TRUTH IN LENDING ACT AMENDED TO REGULATE PRIVATE EDUCATIONAL LENDING PRACTICES AND LOAN DISCLOSURES
The College Opportunity and Affordability Act of 2008, which amends the federal Higher Education Act of 1965, has recently passed both houses of Congress and been cleared for the White House. The President is expected to sign the Act.
Title X of the Act (the Private Student Loan Transparency and Improvement Act) adds a new section to the federal Truth in Lending Act (TILA) aimed at preventing unfair and deceptive private educational lending practices and eliminating conflicts of interest. Prohibited practices for private educational lenders include, for example, (i) offering or providing gifts to covered educational institutions or employees in exchange for any advantage or consideration to the lender related to its private educational loan activities or (ii) engaging in revenue sharing with a covered educational institution.
Title X also amends Section 128 of the TILA (regarding transactions other than under an open-end credit plan) to add requirements regarding terms and disclosures with respect to private educational loans. Extensive new disclosures will be required in applications and solicitations, at the time of loan approval and at the time of loan consummation, and borrowers will have a three-day right to cancel a private educational loan. Private educational lenders also will be required to institute new procedures, such as obtaining written acknowledgement from consumers of receipt of application and solicitation disclosures, obtaining certification of borrowers’ enrollment status and cost information from educational institutions and notifying educational institutions of credit extensions before disbursing funds.
The Act also provides for an inter-agency initiative to enhance financial literacy among students at institutions of higher education. The amendments will become effective 180 days after implementing regulations to be promulgated by the Federal Reserve Board are issued in final form.