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Published: October 2009

Student loans must be regulated by the CFPA

Coalition: Predatory Lending

In coalition with many other groups, Consumer Action signed onto a letter asking Congress to ensure that the Consumer Financial Protection Agency be given must full authority to regulate private student loans regardless of the institution offering them.

Download a copy of the letter

Below is an excerpt from the letter:

As advocates for consumers, students, higher education and taxpayers, we strongly urge you to ensure the CFPA has full authority over all private student loans, regardless of the institution offering the loan.  We are concerned that clarifications to address small business concerns have inadvertently exempted dangerous private student loans made by large for-profit colleges from the CFPA’s enforcement authority. 

Private student loans are one of the riskiest ways to pay for college, yet a growing number of students have private student loans as well as, or instead of, federal student loans.  Private student loans are expensive, mostly variable-rate loans that cost more for those who can least afford them.  They lack the fixed rates, consumer protections and flexible repayment options of federal student loans, and are not financial aid any more than a credit card is when used to pay for textbooks or tuition.  
 
To effectively protect consumers, the CFPA must have full authority to regulate private student loans regardless of the institution offering them.  For consumers, a private student loan can pose the same serious risks whether issued by a financial institution or by a school.  The CFPA should apply and enforce standards based upon the product and not the issuing institution.  

We are concerned that educational services might inadvertently fall within the scope of the services covered by the exemption for merchants, retailers and sellers, and thus loans made directly by schools would be outside the CFPA’s jurisdiction.  Indeed, the exemption might even prevent the CFPA from enforcing existing rules for such loans covered by the Truth in Lending Act (TILA). 

TILA already exempts small, incidental extensions of credit from regulatory burdens. TILA’s definition of creditor, as interpreted in Regulation Z, provides exemptions for  incidental creditors, and TILA’s definition of private education loan provides exemptions for school payment plans and short-term extensions of credit.  The CFPA’s authority should be consistent with these TILA definitions.

Lead Organization

The Institute for College Access & Success

Other Organizations

American Association of Collegiate Registrars and Admissions Officers | American Association of Community Colleges | American Association of State Colleges and Universities | American Association of University Women (AAUW) | Americans for Fairness in Lending | Americans for Financial Reform | Campus Progress Action | Center for Responsible Lending | Common Cause | Consumer Federation of America | Consumers Union | Consumer Watchdog | Dēmos: A Network for Ideas & Action | Empire Justice Center | The Greenlining Institute | Institute for College Access & Success and the Project on Student Debt | National Association of College Admission Counseling | National Association of Consumer Advocates | National Association of Consumer Bankruptcy Attorneys | National Center for Public Policy and Higher Education | National Consumer Law Center (on behalf of its low income clients) | National Consumers League | National Council of La Raza | National Education Association | New York Public Interest Research Group (NYPIRG) | U.S. Public Interest Research Group | United States Student Association | USAction | Woodstock Institute

More Information

The Institute for College Access & Success

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