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Payment Plan Regulatory Update

Payment Plan Regulatory Update. Overview and Discussion Derrick Shy Senior Account Executive Sallie Mae – Business Office Solutions.

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Payment Plan Regulatory Update

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  1. Payment Plan Regulatory Update Overview and Discussion Derrick Shy Senior Account Executive Sallie Mae – Business Office Solutions

  2. The information contained in this presentation is not comprehensive, is subject to constant change, and therefore should serve only as general, background information for further investigation and study related to the subject matter and the specific factual circumstances being considered or evaluated.  Nothing in this presentation constitutes or is designed to constitute legal advice.

  3. Background • The Higher Education Opportunity Act (HEOA) created new subsections of the Truth In Lending Act (TILA) governing private education loan restrictions and disclosures • Law enacted August 14, 2008 • Regulations became effective September 14, 2009 • Full compliance was required by February 14, 2010

  4. Federal Reserve Board Comments • The Federal Reserve Board (FRB) explained in the Federal Register regarding the FRB’s adoption of the Higher Education Opportunity Act amendments that they agreed that the HEOA should not apply to certain school payment plans, but also reiterated that such payment plans might still be subject to the regular provisions of Regulation Z: • “Under § 226.46(b)(5)(iv)(B), the Board is revising the definition of ‘‘private education loan’’ to exclude certain billing plans provided by educational institutions. If payable in more than four installments, these plans may be considered credit under Regulation Z and would be subject to the requirements of §§ 226.17 (Disclosure requirements) and 226.18 (Content of disclosures).” • “Based on public comment, the Board believes that the limited exception for billing plans of one year or less that do not charge interest will provide sufficient flexibility to schools to accommodate students’ payment needs while ensuring that extensions of credit that are more likely to be a substitute for a private education loan are covered. Comment 46(b)(5)–3 clarifies that such plans may nevertheless be extensions of credit subject to §§ 226.17 and 18.” • FDIC Explanation of 226.17 and 18: http://www.fdic.gov/regulations/laws/rules/6500-1700.html

  5. Varied Interpretations • Sallie Mae® conducted a thorough review of the regulations that may apply to payment plans in light of this recent clarification from the FRB. While we are not providing you with legal advice, based on the FRB’s comments, the following is our assessment: • Because payment plans may be considered extensions of credit, they may be subject to regulations including: • Reg Z- Truth in Lending Act (Informed consumer credit usage) • Reg B- Equal Credit Opportunity Act (non-discrimination when extending credit) • Reg E- Electronic Funds Transfer Act (right and liabilities of consumers) • They may also be subject to applicable state retail installment laws

  6. Payment Plan Impact • Regulation Z: Truth in Lending • Provide TILA disclosures • Breakdown of fees – Retail Installment Contract • Total amount “financed” • Interest rates if applicable • Monthly payments and due dates • Penalties and misc. fees • Regulation B: Equal Credit Opportunity Act • Adverse action notices • Denial of plan participation • Canceled accounts

  7. Payment Plan Impact Continued • Regulation E: Electronic Funds Transfer Act • Limits payment methods and requirements • Consumer liability • Procedures for payment error • State Retail Installment Laws • Missouri: 1 or More • Compliance began February 14, 2010

  8. Truth in Lending Disclosure • Purpose of Disclosure: • Designed to promote the informed use of consumer credit by requiring standardized disclosures of loan terms and costs • This disclosure is required to be delivered before the transaction, or agreement, is consummated

  9. Next Steps… • Provide Truth-in-Lending disclosures to plan participants at the time of enrollment and upon term increases • Treat and disclose certain fees as finance charges • Incorporate state retail installment language into payment plan contracts • Deliver Regulation B compliant notices for incomplete applications, blocked and cancelled accounts • Retain disclosures and notices in accordance with regulatory time frames • Offer payment plans that have a term of one year or less, or provide HEOA compliant disclosures instead of the traditional Truth-in-Lending disclosures • Offer multiple payment methods and not mandate ACH or CC payments • Understand and comply with the caps and grace periods that apply to both late and insufficient funds fees • Understand whether and when convenience fees and credit card surcharges are permitted in your state

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