On September 7, 2021, the Consumer Financial Protection Bureau (CFPB) announced that it had entered into a consent order with a group of affiliated education financing companies that provided students with income share agreements (ISAs) to finance postsecondary education. The consent order resolves allegations that the companies violated the Consumer Financial Protection Act (CFPA), Regulation Z (Reg Z), and the Truth in Lending Act (TILA).
The CFPB alleged that the financing companies misled students by characterizing its ISAs as neither “credit” nor “private education loans.” The CFPB further alleged that the ISAs were “credit,” and thus required the companies to provide borrowers with certain disclosures under Reg Z. The CFPB also alleged that the ISAs constituted “private education loans.” As such, the companies’ “Payment Cap” mechanism imposed an unlawful prepayment penalty under TILA.
The consent order requires the education financing companies to cease alleged misrepresentations, provide consumers with required disclosures, and reform ISAs to eliminate prepayment penalties. As part of the consent order, the companies neither admitted nor denied the Bureau’s allegations.