Consent Order against Student Loan Originator for Deceptive Practices Sends Clear Message to ISA Industry

The Consumer Financial Protection Bureau (CFPB) took action today against an income share agreement (ISA) provider for mispresenting its product and failing to comply with federal consumer financial law that governs private student loans. Better Future Forward, Inc., through its affiliated companies, provides students with money to finance their higher education, in the form of ISAs, under which students agree to pay a percentage of their income for a set period of time or until they reach a payment cap. Better Future Forward falsely represented that the ISAs are not loans, failed to provide disclosures required by federal law, and violated a prepayment penalty prohibition for private education loans. Under the CFPB’s order, Better Future Forward is required to provide disclosures that comply with federal consumer financial law, eliminate the prepayment penalties, and stop misleading borrowers.

“The ISA industry has tried to evade oversight by claiming that its products are not loans,” said CFPB Acting Director Dave Uejio. “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.”

Better Future Forward is a nonprofit organization based in Virginia. Better Future Forward offered consumers several versions of ISAs, under which providers advanced money to consumers to finance their education expenses. In exchange for the advanced money, the borrowers promised to make payments based on a percentage of their income until they repaid a defined amount, or a specified period had elapsed. Falsely Representing Education-Finance Products

The CFPB found that Better Future Forward falsely represented that its ISAs are not loans and do not create debt, in violation of the CFPA. The organization also failed to give certain required disclosures and imposed prepayment penalties on private education loans, in violation of TILA, Regulation Z, and the CFPA. The violations involved the companies’ student-loan-origination activities, which included:

• Falsely representing that its ISAs are not loan products and do not create debt:Better Future Forward deceived student borrowers, telling them that the agreement by which they had to pay a percentage of their income over a certain threshold in exchange for funds for their post-secondary education was not a loan and did not create debt.
• Denying consumers information necessary to fully evaluate their financial options: By operating as if their agreements were not “credit” or “private education loans,” Better Future Forward failed to provide disclosures for private education loans as required by federal consumer financial law.
• Subjecting consumers to fees or penalties for early repayment or prepayment:Better Future Forward imposed unlawful prepayment penalties on its private education loans. 

Enforcement Action

Under the CFPA, the CFPB has the authority to take action against institutions violating federal consumer-financial laws, including those engaging in unfair, deceptive, or abusive acts or practices. The consent order issued today requires Better Future Forward to:

• Stop deceiving consumers about the nature of their products: Better Future Forward must stop stating that its ISAs are not loans or do not create debt for consumers.
• Provide consumers disclosures about their products as required by federal consumer financial law: Better Future Forward must provide disclosures required by the Truth in Lending Act and its implementing Regulation Z for closed-end credit, including disclosures about the finance charge, the amount financed, and the annual percentage rate, as well as disclosures required for private education loans.
• Not object to bankruptcy discharges: Better Future Forward must continue its practice of not objecting to any discharge of a student’s ISA in bankruptcy, including not contesting that repaying a student’s ISA would present an undue hardship.
• Reform its ISA contracts: Better Future Forward must not impose a prepayment penalty on a private education loan and, for certain ISAs, must recalculate the payment caps to eliminate the prepayment penalty.
• The CFPB did not impose financial penalties against Better Future Forward after considering its responsible conduct, namely that it demonstrated good faith and substantial cooperation beyond that required by law.