- Income Sharing Agreements (ISAs) are an alternative form of student loan financing.
- The CFPB discovered that an ISA provider misrepresented its product by saying it was not giving loans.
- The CFPB said this misled borrowers and evaded consumer law by not disclosing the appropriate information.
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The Consumer Financial Protection Bureau (CFPB) is cracking down on a company that funds a different type of student loan over findings by deceptive borrowers and circumvention of federal consumer law.
Income Sharing Agreements (ISAs) fund student loans by requiring a borrower to pledge a certain portion of their income to the lender in exchange for money to pay for their education. But the CFPB on Tuesday issued a consent order which found that an ISA provider – Better Future Forward – misrepresented its product by claiming that the money they gave borrowers was not a loan and was not a loan. was therefore not affected by the Consumer Protection Act.
“The ISA industry has attempted to evade scrutiny by claiming that its products are not loans,” CFPB acting director Dave Uejio said in a statement. “But regardless of the name on the label, these products are credit and must comply with federal consumer protections. The ISA industry cannot claim that basic consumer protection laws do not apply to their products.”
According to the CFPB, the company failed to provide the correct information to borrowers for private education loans as required by law, resulting in unfair debt collection. The ordinance requires the company to stop declaring that ISAs are not loans, to provide the appropriate information required by law, not to oppose the release of a borrower from its bankrupt ISA and to not impose a prepayment penalty on the loan.
Better Future Forward CEO Kevin James issued a statement in response to the CFPB’s consent order and said the company “has been a leader in advocating for policymakers to adopt clear and protective guardrails. for the emerging ISA space “.
“While there have been uncertainties regarding the application of the existing federal loan disclosure regime to risk-sharing tools such as ISAs, we believe that the CFPB’s oversight role is essential and we look forward to work with the office to clarify these questions about how federal disclosures should apply to BFF ISAs, ”added James.
Lawyers have watched ISAs for engaging in practices that mislead borrowers, forcing them into debt without proper information. Following the order of the CFPB, the Center for the protection of student borrowers declared in a declaration that “no private student lender is above the law.”
“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, ”he said.
The nonprofit was referring to surveys it conducted which found that ISAs charge students of color more for the same product and make their products look cheaper than they cost. really were. California recently made an agreement with an ISA company to increase oversight and protect borrowers.