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.
The CFPB is ordering Better Future Forward to comply with the Truth in Lending Act, Regulation Z and the Consumer Financial Protection Act. The agency also mandated that the ISA provider reform the structure of its student contracts and refrain from charging prepayment penalties.
Through ISAs, a borrower receives tuition dollars in exchange for a percentage of post-education income. The products have been criticized for some time by consumer advocates, who have called on state and federal regulators to scrutinize the sector.