CFPB’s Action Against Student Loan Author sends message to revenue sharing industry | Bradley Arant Boult Cummings LLP

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On September 7, 2021, the CFPB issued a consent order against Better Future Forward, Inc. and related entities (collectively, BFF), companies that fund post-secondary education for students through Revenue Sharing Agreements (ISAs). . In this enforcement action, the CFPB found that BFF misrepresented that ISAs do not create debt and are not loans and do not comply with federal consumer financial law requirements governing student loans.

Through these agreements, unlike traditional loans, students agree to pay a percentage of their future income up to a payment limit or for a certain period in exchange for money upfront. BFF argued that this agreement was not a loan or credit and, therefore, failed to provide the required student loan information.

Dismissing this claim, the CFPB found that ISAs are credits and as a result BFF misled students about the product and failed to provide the information necessary to assess their financial decisions. More specifically, the CFPB found that:

  • BFF has engaged in deceptive acts and practices by making statements about the nature of its ISAs in violation of the Consumer Financial Protection Act 2010.
  • BFF did not provide information for originators of private education loans and for creditors in general, as required by Regulation Z.
  • BFF’s payment cap mechanism imposed prepayment penalties on private education loans prohibited by the Truth in Lending Act.

BFF stipulated in the consent order that they would not misrepresent, by advertising or other means, facts about whether their ISAs are loans or create debt and information such as costs, restrictions and conditions related to ISAs. BFF has further agreed to recalculate the payment limits for certain ISA products and to eliminate the penalties associated with prepayment. In addition, BFF is required under the consent order to contact ISA consumers in writing to inform them of the existence of the consent order, to provide a summary of the CFPB’s findings and conclusions set out in the ordinance, to provide the information necessary for regulation Z and, if applicable, notify any modification of the ISA payment limit. Finally, BFF must formally register on the CFPB Business Portal.

In addition, BFF must create and submit to CFPB for review and comment, a comprehensive compliance plan to ensure that BFF’s conduct and products comply with applicable federal consumer finance laws. The compliance plan should detail the steps BFF will take to comply with the requirements of the consent order and set specific timeframes for completing those steps.

BFF must also submit to the CFPB compliance check. In particular, if requested by CFPB, BFF must provide additional compliance reports or other information, which must be provided under penalty of perjury. In addition, BFF must allow CFPB to question its employees about BFF’s conduct described in the consent order and about BFF’s compliance with the consent order.

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