On September 7, 2021, the CFPB issued a consent order towards Better Future Forward, Inc., and associated entities (collectively, BFF), firms that present financing for postsecondary schooling to students by way of earnings share agreements (ISAs). In this enforcement motion, the CFPB discovered that BFF falsely represented that ISAs don’t create debt and will not be loans and didn’t adjust to federal shopper monetary legislation necessities governing student loans.
Through these agreements, not like conventional loans, students conform to pay a proportion of their future earnings as much as a cost cap or for a sure time period in alternate for cash up entrance. BFF maintained that this association was not a loan or credit and accordingly didn’t present required student loan disclosures.
Rejecting this rivalry, the CFPB discovered that the ISAs are credit, and consequently, BFF misled students in regards to the product and didn’t present info vital to judge their monetary selections. Specifically, the CFPB discovered that:
BFF engaged in misleading acts and practices via representations in regards to the nature of their ISAs in violation of the Consumer Financial Protection Act of 2010.
BFF didn’t present disclosures for originators of personal schooling loans and for collectors typically as required by Regulation Z.
BFF’s cost cap mechanism imposed prepayment penalties on non-public schooling loans prohibited by the Truth in Lending Act.
BFF stipulated within the consent order that they’d not misrepresent, via promoting or different means, details as as to whether their ISAs are loans or create debt and data comparable to the prices, restrictions, and circumstances associated to the ISAs. BFF additional agreed to recalculate cost caps for sure ISA merchandise and remove penalties related to prepaying. Additionally, BFF is required below the consent order to contact ISA shoppers in writing to advise of the existence of the consent order, present a abstract of the CFPB’s findings and conclusions set forth within the order, present the mandatory Regulation Z disclosures, and, if relevant, notify of any adjustments to the ISA’s cost cap. Finally, BFF should formally register with the CFPB’s Company Portal.
In addition, BFF should create, and undergo the CFPB for assessment and remark, a complete compliance plan for making certain BFF’s conduct and merchandise adjust to relevant federal shopper monetary legal guidelines. The compliance plan should set forth intimately the steps BFF will take to adjust to the necessities of the consent order and set particular deadlines for when these steps will probably be accomplished.
BFF should additionally undergo compliance monitoring by the CFPB. In specific, if the CFPB so requests, BFF should present extra compliance stories or different info, which have to be supplied below penalty of perjury. Additionally, BFF should enable the CFPB to interview its staff as to BFF’s conduct described within the consent order and BFF’s compliance with the consent order.
© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 320