II 116TH CONGRESS 1ST SESSION S. 2114 To provide the legal framework and income tax treatment necessary for the growth of innovative private financing options, and for other purposes. IN THE SENATE OF THE UNITED STATES JULY 15, 2019 Mr. YOUNG (for himself, Mr. WARNER, Mr. RUBIO, and Mr. COONS) intro- duced the following bill; which was read twice and referred to the Com- mittee on Finance A BILL To provide the legal framework and income tax treatment necessary for the growth of innovative private financing options, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 3 (a) SHORT TITLE.—This Act may be cited as the 4 ‘‘ISA Student Protection Act of 2019’’. 5 (b) TABLE OF CONTENTS.—The table of contents for 6 this Act is as follows: 7 Sec. 1. Short title; table of contents. Sec. 2. Definitions. TITLE I—TAX TREATMENT OF A QUALIFIED ISA VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6211 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 2 •S 2114 IS Sec. 101. Tax treatment of proceeds and payments of future income. Sec. 102. Terms and conditions of Qualified ISAs. Sec. 103. Rulemaking; model disclosure forms. Sec. 104. Truth in Lending Act. Sec. 105. Consent to continuing release of taxpayer information under Qualified ISAs and income-share agreements. TITLE II—TREATMENT OF A QUALIFIED ISA UNDER STATE LAW Sec. 201. Lawfulness of contracts; preemption of State law. Sec. 202. Preemption of State law with respect to usury. Sec. 203. Preemption of pre-existing State laws with respect to ability-to-repay and licensing laws. TITLE III—FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF A QUALIFIED ISA Sec. 301. Proceeds not treated as income in calculation of financial need under the Higher Education Act of 1965. TITLE IV—TREATMENT UNDER SECURITIES LAWS Sec. 401. Qualified ISAs not treated as securities. Sec. 402. Businesses making Qualified ISAs excluded from investment company treatment. TITLE V—TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS Sec. 501. Qualified ISA anti-discrimination protections. Sec. 502. Prohibition on requiring preauthorized electronic fund transfers. Sec. 503. Treatment under the Fair Credit Reporting Act. Sec. 504. Application of the Fair Debt Collection Practices Act. Sec. 505. Application of the Military Lending Act. Sec. 506. Application of the Servicemembers Civil Relief Act. Sec. 507. Rulemaking. TITLE VI—TREATMENT UNDER OTHER LAWS Sec. 601. Insurance and wagering. Sec. 602. Payments not considered prepayments. TITLE VII—REPORTING REQUIREMENT FOR THE BUREAU OF CONSUMER FINANCIAL PROTECTION Sec. 701. Report. SEC. 2. DEFINITIONS. 1 For purposes of this Act: 2 (1) COMPARABLE LOAN.—The term ‘‘com- 3 parable loan’’ means, with respect to a Qualified 4 ISA, a loan that— 5 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 3 •S 2114 IS (A) has an original principal amount such 1 that, after any origination fees on the loan are 2 paid, the amount of loan financing received by 3 the individual is equal to the total amount of 4 funding provided under the Qualified ISA to or 5 on behalf of the individual subject to the Quali- 6 fied ISA; 7 (B) has the same disbursement or funding 8 date, payment start date, and number of re- 9 quired monthly payments; and 10 (C) is fully amortized over such term with 11 monthly payments of principal and interest. 12 (2) INCOME-SHARE AGREEMENT.—The term 13 ‘‘income-share agreement’’ means an agreement— 14 (A) between an individual and an ISA 15 funder; 16 (B) under which— 17 (i) the ISA funder credits towards the 18 tuition or other obligations of, or pays 19 amounts to, or on behalf of, such indi- 20 vidual for costs associated with a postsec- 21 ondary training program, or any other pro- 22 gram designed to increase the individual’s 23 human capital, employability, or earning 24 potential (and not limited to programs eli- 25 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 4 •S 2114 IS gible to participate as programs under title 1 IV of the Higher Education Act of 1965 2 (20 U.S.C. 1070 et seq.)); and 3 (ii) such individual pays to such ISA 4 funder (or the ISA funder’s successor in 5 interest) income-share payments for a de- 6 fined term; and 7 (C) is not a loan. 8 (3) INCOME-SHARE FUNDING.—The term ‘‘in- 9 come-share funding’’ means— 10 (A) costs associated with a postsecondary 11 training program, or any other program de- 12 signed to increase the individual’s human cap- 13 ital, employability, or earning potential (and not 14 limited to programs eligible to participate as 15 programs under title IV of the Higher Edu- 16 cation Act of 1965 (20 U.S.C. 1070 et seq.)); 17 and 18 (B) an allowance for books, supplies, 19 transportation, and miscellaneous personal ex- 20 penses, including a reasonable allowance for— 21 (i) the documented rental or purchase 22 of a personal computer; or 23 (ii) the refinancing of debt used for 24 the costs described in this subparagraph. 25 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 5 •S 2114 IS (4) INCOME-SHARE PAYMENT.—The term ‘‘in- 1 come-share payment’’ means an amount equal to a 2 specified percentage of the future income of an indi- 3 vidual. 4 (5) ISA FUNDER.—With respect to a Qualified 5 ISA, the term ‘‘ISA funder’’ means the party to the 6 Qualified ISA who— 7 (A) credits towards the tuition or other ob- 8 ligations of, or pays amounts to, or on behalf 9 of, an individual solely for the purposes speci- 10 fied in paragraph (3)(A)(i); and 11 (B) has the right to receive a specified per- 12 centage of the individual’s future income. 13 (6) QUALIFIED ISA.—The term ‘‘Qualified ISA’’ 14 means an agreement between an individual and an 15 ISA funder that— 16 (A) is not a loan, but is an income-share 17 agreement under which— 18 (i) the ISA funder credits towards the 19 tuition or other obligations of, or pays 20 amounts to, or on behalf of, such indi- 21 vidual for income-share funding; and 22 (ii) such individual pays to such ISA 23 funder (or the ISA funder’s successor in 24 interest); and 25 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 6 •S 2114 IS (B) meets the requirements of subsections 1 (a) and (b) of section 102. 2 (7) STATE.—The term ‘‘State’’ means the sev- 3 eral States of the United States, the Commonwealth 4 of Puerto Rico, the District of Columbia, Guam, 5 American Samoa, the Virgin Islands, the govern- 6 ment of the Northern Mariana Islands, and the 7 Trust Territory of the Pacific Islands. 8 (8) STATE LAW.—The term ‘‘State law’’ 9 means— 10 (A) any law, decision, rule, regulation, or 11 other action having the effect of a law of any 12 State or any political subdivision of a State, or 13 any agency or instrumentality of a State or po- 14 litical subdivision of a State; and 15 (B) any law of the United States applica- 16 ble only to the District of Columbia. 17 TITLE I—TAX TREATMENT OF A 18 QUALIFIED ISA 19 SEC. 101. TAX TREATMENT OF PROCEEDS AND PAYMENTS 20 OF FUTURE INCOME. 21 For purposes of the Internal Revenue Code of 1986: 22 (1) FUNDING EXCLUDED FROM GROSS IN- 23 COME.—In the case of an individual, gross income 24 shall not include the amount of any income-share 25 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 7 •S 2114 IS funding that is credited toward the tuition or other 1 obligations of, or paid to or on behalf of, such indi- 2 vidual under a Qualified ISA. 3 (2) DIFFERENCE IN REPAYMENT NOT IN- 4 CLUDED AS GROSS INCOME.—In the case of a Quali- 5 fied ISA under which the income-share funding ex- 6 ceeds the total income-share payments (in any pe- 7 riod over the life of the contract), the individual’s 8 gross income shall not include the amount of such 9 excess. 10 (3) TREATMENT OF PAYMENTS OF FUTURE IN- 11 COME.—The amount of any income-share payments 12 under a Qualified ISA shall be treated— 13 (A) first, with respect to so much of such 14 amount as does not exceed the income-share 15 funding under such Qualified ISA, as a recov- 16 ery of investment (with a corresponding reduc- 17 tion in basis) in the contract; and 18 (B) second, as income on the contract 19 which is includible in gross income. 20 SEC. 102. TERMS AND CONDITIONS OF QUALIFIED ISAS. 21 (a) TERMS AND CONDITIONS.—Each Qualified ISA 22 shall comply with the following: 23 (1) SPECIFIED PERCENTAGE OF INCOME.— 24 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 8 •S 2114 IS (A) IN GENERAL.—The Qualified ISA 1 specifies the percentage of future income re- 2 quired to be paid. 3 (B) MAXIMUM PERCENTAGE.—The max- 4 imum percentage of income an individual would 5 be required to pay under the Qualified ISA 6 shall not exceed 20 percent, and the product of 7 such percentage and the number of monthly 8 payments required under the Qualified ISA di- 9 vided by 12 shall not exceed 2.25 (which figure 10 is the product of 7.5 percent and the number 11 of years in the longest allowable contract under 12 paragraph (4)(A)). 13 (2) DEFINITION OF INCOME.—The Qualified 14 ISA specifies the definition of income to be used for 15 purposes of calculating an individual’s obligation to 16 pay under the Qualified ISA, which— 17 (A) shall not in any case include the in- 18 come of the individual’s children; 19 (B) shall not include— 20 (i) any amount paid to the individual 21 under title II or XVI of the Social Security 22 Act (42 U.S.C. 401 et seq., 1381 et seq.) 23 or under a State program funded title IV 24 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 9 •S 2114 IS under of such Act (42 U.S.C. 601 et seq.); 1 or 2 (ii) any amount received by the indi- 3 vidual under the Child Nutrition Act of 4 1966 (42 U.S.C. 1771 et seq.); 5 (C) shall include revenue sources primarily 6 incurred from an individual’s employment; and 7 (D) may include another revenue source 8 besides employment if an individual has volun- 9 tarily chosen to not seek employment and is 10 still receiving significant revenue from another 11 source. 12 (3) AFFORDABILITY FOR LOW AFTER-SCHOOL 13 INCOME.— 14 (A) IN GENERAL.—The Qualified ISA pro- 15 vides that when an individual subject to the 16 Qualified ISA has an income that is equal to or 17 below the threshold amount described in sub- 18 paragraph (B), the percentage of income obliga- 19 tion for the individual is zero. 20 (B) THRESHOLD AMOUNT.—The threshold 21 amount under this subparagraph is an amount 22 equal to (or at the option of the ISA funder, 23 greater than)— 24 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 10 •S 2114 IS (i) 200 percent of the poverty line for 1 a single person (as defined in section 673 2 of the Community Services Block Grant 3 Act (42 U.S.C. 9902)); or 4 (ii) in the case of a Qualified ISA en- 5 tered into before January 1, 2020, 150 6 percent of such poverty line for a single 7 person. 8 (C) ALLOWANCE OF FEES OR NOMINAL 9 PAYMENTS.—Subparagraph (A) shall not be in- 10 terpreted to preclude the charging of fees or 11 nominal payments (as described in paragraph 12 (8)) during this period. 13 (4) SPECIFIED DURATION; EXTENSION OF PE- 14 RIOD.— 15 (A) DURATION.—The Qualified ISA speci- 16 fies the maximum period of time during which 17 the individual will be obligated to make a speci- 18 fied number of monthly payments of a percent- 19 age of the individual’s future income (excluding 20 periods when just a nominal payment (as de- 21 scribed under paragraph (8)) is required), 22 which may not (except as provided in subpara- 23 graph (B)) exceed 360 months. 24 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 11 •S 2114 IS (B) EXTENSION OF PERIOD.—The Quali- 1 fied ISA may provide for the extension of such 2 period by the number of months during which 3 the individual’s percentage of income obligation 4 (excluding nominal payments and fees) was 5 zero. 6 (5) EARLY TERMINATION.—The Qualified ISA 7 specifies the terms and conditions under which the 8 individual subject to the agreement may terminate 9 the agreement. 10 (6) APPROPRIATE RISK SHARING.—The pay- 11 ments required under the Qualified ISA for an indi- 12 vidual with income during the payment term that is 13 less than or equal to 225 percent of the poverty line 14 for a single person (as defined in section 673 of the 15 Community Services Block Grant Act (42 U.S.C. 16 9902)) shall not exceed the payments on a com- 17 parable loan that bears interest at a rate less than 18 or equal to the annual percentage rate of interest 19 limitation under section 987(b) of title 10, United 20 States Code. 21 (7) AGGREGATE LIMITATION ON OBLIGATION.— 22 The Qualified ISA provides that the total percentage 23 of future income of the individual that the individual 24 agrees to pay, under the current Qualified ISA and 25 VerDate Sep 11 2014 22:48 Jul 17, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2114.IS S2114 kjohnson on DSK79L0C42 with BILLS 12 •S 2114 IS any other Qualified ISAs previously entered into by 1 the individual, shall not exceed 20 percent. 2 (8) NOMINAL PAYMENTS.—The Qualified ISA 3 specifies any nominal monthly payment that is re- 4 quired during periods when the individual subject to 5 the Qualified ISA has no percentage of income obli- 6 gation, except that— 7 (A) such nominal monthly payment shall 8 not exceed twenty-five dollars per month (ad- 9 justed each year to reflect changes in the Con- 10 sumer Price Index for All Urban Consumers 11 published by the Bureau of Labor Statistics of 12 the Department of Labor for the most recent 13 12-month period for which the data are avail- 14 able); and 15 (B) the total number of nominal payments 16 that may be required shall not exceed the max- 17 imum number of allowable payments described 18 in paragraph (4)(A). 19 (9) PROTECTIONS.— 20 (A) IN GENERAL.—The Qualified ISA 21 specifies, at a minimum, individual righ [Text truncated for display. 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