CFPB Finds That Income Share Agreements Are Credit Products – Consumer Protection

CFPB Finds That Income Share Agreements Are Credit Products – Consumer Protection

September 13, 2021 0 By administrator

United States:

CFPB Finds That Income Share Agreements Are Credit Products

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On September 7, 2021, the CFPB announced that it had entered
into a 
consent order
 with an education finance nonprofit
(“nonprofit”) in connection with the nonprofit’s
offering of income share agreements (“ISAs”). In the
consent order, the CFPB asserted that ISAs are extensions of credit
covered by the Consumer Financial Protection Act and the Truth in
Lending Act (“TILA”) as well as TILA’s requirements
with respect to “private education loans.” Because the
CFPB asserts in the consent order that it views the nonprofit’s
ISAs as credit, the CFPB takes the position that they are also
subject to numerous other federal consumer financial protection
laws that impose requirements and restrictions on student loan
products. This consent order has significant implications for those
in the ISA market, as it indicates how the CFPB views
re-characterization for ISAs and similar products.

Most ISAs are agreements under which students are provided
education funding on the condition that the student pay an
agreed-upon percentage of the student’s future income over a
defined, post-graduation timeframe. Many ISAs do not require
customers to pay anything until their income exceeds a
contractually defined floor. A percentage of income exceeding that
floor is paid to the ISA provider as an investment
return-potentially subject to a cap on overall payments depending
on the terms of the specific ISA at issue. Under many common ISA
structures, it is conceivable that some customers ultimately will
pay nothing in the defined, post-graduation timeframe and,
therefore, will see the ISA expire without any payment obligation;
other customers will pay an amount less than the funding originally
provided; and a final set of customers will pay amounts exceeding
the original funding (though, as noted, frequently subject to a
total payment cap). While most ISAs provide educational funding,
similar products exist to provide funding to consumers, small
businesses, and even professional athletes.

Given their structure, ISA providers have generally taken the
position that ISAs are not credit and,…

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