Summary of Federal Laws                                             

Compliance Partners

Executive Assistant for VP of Finance

Director of Alumni Relations

VP of Finance and Treasurer

 

Financial Aid Programs

 

Truth in Lending Act (Regulation Z)

 

15 U.S.C. § 1601 et seq.; 12 C.F.R. § 226.1 et seq.

Requires disclosures for loans and credit plans, but exempts Perkins Loans and Federal Family Education Loans.  Loans made, insured or guaranteed pursuant to programs authorized by Title IV are exempt.  See 12 C.F.R. § 226.3(f).

 

In terms of loans made to employees, the university would only meet the definition of creditor under the law if the school is:

 

A person (A) who regularly extends consumer credit ³ that is subject to a finance charge or is payable by written agreement in more than four installments (not including a downpayment), and (B) to whom the obligation is initially payable, either on the face of the note or contract, or by agreement when there is no note or contract.

Note that the footnote 3 states as follows:

 

 ³ A person regularly extends consumer credit only if it extended credit (other than credit subject to the requirements of § 226.32) more than 25 times (or more than five times for transactions secured by a dwelling) in the preceding calendar year. If a person did not meet these numerical standards in the preceding calendar year, the numerical standards shall be applied to the current calendar year. A person regularly extends consumer credit if, in any 12-month period, the person originates more than one credit extension that is subject to the requirements of § 226.32 or one or more such credit extensions through a mortgage broker.

 

 

There is thus a threshold question of whether or not the volume of loans to employees is such that it meets the more than 25 times in the prior calendar year limit. In addition, to come under the terms of the act, the following four conditions need to be met:

 

1)  In general, this regulation applies to each individual or business that offers or extends credit when four conditions are met: (i) the credit is offered or extended to consumers; (ii) the offering or extension of credit is done regularly; ¹ (iii) the credit is subject to a finance charge or is payable by a written agreement in more than 4 installments; and (iv) the credit is primarily for personal, family, or household purposes. 12 CFR § 226.1 (c)

 

If the school determines that Regulation Z applies, then the school must comply with the disclosure requirements of the law. There must be a disclosure statement given to the consumer, and the terms "annual percentage rate" and "finance charge" must be more conspicuously displayed than other terms. 12 CFR § 226.18 lists the specific disclosures that must be made. This includes the creditor's identity, the amount financed, an itemization of the amount financed,  the finance charge, the annual percentage rate, the variable rate, if any, the payment schedule, the total of payments, as well as other information, including any late payment requirements.

 

 

Final Rule, Regulation Z as amended by the Higher Education Opportunity Act, 74 Fed. Reg. 41193 (August 14, 2009)

These final rules are effective Sept. 14, 2009 but compliance is optional until Feb. 14, 2010.

Following enactment of HEOA, private education loans are covered by a number of TILA requirements. Title IV loans are exempt. A *private education loan* as defined by the regulations does not include an extension of credit made by the school if the term is 90 days or less (emergency loans) or if an interest rate will not be applied to the credit balance and the term of the extension is one year or less. However, if your school makes short term loans, note that they are subject to the extension of credit subject to the requirements of Section 12 CFR 226.17 and 12 CFR 226.18. These are the general disclosure requirements and 226.18 lists the content of disclosures. See Subpart F of the regs, Special Rules for Private Education Loans. Also see Subpart C-Closed End Credit, but note that this page has not yet been updated to reflect what changes were made in the Federal Register. If a student or applicant  obtains a private loan (even if the loan is not from the school) the school will have to complete the financial aid section of the student's self certification that the creditor must obtain before completing the loan.

 

Proposed Rule, Truth in Lending, 74 Fed. Reg. 54123 (October 21, 2009)

The Board proposes to amend Regulation Z, which implements the Truth in Lending Act in
order to implement provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 that are effective on February 22, 2010. Of interest to IHEs are special requirements for extension of credit to consumers who are under the age of 21.

Specific requirements for underage consumers. Consistent with the Credit Card Act, the proposed rule prohibits a creditor from issuing a credit card to a consumer who has not attained the age of 21 unless the consumer has submitted a written application that meets certain requirements. Specifically, the application must include either: (1) The signature of a cosigner who has attained the age of 21, who has the means to repay debts incurred by the underage consumer in connection with the account, and who assumes joint liability for such debts; or (2) information indicating that the underage consumer has the ability to make the required payments for the account.
Marketing to Students     Prohibited inducements. The Credit Card Act limits a creditor's
ability to offer a student at an institution of higher education any tangible item to induce the student to apply for or open an open-end consumer credit plan offered by the creditor. Specifically, the Credit Card Act prohibits such offers: (1) On the campus of an institution of higher education; (2) near the campus of an institution of higher education; or (3) at an event sponsored by or related to an institution of higher education.   The proposed commentary would provide guidance to assist creditors in complying with the rule. For example, the proposed commentary would clarify that ``tangible item'' means a physical item (such as a gift card, t-shirt, or magazine subscription) and does not include non-physical items (such as discounts, rewards points, or promotional credit terms). The proposed commentary would also clarify that a location that is within 1,000 feet of the border of the campus of an institution of higher education (as defined by the institution) is considered near the campus of that institution. Finally, consistent with guidance recently adopted by the Board with respect to certain private education loans, the proposed commentary would state that an event is related to an institution of higher education if the marketing of such event uses words, pictures, or symbols identified with the institution in a way that implies that the institution endorses or otherwise sponsors the event.

The Credit Card Accountability, Responsibility and Disclosure Act of 2009

Amends the Truth in Lending Act to require institutions of higher education to publicly disclose any contract or other agreement made with a card issuer or creditor for purposes of marketing a credit card, prohibits card issuers or creditors from offering certain inducements to college students to apply for credit cards, and includes a statement of the sense of the Congress regarding college and university policies relating to credit cards. See Section 304. Signed by the President on May 22, 2009 and effective nine months later, so Feb. 22, 2010. See White House Press Release for summary of the law.

Text of new law

SEC. 304. PRIVACY PROTECTIONS FOR COLLEGE STUDENTS.
Section 140 of the Truth in Lending Act (15 U.S.C. 1650)
is amended by adding at the end the following:
‘‘(f) CREDIT CARD PROTECTIONS FOR COLLEGE STUDENTS.—
‘‘(1) DISCLOSURE REQUIRED.—An institution of higher education shall publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing
a credit card.
‘‘(2) INDUCEMENTS PROHIBITED.—No card issuer or creditor may offer to a student at an institution of higher education any tangible item to induce such student to apply for or participate
in an open end consumer credit plan offered by such card issuer or creditor, if such offer is made—
‘‘(A) on the campus of an institution of higher education;
‘‘(B) near the campus of an institution of higher education,
as determined by rule of the Board; or
‘‘(C) at an event sponsored by or related to an institution
of higher education.

‘‘(3) SENSE OF THE CONGRESS.—It is the sense of the Congress that each institution of higher education should consider adopting the following policies relating to credit cards:
‘‘(A) That any card issuer that markets a credit card on the campus of such institution notify the institution of the location at which such marketing will take place.
‘‘(B) That the number of locations on the campus of such institution at which the marketing of credit cards takes place be limited.
‘‘(C) That credit card and debt education and counseling sessions be offered as a regular part of any orientation program for new students of such institution.

 

 

See the Fair Credit Reporting Act for related topics.

 

 

 

 

 

 

 

 

 

 

updated 5/18/09 to add compliance partners

updated 6/2/09 to add Credit Card Accountablity Act
updated to add Federal Reserve Regulation Z final rules, 8-19-09 by mlo

updated to 11-6-09 add 74 Fed. Reg. 54123 by mlo