WASHINGTON – A Consumer Financial Protection Bureau order against a provider of income-share agreements signals regulatory tightening for all ISAs, but could also give the education finance sector legal clarity, observers said.
ISAs offer tuition money in exchange for some of a student’s future income. While many see the product as a progressive alternative to traditional student loans, consumer advocates say some have avoided regulatory scrutiny by claiming ISAs are not credit.
The CFPB agreed with consumer groups, saying in a consent order that Better Future Forward, a Virginia-based nonprofit, misled consumers by attesting that its products were not loans. The agency required that the nonprofit comply with consumer protection laws such as the Truth in Lending Act.
Some worry the CFPB’s approach could be stifling before ISAs have a chance to mature, especially if the bureau asserts more authority over the sector. But several ISA proponents say the guidelines outlined in the Better Future Forward lend more regulatory certainty.
“There’s a little more downside risk now, but there’s also more upside potential as well,” said Ethan Pollack, a program director at the nonprofit Jobs for the Future.
“With the CFPB declaring jurisdiction over ISAs, at least with regard to [the Truth in Lending Act], certainly, there’s a question of how they’re going to use that power, and I think that there is some cause for concern, ”Pollack said. “But also, if they use that power wisely and in a way that is aligned with consumer interests, then I think you could achieve a lot greater regulatory clarity.”
Income-share agreements offer college students tuition funds in exchange for some of their future income. While many see the product as a progressive alternative to traditional student loans, consumer advocates say some providers have avoided regulatory scrutiny by claiming ISAs are not credit.
Others have doubts that the CFPB’s involvement will benefit the industry.