ISA Provider Better Future Forward Establishes Compliance Plan with CFPB Regulators

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Revenue-sharing agreement provider Better Future Forward has entered into a final compliance plan with the Consumer Financial Protection Bureau and updated the information it will make to students entering ISAs to help pay for college. .

The CFPB provided “coherent input” in a new disclosure format, Better Future Forward said wednesday — one year after the federal regulator taken action against Virginia-based nonprofit and branded ISAs as a form of credit.

Better Future Forward said it would publicly share the new disclosure format, but it did not release a copy with its Wednesday announcement.

The new format adapts a disclosure style used for traditional private education loans, Better Future Forward CEO Kevin James said in an email. A dollar cost of funding will be listed at the top of the disclosure. Since the amount of a student’s eventual refund will vary depending on their income, the new disclosure will also be supplemented with a description of how the costs are estimated.

Previously, Better Future Forward disclosures included key ISA terms like percentage of income to be paid and amounts to be repaid at different income levels. New documents will still contain this information, but it will now be located lower.

Better Future Forward says the maximum students could pay under its ISAs is an effective annual percentage rate of 7.5% and they don’t have to make payments unless they earn more than $42,500. $ per year. Repayments are complete when a student makes 120 payments, 20 years have passed, or they have reached a prepayment amount.

A Long Debate About ISA Regulation

ISAs are agreements under which investors or other funds pay for student tuition, such as tuition and fees. In turn, students agree to pay a percentage of their earnings after graduation for a set period of time, although they often make no payments until they reach a certain earnings threshold.

These arrangements were highly regarded by some higher education leaders and college access advocates who sought new ways for students to pay their tuition. Some ISA funders have argued that they minimize the worst financial risk to students and that they are not in debt and should not be regulated as such.

But last September, the CFPB ordered Better Future Forward to stop saying ISAs aren’t loans.

“Regardless of the name on the label, these products are credited and must comply with federal consumer protections,” the acting CFPB director said at the time.

The CFPB said Better Future Forward misrepresents the nature of ISAs, fails to comply with federal law governing private student loans, and imposes illegal prepayment penalties. But the regulator did not impose financial penalties on the association because it cooperated.

Better Future Forward is a very small provider. It says it has set up over 200 students with more than $2 million in funding since 2017. It is dwarfed by other providers like Purdue University. Saving a Boiler ISA program, which has over 1,600 contracts disbursing funds of over $17.9 million.

Nevertheless, higher education observers have seen the actions of the CFPB as an important development in an ISA market that lacked regulatory clarity. Critics also feared it was a crackdown that could harm the industry.

This was not the end of regulatory measures focused on ISAs and private lending.

In January, the CFPB said it would be examine the operations of colleges that lend directly to students. Two months later, the US Department of Education issued a reminder to colleges, telling them to explain the costs and terms of private student loans – including ISAs.

Purdue has since said its Back a Boiler program is not available to new applicants, but students currently participating are unaffected. Purdue drew criticism from an advocacy group, the Student Borrower Protection Center, which said the program was risky for students. A university spokesperson told MarketWatch in June that the program has been suspended for new students due to a change in the companies serving it.

“A good working relationship between regulators and ISA providers”

James, CEO of Better Future Forward, released a statement on Wednesday thanking regulators for working with the organization to create disclosure.

“BFF recognizes the difficulty of integrating an ISA into existing private educational loan disclosures, and we appreciate the Bureau’s helpful feedback as we develop a disclosure format for ISAs that takes into account their unique structure while remaining true to the disclosure purposes of the Truth in Lending Act and Regulation Z,” James said, referring to rules designed to protect people who access credit.

He also said the nonprofit supports legislation that would update consumer protection law to meet ISAs, including required consumer disclosures.

His statement refers bipartisan legislation introduced in July. It includes provisions that would prevent ISA providers from requiring more than 20% of a graduate’s income and limit payment obligations to a fixed window. It would also require that students be informed of the amount financed, how the payments are calculated and the duration of the agreements.

“We believe that a good working relationship between regulators and ISA providers is the most effective interim solution in the absence of clear federal and state legislation tailored to ISA programs,” James said.

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