Federal agency acts against lender of revenue sharing agreement

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The Consumer Financial Protection Bureau took action on Tuesday against a company offering revenue sharing agreements to help students finance their degrees. The company misrepresented its product and broke federal consumer finance law, according to the federal agency.

Better Future Forward Inc., a nonprofit run by former Congressman and American Enterprise Institute researcher Kevin James, has falsely stated that revenue sharing agreements, or ISAs, are not loan products and do not create debt, did not provide disclosures to individuals. according to the CFPB.

ISAs provide students with initial financial support and, in return, require them to repay part of their future income for a set number of years. Unlike other companies that offer ISA programs at colleges and universities, Better Future Forward offers its contracts directly to students.

“The ISA industry has tried to evade scrutiny by claiming that its products are not loans,” said Dave Uejio, acting director of CFPB. in a press release. “But regardless of the name on the label, these products are of credit and must comply with federal consumer protections. The ISA industry cannot claim that basic consumer protection laws do not apply to their products.

Under a consent order filed by the CFPB, Better Future Forward will cease claiming that its ISAs are not loans or do not create debt for consumers and must provide borrowers with information on loans, including finance charges, amount financed, annual percentage interest rate and other information required for private education loans. Better Future Forward should also continue its practice of not opposing a student’s release from their ISA in bankruptcy proceedings and reforming their loan contracts so that they do not impose a penalty. prepayment on a private education loan.

The CFPB did not impose any financial sanctions on Better Future Forward because it “demonstrated good faith and substantial cooperation” throughout the process, according to the CFPB.

“Given the promise of ISAs and their uncertain treatment under existing regulatory regimes, BFF has been a leader in advocating for policymakers to adopt clear and protective safeguards for the emerging ISA space,” James said. in a report. “In this vein, we appreciate the Bureau’s recognition of our good faith and cooperation demonstrated throughout this process, as reflected in the consent order. While there have been uncertainties regarding the application of the existing federal loan disclosure regime to risk-sharing tools like ISAs, we believe the CFPB’s oversight role is essential and we look forward to working with it. the Bureau to clarify these questions about how federal disclosures should apply. at the ISAs of BFF.

ISAs were initially used primarily by students in coding boot camps and other professional training programs that are not eligible for federal student aid. Interest rates in agreements have increased steadily in recent years. Proponents say ISAs could be a solution to increasing student debt burden – because they are offered by private investors who want to see a return on their investment, ISAs are expected to fail. be used only for programs that will be profitable. And because contracts are based on student income, they won’t be overburdened with payments they can’t make.

Others do not view contracts so favorably. Critics argue that income-based federal loan repayment plans also allow borrowers to base their payments on income, and borrowers with higher salaries might end up paying more under ISAs than under traditional student loans. Senator Elizabeth Warren, a Democrat from Massachusetts, along with other Congressional Democrats, has noted contract terms could be “predatory and dangerous” and “include some of the most abusive clauses in the private student loan industry”, such as binding arbitration agreements and class action bans.

A spokesperson for the Department of Education said the department plans to consult with the CFPB to better advise institutions that support ISAs, because under senior lender rules, colleges that approve private loan products are required to defend the best interests of their students.

“The Department is committed to making higher education more accessible and affordable and to supporting good practices that protect borrowers so that students do not graduate under mountains of debt,” the spokesperson said. .

The Student Borrower Protection Center – which has already lodged a complaint with Federal Trade Commission v Vemo Education Inc., another ISA provider, praised CFPB actions against Better Future Forward.

“Despite the industry’s attempts to evade consumer protections, federal law is clear – revenue sharing agreements have always been a form of consumer credit and all borrowers are entitled to the same rights and protections, which ‘whether or not they took out a Silicon Valley-designed ISA or a traditional loan from a major bank,’ the organization said. in a report. “Almost every aspect of the ISA model harms consumers and is illegal: from the discriminatory impact on women and borrowers of color, to predatory interest rates, to the tricks and traps designed to lure vulnerable borrowers into financial markets. high cost debt. for law enforcement officials at all levels of government to act quickly to hold this dishonest industry accountable and bring justice to borrowers. “


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