But TCN failed to inform the credit union that it was insolvent. TCN assured SFCU that while it had had some recent financial difficulties, the company had a plan to resume sufficient cash flow to cover obligations.

Those difficulties apparently surfaced again in October 2014, when TCN failed to repay loans that customers canceled, SFCU claimed. The May 2014 agreement required TCN to make SFCU whole for those loans too.

Last year, Eyler declared Chapter 7 bankruptcy.

The credit union's civil lawsuit against TCN is still pending in federal court in Indianapolis. A jury trial has been scheduled for August.