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CFPB: Income Share Agreements Are Student Loans and Must Follow Student Loan Rules

  • The Consumer Financial Protection Bureau (“CFPB”) reached a settlement with private student loan company Better Future Forward Inc. and related companies (collectively, “Better Future”) over allegedly deceptive practices in originating and servicing private student loans in the form of income share agreements (“ISAs”) in violation of the Dodd-Frank Consumer Financial Protection Act, the Truth in Lending Act (“TILA”), and TILA-implementing Regulation Z.
  • According to the CFPB, Better Future allegedly misrepresented its ISAs by claiming that ISAs were not loans and did not create debt, failed to provide the required student loan disclosures, and subjected borrowers to illegal fees and penalties for early repayment or prepayment of their loans, among other things.
  • Under the terms of the consent order, Better Future agreed to stop misrepresenting its ISAs, provide all legally-required disclosures to potential borrowers, eliminate early payment or prepayment penalties and fees, and stop objecting to the discharge of borrowers’ ISAs in bankruptcy. Better Future also agreed to submit a compliance plan to the CFPB that would show how Better Future intends to comply with all applicable federal consumer financial protection laws and regulations, among other things.