CFPB announces crackdown on ‘inside’ loan programs offered by colleges and universities

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On January 20, 2022, the Consumer Financial Protection Bureau (CFPB) announced that it would review the “in-house” lending practices of post-secondary schools. (the announcement). The announcement outlines the CFPB’s intention to focus on schools’ debt collection practices, such as withholding transcripts from delinquent borrowers, and whether schools have “preferential relationships” with certain student lenders at the light of the demands of the early 2000s after “many lenders and higher education institutions were caught engaging in kickback arrangements that caused schools to direct students to certain loans.

Significantly, the CFPB published a revised set of examination procedures outlining how it will review student loan providers, including schools that offer institutional loans. The updated review procedures note the CFPB’s position that “[p]Private loans for education sometimes take non-traditional forms such as temporary loans and revenue-sharing agreements.

Prior to joining the CFPB, Director Rohit Chopra was deeply concerned about the rise of alternative education financing products such as Revenue Sharing Agreements (ISAs). The CFPB recently concluded a consent order with an ISA provider in which he asserted that ISAs are loans, a legal conclusion that is disputed by the fledgling ISA industry. The CFPB’s new review procedures further confirm the CFPB’s position in this regard.

The review procedures require reviewers to “[d]determine whether a supervised entity uses payment plans or temporary credits for all or part of its programs. So-called “payment plans” that involve the deferral of a consumer’s payment obligation and may constitute private education loans subject the education provider to CFPB oversight as well as various laws of States relating to retail installment sales, debt collection and student loan servicing.

Post-secondary institutions should review their payment policies to validate that they have appropriate policies and procedures regarding any tuition payment deferrals, as well as their debt collection and other holdback policies transcripts.

If you have any questions about these new developments and their potential impact on your business, please contact any of the co-authors or any member of the Manatt Financial Services team.

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