Applying State Consumer Finance and Protection Laws to Income Share Agreements

Abstract

This article analyzes the application of state and certain federal laws to Income Share Agreements (“ISAs”) in light of previous scholarship concluding that ISAs meet the definitions of “credit” and “debt” under federal statutes including the Equal Credit Opportunity Act (ECOA), the Fair Debt Collection Practices Act (FDCPA), the Truth in Lending Act (TILA), and the Consumer Financial Protection Act of 2010 (CFPA). The paper concludes that a wide assortment of consumer protection laws enforceable by state regulators and attorneys general apply to the marketing, origination, servicing, and collection of ISAs.

State consumer protection statutes, which prohibit unfair and deceptive acts or practices in any trade or commerce affecting residents, apply to educational ISAs. This paper identifies several ways in which companies and schools marketing ISAs may run afoul of these generally applicable statutes. In addition, typical education ISAs qualify as “loans” for the purpose of many state consumer finance statutes, as such are subject to a variety of regulations from usury limits to licensing requirements for ISA originators and servicers. The growing market of educational ISAs requires a comprehensive approach by state education and financial regulators, as well as attorneys general, in order to protect students.

Keywords: student loan, consumer finance, income share agreement