Income Share Agreements (ISAs) are financing products that require students to pledge a portion of their future income in exchange for money to pay for college. ISAs have been touted by venture capitalists and Silicon Valley as a solution to the student debt crisis, but these products pose serious risks to students and could violate a number of federal and state laws.
The SBPC is working with partners to analyze and expose the potential harm ISAs may cause to borrowers and raise awareness among policymakers and institutions.
ISA Work Spotlight:
California has long been a leader in student borrower protection. A new memo outlines how policymakers and law enforcement in the Golden State can protect borrowers from predatory income share agreements.
Two former students, with the support of the SBPC, filed lawsuits against a predatory online bootcamp scheme and a nationwide provider of ISAs, alleging widespread deceptive practices, illegal lending, and unlawful collection of student loans. SBPC referred the ISA company to the CFPB.
In light of recent action by the Consumer Financial Protection Bureau to affirm that income share agreements (ISAs) are a form of private student loan that must comply with all relevant state and federal consumer financial protections, the SBPC sent letters to a number of federal agencies highlighting the need for increased scrutiny of the ISA market.
The California Department of Financial Protection and Innovation announced a landmark consent order with New York-based Meratas, Inc., a company that partners with educational institutions to offer students ISAs to finance post-secondary education and training. This is the first public enforcement action by a regulator against an ISA provider.
47 former students sued Make School, Inc. an operator of a for-profit coding academy, and Vemo Education, Inc. the Income Share Agreement company, for jointly creating and offering a predatory, high-cost ISA to attend the academy.
ISA Paper Series: Emerging Risks
This paper series explores the role that consumer protection laws play in safeguarding borrowers from the harms posed by ISAs. Authored by legal experts at the forefront of consumer law, the papers look at how ISAs fit into the existing consumer financial protection framework, highlighting a strong legal foundation for policymakers and regulators as they seek to oversee these products and protect students.
This paper examines the industry argument that ISAs are “not credit,” and that therefore federal consumer protection laws do not apply. Analyzing the numerous federal laws that define “credit” and protect consumers in credit transactions, this paper lays out how ISAs share many characteristics with traditional student loans and how these financial products fall squarely within the consumer financial laws which broadly apply to credit products.
This paper examines how the antidiscrimination framework underpinning federal and state fair lending laws apply to ISAs, with a particular focus on the Equal Credit Opportunity Act. Although ISAs have been touted as a solution to the student debt crisis, features of existing ISAs threaten to exacerbate inequalities.
This paper surveys state consumer finance and consumer protection laws to examine their application to ISAs. From origination to servicing to collections, a framework to protect borrowers with ISAs already exists at the state level, despite contrary claims by the ISA industry.
ISAs in the News:
Income-share agreements are gaining popularity, but a new analysis highlights how calculations of what borrowers owe can penalize minorities.
The groups say Vemo engages in deceptive marketing that could result in college students paying thousands of dollars in unexpected costs, and they are asking the FTC to order restitution for borrowers harmed by these alleged practices.
Despite marketing that claims ISAs are “not a loan,” lack an interest rate, and align the interests of the college and the student, ISAs operate like traditional private loans. They are often funded by private investors, require repayment in all but the most dire circumstances, and include draconian consequences for default.
The National Consumer Law Center and the Student Borrower Protection Center filed a complaint with the Federal Trade Commission on Monday, asking the agency to look into practices by Vemo Education, alleging the company provided potential customers with inaccurate information about its own and competitors’ products.