Paper Series: Consumer Law and Income Share Agreements
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.
While ISAs have not yet been subject to enforcement actions by state and federal authorities, they are agreements through which consumers get money, in exchange for a promise to repay that money in the future. This and other features of ISA repayment put them squarely within the coverage of existing federal consumer protection law. As ISAs grow in prominence, it is critical that parties to these agreements must be subject to regulation and enforcement under current law.
This paper examines how the antidiscrimination framework underpinning federal and state fair lending laws apply to Income Share Agreements (ISAs), with a particular focus on the Equal Credit Opportunity Act (ECOA). Although ISAs have been touted as a solution to the student debt crisis, features of existing ISAs threaten to exacerbate inequalities.
Evidence suggests that in some cases, communities of color are being exploited by predatory ISA products. In addition, some features used to set terms and conditions for ISAs, such as school- or major-based distinctions, risk unnecessarily perpetuating disparities among historically underserved groups.
This paper surveys state consumer finance and consumer protection laws to examine their application to Income Share Agreements (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.
Because ISAs are subject to state laws regulating consumer loans, a wide variety of state laws apply to ISA providers, servicers, and collectors, as well as the schools through which they are offered. These include laws pertaining to licensing and oversight, usury limits, and prohibitions against unfair and deceptive acts or practices.
Read the Blog: The Role of States in Protecting Students in the ISA Market