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Truth in Lending Act (TILA) Requirements for Schools Thursday, February 18 th ,2010 . Presented by: David Stocker, General Counsel.
Presented by: David Stocker, General Counsel
The Higher Education Opportunity Act passed August, 2008 included new requirements for creditors who make education loans, including numerous disclosures involved in the credit transaction.
It is important to know up front that the Truth In Lending Law (TILA) and the new education creditor requirements are geared toward the more traditional creditor transactions; not student aid by schools. As a result, some of the required actions are not a good fit for the way schools process aid. In addition, the model forms for the required disclosures by education creditors, do not match up well when the schools are administering the credit transactions.
Under the new rules, there are required disclosures for the loan application process which include alternative funding, interest rates, total cost of the credit and referral to the Dept. of Ed. web site, disclosures on the loan approval (which is valid for 30 days only) or denial which include “transaction specific information on the maximum cost of the loan and monthly payment amount, disclosure before disbursement which update the terms and cost of the credit and a 3 day right of recession notice.
There are related issues to be addressed, such as the manner in which the school will adjust these disclosures when the student’s aid package and need changes; or how to manage the 3 day rescission rule or the 30 day approval period time lines. Typically, the aid will be utilized when approved or available.
There are many other rules in the new law and definitions which will impact schools credit programs. For example, there are different rules for “open ended’ and “closed end” credit. Another question is to what extent do these credit activities now trigger state licenses as lenders? What are the interactions with “preferred lender” lists when the school is a lender? It is important for the schools to seek good advice because the new law carries penalties for failure to comply.
Schools that extended credit to students more than 25 times in preceding calendar year are creditors.
Private education loans defined as loans extended to consumers expressly in whole or in part for post secondary educational expenses.
Postsecondary educational expenses are expenses listed as part of cost of attendance at covered educational institutions.
Rules Apply to direct-to-consumer private education loans.
Schools that qualify as creditors generally must comply with final rules when extending credit to students or graduates for postsecondary educational expenses.
Examples of credit extensions by schools:
Rules do not apply to Open End Credit
If an item included in Final Disclosure becomes inaccurate because of an event that occurs after delivery of Final Disclosure, the inaccuracy is not a violation of Regulation Z.
30 day period for consumer to approve credit offer vs. school policies that student has to have arrangements to pay before starting classes.
Self-certification still required where school is creditor.
Is Application Disclosure required if school does not require student borrower to fill out application form?
How do schools deliver Application/Solicitation Disclosure if no written application for credit extension?
Exemption if application taken verbally and approval or rejection within 3 days.
Interplay with preferred lender rules; is school that extends credit to its students a “preferred lender.”
Where students borrow each semester, does student have to sign new prom notes or installment contract for each credit extension?
Can school develop master prom note or installment contract?
Consider getting written acknowledgement from borrower that they did not exercise cancellation right at end of 3-day period.
Consider electronic disclosures –
HEOA amends TILA to provide private right of action for some but not all of new disclosure requirements.
No civil liability for failure to comply with self-certification requirement.
Liability for failure to provide certain approval and final disclosures.
This information is being presented as an informational service only. It is not intended to be legal advice and you should consult with your counsel for specific legal guidance.
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