On September 7, 2021, the CFPB issued a consent order against Better Future Forward, Inc., and related entities (collectively, BFF), companies that provide financing for postsecondary education to students via income share agreements (ISAs). In this enforcement action, the CFPB found that BFF falsely represented that ISAs do not create debt and are not loans and failed to comply with federal consumer financial law requirements governing student loans.
Through these agreements, unlike traditional loans, students agree to pay a percentage of their future income up to a payment cap or for a certain period of time in exchange for money up front. BFF maintained that this arrangement was not a loan or credit and accordingly did not provide required student loan disclosures.
Rejecting this contention, the CFPB found that the ISAs are credit, and as a result, BFF misled students about the product and did not provide information necessary to evaluate their financial decisions. Specifically, the CFPB found that:
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BFF engaged in deceptive acts and practices through representations about the nature of their ISAs in violation of the Consumer Financial Protection Act of 2010.
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BFF did not provide disclosures for originators of private education loans and for creditors generally as required by Regulation Z.
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BFF’s payment cap mechanism imposed prepayment penalties on private education loans prohibited by the Truth in Lending Act.
BFF stipulated in the consent order that they would not misrepresent, through advertising or other means, facts as to whether their ISAs are loans or create debt and information such as the costs, restrictions, and conditions related to the ISAs. BFF further agreed to recalculate payment caps for certain ISA products and eliminate penalties associated with prepaying. Additionally, BFF is required under the consent order to contact ISA consumers in writing to advise of the existence of the consent order, provide a summary of the CFPB’s findings and conclusions set forth in the order, provide the necessary Regulation Z disclosures, and, if applicable, notify of any changes to the ISA’s payment cap. Finally, BFF must formally register with the CFPB’s Company Portal.
In addition, BFF must create, and submit to the CFPB for review and comment, a comprehensive compliance plan for ensuring BFF’s conduct and products comply with applicable federal consumer financial laws. The compliance plan must set forth in detail the steps BFF will take to comply with the requirements of the consent order and set specific deadlines for when those steps will be completed.
BFF must also submit to compliance monitoring by the CFPB. In particular, if the CFPB so requests, BFF must provide additional compliance reports or other information, which must be provided under penalty of perjury. Additionally, BFF must allow the CFPB to interview its employees as to BFF’s conduct described in the consent order and BFF’s compliance with the consent order.
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