CFPB to “Open up the Books” on institutional student lending

CFPB to “Open up the Books” on institutional student lending

January 20, 2022

United States
United States
United States
On January 20, 2022, the Consumer Financial Protection Bureau (CFBP) announced it will begin examining colleges’ in-house student lending practices.1 The CFPB announcement states that the agency will examine “the operations of post-secondary schools, such as for-profit colleges, that extend private loans directly to students” and that such private loans may be offered “by banks, non-profits, nonbanks, credit unions, state-affiliated organizations, and institutions of higher education, including both for-profit schools and non-profit schools.” The announcement further explains that loans made directly to students by the school they attend are often referred to as “institutional student loans,” and that such loans typically are not affiliated with the U.S. Department of Education’s Title IV federal student loan program.
 
“Schools that offer students loans to attend their classes have a lot of power over their students’ education and financial future,” CFPB Director Rohit Chopra said in a statement. “It’s time to open up the books on institutional student lending to ensure all students with private student loans are not harmed by illegal practices.” 
 
The CFPB’s announcement cites concern with institutional lending “because of past abuses at schools, like those operated by Corinthian and ITT, where students were subjected to high interest rates and strong-arm debt collection practices.” The CFPB also asserts that, in the mid-2000s, schools and lenders engaged in “kickback arrangements” where lenders incentivized postsecondary schools to steer students into certain loans. 
 
The CFPB, accordingly, has now updated its Education Loan Examination Procedures to include a new section regarding institutional student loans 2. For targeted schools providing institutional loans for their students, in addition to an examination of general private student loan lending issues, the CFPB will specifically consider “Additional Concerns for Institutional Loans,” such as whether the school:
 
• Withholds transcripts or otherwise refuses to certify program completion for students who owe a debt to the school;
• Restricts enrollment based on student repayment status;
• Imposes additional fees or increased tuition upon institutional loan borrowers based on their repayment status; or
• Improperly accelerates payments, such as where a student who withdraws from a school or program owes more than the proportional cost of the time they were enrolled in the program.
 
CFPB’s announcement follows prior actions taken by the CFPB against the Income Share Agreement (ISA) industry. ISAs are financing agreements under which student borrowers agree to pay a private lender a percentage of the student’s income for a set period of time or until they reach a payment cap. The CFPB’s enforcement action last year against an ISA provider called Better Future Forward, Inc. ultimately led to a Consent Order in September 2021. The Consent Order required Better Future Forward, among other things, to stop stating that its ISAs are “not loans,” provide Truth in Lending Act (TILA) disclosures, and to reform its contracts to eliminate certain prepayment penalties. Better Future Forward entered into the Consent Order without admitting or denying any of the order’s substantive findings of fact or conclusions of law.
 
Student loan reform is a paramount concern of the Biden Administration. Facing calls for universal student loan cancellation, the U.S. Department of Education is promoting regulatory expansion of the Borrower Defense to Repayment Program, has revamped the Public Service Loan Forgiveness Program, and has taken other borrower-focused steps to reportedly cancel $15 billion in federal student loans in one year. And for-profit education in particular has been the subject of increasing scrutiny by the federal government, especially under the new administration. The CFPB’s new focus on institutional lending continues the trend in challenging and seeking to overhaul the private student loan industry, with for-profit schools in the crosshairs. 

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1 CFPB, Consumer Financial Protection Bureau to Examine Colleges’ In-House Lending Practices (Jan. 20, 2022), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-to-examine-colleges-in-house-lending-practices/. 

2 CFPB EDUCATIONAL LOAN EXAMINATION PROCEDURES, at 43-44 (Jan. 2022), https://files.consumerfinance.gov/f/documents/cfpb_education-loan-servicing-exam-manual_2022-01.pdf

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