Advertising Student Loans; Payday Rule Delay
Written by Loran Jackson, Regulatory Compliance Counsel
Hi compliance friends! I’m back and I brought along our old pals, private education loans.
In my first blog [have a glance], I mentioned that Section 1026.46-48 of Regulation Z imposes requirements on lenders of “private education loans”, including disclosure of terms and interest rates. In addition to the other NCUA and Reg Z advertising rules that apply generally to consumer credit products (see 740.5, 1026.16, and 1026.24), this section of Reg Z also imposes specific requirements for solicitations and advertisements for private education loans.
Picture this: An enthusiastic credit union representative passes out flyers to students of a local university. The flyers include information about the credit union’s affordable private education loans right under a beautiful picture of the university’s mascot holding bags money, and the color scheme of the flyers match the school colors. Is this permissible under Reg Z? The answer… it depends.
Let’s focus first on the use of the mascot and school colors. Section 1026.48(a)(1) generally prohibits co-branding of a credit union and a “covered educational institution”. Co-branding occurs when a credit union uses the name, emblem, mascot, or logo of a covered educational institution, or other words, pictures, or symbols identified with a covered educational institution in its loan marketing. Our example above, and similar co-branding scenarios that imply that the covered educational institution endorses the credit union’s loans, are generally prohibited.
However, this enthusiastic credit union representative may continue to pass out these flyers at the local university in two scenarios:
- Scenario 1: The school has not endorsed the credit union’s loans, and the flyers contain a “clear and conspicuous” disclosure that the referenced covered educational institution does not endorse the credit union’s loans and is not affiliated with the credit union. Additionally, the “clear and conspicuous” disclosure is equally prominent and closely proximate to the picture of the mascot or any other reference to the covered educational institution [1026.48(a)(2)].
- Scenario 2: The school and the credit union have an endorsed lender arrangements where the school endorses the credit union’s loans, and the flyers contain a clear and conspicuous disclosure that the credit union's loans are not offered or made by the covered educational institution, but are made by the credit union [1026.48(b)].
Beside the limitations on co-branding, there are other requirements that apply to all solicitations and applications for private education loans. Section 1026.47(a) requires the hypothetical flyers to include more than a lovely color scheme. The enthusiastic credit union representative will also be required to include certain types of information on the flyers, including the following:
- The interest rate or range of interest rates, including information on whether creditworthiness or other factors may affect the rate
- An itemization of fees or ranges of fees required to obtain the loan, and fees associated with default or late payment
- Repayment terms, such as the term of the loan, deferral options, whether interest payments may be deferred, and the implications of bankruptcy
- Costs estimates with an example of total costs
- Eligibility requirements for the consumer or cosigner
- Alternatives to private education loans, including information about federal student loans
- Rights of the consumer, including the right to accept the terms of the loan, which should be available, unchanged, for the consumer’s acceptance for 30 days
- Self-certification information, which requires the consumer to obtain and sign a form provided by their institution
As we transition into the heat of summer, plenty of college bound students may be looking for loans to cover educational expenses. This may be a great time for our enthusiastic credit union representatives to dust off those advertisements and solicitations or consider reformatting them. Keep in mind that Appendix H of Reg Z includes model forms for all stages of the process, from solicitation to the final terms of the private education loan. These model forms are labeled H-18 to H-23.
Extra, extra! Read all about it! Yesterday, the Consumer Financial Protection Bureau issued a final rule to delay the August 19, 2019 compliance date for the mandatory underwriting provisions of the Payday Rule promulgated by the Bureau in November 2017. Compliance with these provisions of the Rule is delayed by 15 months, to November 19, 2020. *Group exhale*