Recent regulatory action signals a turning point for ISAs
September 21, 2021
Rick Seltzer
A recent CFPB statement that income-share agreements are loans could hurt the financial products — or mark a new era.
Income-share agreements are at a legal crossroads after regulators put a stake in the ground saying ISAs are loans.
The federal Consumer Financial Protection Bureau said Sept. 7 that it issued a consent order against Better Future Forward, a Virginia-based nonprofit that issues ISAs. The CFPB is requiring Better Future Forward to provide disclosures required under federal consumer financial law, to change the way it calculates payment caps to avoid prepayment penalties, and to stop saying its ISAs aren’t loans.
Those specifics are important, but they may be incidental for the ISA sector compared to the enforcement direction the CFPB is signaling. Its acting director, Dave Uejio, said in a statement recently that “The ISA industry cannot pretend that core consumer protection laws do not apply to their products.”
ISAs arguably contain elements of several different types of financial products: loans, insurance and equity. They provide money to help students cover expenses like tuition and fees, and in return those students agree to pay a percentage of their post-graduation earnings over a contract term. They can be designed so students don’t have to pay unless they earn a certain amount, and they can include a cap on lifetime payments.
