WASHINGTON — The Consumer Financial Protection Bureau has hit a provider of income-share agreements with a consent order, alleging that the company failed to comply with consumer protection law.
Better Future Forward Inc., a nonprofit based in Virginia, “falsely represented” to students that their ISA products were not a type of loan, according to a CFPB press release. It is the first time that a national regulator has asserted that the alternative educational finance product is a form of student loan debt.
The watchdog agency also said that the firm failed to provide adequate disclosures to customers and violated a federal ban on prepayment penalties imposed on borrowers who seek to pay off debts early.
“The ISA industry has tried to evade oversight by claiming that its products are not loans,” the CFPB's acting director, Dave Uejio, said in the press release. “But regardless of the name on the label, these products are credit and have to comply with federal consumer protections.”
“The ISA industry cannot pretend that core consumer protection laws do not apply to their products,” Uejio said.
Through ISAs, a borrower receives tuition dollars in exchange for a percentage of post-education income. The products have have been criticized for some time by consumer advocates, who have called on state and federal regulators to scrutinize the sector.
ISA backers have argued that the product should not be subject to all of the same consumer protection laws as other forms of lending because repayment is based on a slice of a a borrower's post-education income rather than an interest rate.
The CFPB under the Biden administration appears to be siding with consumer advocates.
As part of the enforcement action, Better Future Forward must comply with the Truth in Lending Act, Regulation Z and the Consumer Financial Protection Act.
The CFPB also mandated that the ISA provider reform the structure of its student contracts and refrain from charging prepayment penalties.
The CFPB did not seek a monetary penalty for its violations, citing “demonstrated good faith and substantial cooperation beyond that required by law.”
Kevin James, CEO of Better Future Forward, said in a statement that the nonprofit appreciated the CFPB's efforts to provide "clarity" around how ISAs should be treated under federal law.
"Given the promise of ISAs and their uncertain treatment within existing regulatory regimes, BFF has been a leader in advocating for policymakers to adopt clear and protective guardrails for the emerging ISA space," James said. "While there has been uncertainty about the application of the existing federal loan disclosure regime to risk-sharing tools like ISAs, we believe CFPB’s oversight role is critical and are eager to work with the Bureau to bring clarity to these questions around how federal disclosures should apply to BFF’s ISAs.”
