Fed Proposes New Amendments to Regulation Z

The Fed's proposed regulations deal with student loans and can be found here, along with model forms.  They largely implement the 2008 Higher Education Opportunity Act (HEOA), which amended Truth in Lending, and add a new subpart F to Reg Z.  The regulations also prohibit creditors from co-branding their loan products with educational institutions.  Here's the Board's summary of HEOA's amendments to TILA (not the proposed amendments to Reg Z, but since we hadn't blogged about HEOA at the time, I thought I would include it):

 On August 14, 2008, the Higher Education Opportunity Act of 2008 (HEOA) was enacted. Title X of the HEOA, entitled the “Private Student Loan Transparency and Improvement Act of 2008,” adds new subsection 128(e) and section 140 to TILA. These TILA amendments add disclosure requirements and prohibit certain practices for creditors making “private education loans,” defined as loans made expressly for postsecondary educational expenses, but excluding open-end credit, real estate-secured loans, and federal loans under title IV of the Higher Education Act of 1965. The HEOA also amends TILA section 104(3) to expressly cover private education loans over $25,000.

1. Overview of the HEOA’s Amendments to TILA

Substantive Restrictions. The HEOA prohibits a creditor from using in its marketing materials a covered educational institution’s name, logo, mascot, or other words or symbols readily identified with the educational institution, to imply that the educational institution endorses the loans offered by the creditor.

With respect to private education loans, the HEOA also amends TILA in the following ways:

• Creditors must give the consumer 30 days after a private education loan application is approved to decide whether to accept the loan offered. During that time, the creditor may not change the rates or terms of the loan offered, except for rate changes based on changes in the index used for rate adjustments on the loan.

• The consumer has a right to cancel the loan for up to three business days after consummation. Creditors are prohibited from disbursing funds until the three day rescission period has run.

Disclosure Requirements. The HEOA adds a number of new disclosures for private education loans, which must be given at different times in the loan origination process. Specifically, the HEOA’s amendments to TILA require the following disclosures for private education loans:

Disclosures with applications (or solicitations that require no application). Creditors must provide general information about loan rates, fees, and terms, including an example of the total cost of a loan based on the maximum interest rate the creditor can charge. These disclosures must inform a prospective borrower of, among other things, the potential availability of federal student loans and the interest rates on those loans, and that additional information about federal loans may be obtained from the school or the Department of Education website.

• Disclosures when the loan is approved. When the creditor approves the consumer’s application for a private education loan, the creditor must give the consumer a set of transaction-specific disclosures, including information about the rate, fees and other terms of the loan. The creditor must disclose, for example, estimates of the total repayment amount based on both the current interest rate and the maximum interest rate that may be charged. The creditor must also disclose the monthly payment at the maximum rate of interest.

• Disclosures at consummation. At consummation, the creditor must provide updated cost isclosures substantially similar to those provided at approval. The consumer’s three-day right to cancel the transaction must also be disclosed.

 

Finally, once a consumer applies for a private education loan, the consumer must complete a “self-certification form” with information about the cost of attendance at the school that the student will attend or is attending. The form includes information about the availability of federal student loans, the student’s cost of attendance at that school, the amount of any financial aid, and the amount the consumer can borrow to cover any gap. The creditor must obtain the signed and completed form before consummating the private education loan. The Department of Education has primary responsibility for developing the self-certification form in consultation with the Board.

2. Civil Liability

The HEOA amends TILA to provide a private right of action for several, but not all, of the disclosure requirements added by the HEOA. HEOA, Title X, Subtitle A, Section 1012 (amending TILA Section 130). The HEOA also amends TILA’s statute of limitations for civil liability regarding private education loans. Currently TILA section 130(e) requires that an action be brought within one year of the date of the occurrence of the violation. Under the HEOA amendment, an action for a violation involving a private education loan must be brought within one year from the date on which the first regular payment of principal is due under the private education loan.

The HEOA provides a safe harbor for any creditor that elects to use a model form promulgated by the Board that accurately reflects the terms of the creditor’s loans. HEOA, Title X, Subtitle B, Section 1021(a) (adding TILA Section 128(e)(5)(C)). Model forms are included in the proposal as amendments to Regulation Z’s Appendix H. In addition, a creditor has no liability under TILA for failure to comply with the requirement that it receive the consumer’s self-certification form before consummating a private education loan.

Comments on the proposed regulations can be emailed to regs.comments@federalreserve.gov. and should Include the docket number R-1353 in the subject line of the message.

Comments

[buy wholesale]

Does the health care reform bill allow federal funding for abortion?
Or any other type of funding for abortion?

Dammit, I have been looking all over the internet for solid information about this bill and all I encounter are a million contradictions!

[Grant]

Excellent read! I think that Civil Liability part will be a good thing overall.