California would probably
like to ban all of the for-profits, but can't. ITT, however, stepped so far beyond the pale that it gave regulators an opportunity to punish them.
California is basing its move on a US Department of Education decision, which itself was based on a history of previous litigation, which started because of concerns over ITT's accreditation. Basically: no accreditation, no loans, which given ITT's business model would basically put them out of business. And if a school's accreditation is threatened in some way, the Fed can step in and require the school to post a bond, so that the USG isn't left footing the bill (students are already protected by law).
This, from what I can tell, is what happened to ITT: their accreditation was looking sketchy, so the Feds started to get concerned, and required them to post progressively larger bonds to protect the government against a closure, and also cut off new Federally-funded students from starting. This may or may not be enough to kill them as a company. CA is using this concern over future viability, combined with what appear to be some pretty strong consumer-protection laws, to prevent them from registering new students at all in CA. (I'm somewhat surprised they can do this, if you were just going to pay cash-on-the-barrel-head and not get anyone else's money involved, but they must have some particularly stringent laws about higher ed in CA. Probably not a bad idea all in all.)
It's been speculated that what the US DOE is doing is a rare example of the administrative "corporate death penalty" in action; that the moves are designed not just for the immediate regulatory ends, but actually to kill ITT. Pour encourager les autres, as the saying goes. Of course they can't come right out and say that, but it would fit with some of the evidence.
And personally, I'm ready to throw some rotten vegetables as they're climbing the scaffold to the noose.