Federal

ISA Student Protection Act of 2023

Source: Congress.gov · 25,956 words in original text

What This Bill Does

This bill creates rules for "income share agreements" (ISAs), which are financial products where a person receives money upfront and pays it back later based on their future income rather than a fixed loan payment. The bill is designed to protect consumers using these agreements, especially those using them to pay for education, by requiring clear disclosures, payment limits, and consumer protections. ##

Who It Affects

- People borrowing money through income share agreements - Companies and organizations that offer income share agreements - Educational institutions and schools - The Bureau of Consumer Financial Protection - Internal Revenue Service - Employers - State revenue departments ##

Key Provisions

- ISA providers cannot include "acceleration" clauses (automatic higher payments if you fall behind) in income share agreements, or the agreement becomes a regular loan instead (Sec. 101) - For education ISAs, borrowers cannot commit more than 20 percent of their future income total to all their education ISAs combined (Sec. 102) - Education ISA providers must set an income threshold (a minimum income level) so borrowers with income below that amount owe zero dollars in payments (Sec. 102) - ISA providers must give borrowers written disclosures showing how much they might pay at different income levels, comparison with similar loans, fees, and payment terms before the person signs (Sec. 302) - If an ISA borrower becomes permanently and totally disabled or dies, all remaining payment obligations end (Sec. 103) ##

What Changes

If this bill becomes law, anyone offering income share agreements must follow new federal rules about how they structure these products and what information they must disclose. Education income share agreements will have limits on how much of a student's future income can go toward them (20 percent maximum). Borrowers will receive detailed comparison tables showing what they might pay at different income levels. Companies cannot use acceleration clauses that increase payments during default. The Internal Revenue Code will treat education ISAs differently for tax purposes—they won't be considered "indebtedness" and recipients won't have to count as income the money they receive for education expenses. ##

Important Definitions

- **Income Share Agreement (ISA)**: A financial product where a person receives money upfront and makes future payments calculated based on their income, with an income threshold (minimum income before payments are required), a maximum number of payments, and a maximum duration after which obligations end. - **Educational ISA**: An income share agreement used to pay for education or training programs, personal expenses while in school, or to refinance other education loans, that is not backed by the federal government. - **ISA Provider**: A person or company that offers financing through an income share agreement. - **ISA Recipient**: A consumer who receives money through an income share agreement. - **Amount Financed**: The money the ISA provider gives to or credits on behalf of the recipient. - **Income Threshold**: The minimum income a person must earn in a payment period before they owe any payments on the ISA. - **ISA Duration**: The maximum length of time a person can be required to make income-based payments. - **ISA Payment Calculation Method**: The percentage of income (or schedule of fixed dollar amounts) used to calculate what someone owes each payment period. - **Payment Relief Pause**: A break from payments requested by the borrower that doesn't count toward their maximum number of payments but does count toward the total time period. ##

Effective Date

The bill takes effect 180 days after it becomes law (Sec. 3).

II 118TH CONGRESS 1ST SESSION S. 136 To provide a consumer protection framework necessary to support the growth of accessible, affordable, and accountable financing options for postsec- ondary education, and for other purposes. IN THE SENATE OF THE UNITED STATES JANUARY 30, 2023 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 a consumer protection framework necessary to support the growth of accessible, affordable, and account- able financing options for postsecondary education, 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 2023’’. 5 (b) TABLE OF CONTENTS.—The table of contents for 6 this Act is as follows: 7 Sec. 1. Short title; table of contents. VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6211 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •S 136 IS Sec. 2. Definitions. Sec. 3. Effective date. TITLE I—NEW CONSUMER PROTECTIONS SPECIFIC TO INCOME SHARE AGREEMENTS Sec. 101. Prohibition on acceleration; treatment of early completion mecha- nisms. Sec. 102. Consumer protections for educational income share agreements. Sec. 103. Discharge protections for ISA recipients. Sec. 104. Limitation on amounts treated as income under educational ISAs. TITLE II—TAX TREATMENT OF INCOME SHARE AGREEMENTS Sec. 201. Tax treatment. TITLE III—DISCLOSURES APPLICABLE TO INCOME SHARE AGREEMENTS Sec. 301. Disclosures. Sec. 302. Required disclosures for income share agreements. Sec. 303. Additional requirements for educational ISAs. Sec. 304. Advertising of income share agreements. TITLE IV—OTHER CLARIFICATIONS TO SUPPORT ISA PROGRAMS Sec. 401. Treatment under securities laws. Sec. 402. Treatment under bankruptcy laws. Sec. 403. Consent to continuing release of taxpayer information under edu- cational ISAs and income share agreements. Sec. 404. Interplay with the Higher Education Act of 1965. TITLE V—APPLYING EXISTING CONSUMER PROTECTIONS TO INCOME SHARE AGREEMENTS Sec. 501. Equal access to income share agreements. Sec. 502. Prohibition on requiring preauthorized electronic fund transfers under the Electronic Fund Transfer Act. Sec. 503. Treatment under the Fair Credit Reporting Act. Sec. 504. Treatment under the Fair Debt Collection Practices Act. Sec. 505. Treatment of educational income share agreements for purposes of Military Lending Act. Sec. 506. Treatment under the Servicemembers Civil Relief Act. Sec. 507. Preservation of consumers’ claims and defenses. TITLE VI—RELATION TO OTHER LAWS Sec. 601. Treatment under other laws. Sec. 602. Relation to State law. TITLE VII—ENFORCEMENT AND REPORTING Sec. 701. Enforcement. Sec. 702. Reporting requirement for the Bureau of Consumer Financial Protec- tion. VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6211 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •S 136 IS SEC. 2. DEFINITIONS. 1 In this Act: 2 (1) ADVERSE ACTION.—The term ‘‘adverse ac- 3 tion’’— 4 (A) means a denial or revocation of rights 5 under an income share agreement, a change in 6 the terms of an existing income share agree- 7 ment, or a refusal to grant an income share 8 agreement in substantially the amount or on 9 substantially the terms requested; and 10 (B) does not include a refusal to extend 11 additional disbursements or amounts financed 12 under an income share agreement under an ex- 13 isting income share agreement arrangement 14 if— 15 (i) the applicant is delinquent or oth- 16 erwise in default; or 17 (ii) such additional amounts would ex- 18 ceed a previously established limit on the 19 amount financed. 20 (2) AMOUNT FINANCED.—The term ‘‘amount 21 financed’’ means, with respect to an income share 22 agreement, the amounts credited or advanced by the 23 ISA provider to the ISA recipient or on behalf of the 24 ISA recipient. 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •S 136 IS (3) ANNUAL PERCENTAGE RATE.—The term 1 ‘‘annual percentage rate’’ means the annual percent- 2 age rate described in section 1026.22(a) of title 12, 3 Code of Federal Regulations. 4 (4) APPLICANT.—The term ‘‘applicant’’ means, 5 with respect to an income share agreement, any indi- 6 vidual who applies to an ISA provider directly or in- 7 directly for an extension, renewal, or continuation of 8 an income share agreement and includes applications 9 for an additional amount exceeding a previously es- 10 tablished limit on the amount financed. 11 (5) BUREAU.—The term ‘‘Bureau’’ means the 12 Bureau of Consumer Financial Protection. 13 (6) COMPARABLE LOAN.—The term ‘‘com- 14 parable loan’’ means, with respect to an income 15 share agreement, a loan that— 16 (A) has an amount financed, as described 17 in section 1026.18(b) of title 12, Code of Fed- 18 eral Regulations, that is equal to the total 19 amount financed, as defined in paragraph (2), 20 for the income share agreement; 21 (B) has— 22 (i) the same disbursements or financ- 23 ing dates, payment start date, and fre- 24 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •S 136 IS quency of payments as the income share 1 agreement; and 2 (ii) an expected number of payments 3 equal to the ISA maximum number of pay- 4 ments; and 5 (C) is fully amortized over the ISA dura- 6 tion, with substantially equal periodic payments 7 of principal and interest. 8 (7) CONSUMER.—The term ‘‘consumer’’ means 9 a natural person using an income share agreement 10 for personal, family, or household purposes. 11 (8) CONSUMER PROTECTION REGULATION.— 12 The term ‘‘consumer protection regulation’’ means a 13 regulation that the Bureau is authorized to prescribe 14 under Federal consumer financial law, as defined in 15 section 1002 of the Consumer Financial Protection 16 Act of 2010 (12 U.S.C. 5481). 17 (9) COVERED EDUCATIONAL INSTITUTION.— 18 The term ‘‘covered educational institution’’— 19 (A) means— 20 (i) an educational institution that 21 would be an institution of higher edu- 22 cation, if such determination was made 23 without regard to the institution’s accredi- 24 tation status; and 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •S 136 IS (ii) an institution-affiliated organiza- 1 tion, as defined in section 151 of the High- 2 er Education Act of 1965 (20 U.S.C. 3 1019); and 4 (B) includes an agent, officer, or employee 5 of the institution of higher education or institu- 6 tion-affiliated organization. 7 (10) DATE OF THE ISA.—The term ‘‘date of the 8 ISA’’ means the date that is the later of— 9 (A) the date on which the income share 10 agreement is signed by the ISA recipient and 11 the ISA provider; or 12 (B) the date on which the income share 13 agreement is accepted by the ISA recipient and 14 the ISA provider. 15 (11) DIRECTOR.—The term ‘‘Director’’ means 16 the Director of the Bureau. 17 (12) DISBURSEMENT.—The term ‘‘disburse- 18 ment’’, when used with respect to an income share 19 agreement, means the advance of ISA financing to 20 an ISA recipient or the advancing of ISA financing 21 to a third party on the ISA recipient’s behalf. 22 (13) EDUCATIONAL ISA; EDUCATIONAL INCOME 23 SHARE AGREEMENT.—The term ‘‘educational ISA’’ 24 or ‘‘educational income share agreement’’— 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •S 136 IS (A) means an income share agreement 1 that— 2 (i) is not made, insured, or guaran- 3 teed under title IV of the Higher Edu- 4 cation Act of 1965 (20 U.S.C. 1070 et 5 seq.) or another federally subsidized edu- 6 cational finance program; 7 (ii) pays amounts to, or on behalf of, 8 the ISA recipient for— 9 (I) costs associated with a post- 10 secondary training program, or any 11 other program designed to increase 12 the individual’s human capital, em- 13 ployability, or earning potential (and 14 not limited to programs eligible to 15 participate under title IV of the High- 16 er Education Act of 1965 (20 U.S.C. 17 1070 et seq.)); 18 (II) any personal expenses (such 19 as books, supplies, transportation, and 20 living costs) incurred by the individual 21 while enrolled in a program described 22 in subclause (I); 23 (III) any other costs or expenses 24 included in the definition of a ‘‘quali- 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •S 136 IS fied higher education expense’’, as de- 1 fined in section 529(e)(3)(A) of the 2 Internal Revenue Code of 1986; and 3 (IV) the refinancing of loans or 4 income share agreements used for the 5 purposes described in subclauses (I) 6 through (III), and without regard as 7 to whether the income share agree- 8 ment is provided by the educational 9 institution that the ISA recipient at- 10 tends; and 11 (B) does not include a loan, open-end cred- 12 it, or any loan or income share agreement that 13 is secured by real property or a dwelling. 14 (14) EDUCATION LOAN.—The term ‘‘education 15 loan’’ means— 16 (A) a loan made, insured, or guaranteed 17 under title IV of the Higher Education Act of 18 1965 (20 U.S.C. 1070 et seq.) or any other 19 loan made, insured, or guaranteed by the Fed- 20 eral Government; or 21 (B) a private education loan, as such term 22 is defined in section 140(a) of the Truth in 23 Lending Act (15 U.S.C. 1650(a)). 24 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •S 136 IS (15) INCOME.—The term ‘‘income’’ means the 1 ISA Recipient’s income, as established in the income 2 share agreement under section 302(d)(8), subject to 3 section 104. 4 (16) INCOME SHARE AGREEMENT.— 5 (A) IN GENERAL.—The term ‘‘income 6 share agreement’’ means a financial product 7 whereby— 8 (i)(I) the ISA provider credits or ad- 9 vances financing to the ISA recipient or to 10 a third party on behalf of the ISA recipi- 11 ent; or 12 (II) if the ISA provider is a merchant 13 financing the sale of goods or services to 14 the ISA recipient via the financial product, 15 the ISA provider credits the amount fi- 16 nanced toward the purchase of such goods 17 or services; 18 (ii) the ISA recipient is obligated to 19 make periodic ISA payments (if any be- 20 come due) to the ISA provider in the fu- 21 ture calculated based upon and determined 22 by the ISA recipient’s future income; 23 (iii) the ISA recipient’s obligation to 24 make payments (if any become due) to the 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •S 136 IS ISA provider is conditional on the ISA re- 1 cipient’s income exceeding the income 2 threshold set in the income share agree- 3 ment; 4 (iv) there is an ISA duration after 5 which the obligation is complete regardless 6 of how much has been paid (as long as the 7 ISA recipient has paid any prior amounts 8 due); 9 (v) the ISA provider and the ISA re- 10 cipient enter into an agreement that, as of 11 the date of the ISA, includes each element 12 described in clauses (i) through (iv); and 13 (vi) the agreement states that it is an 14 income share agreement and subject to this 15 Act. 16 (B) SPECIAL RULE.—If a provider offers a 17 financial product that meets the requirements 18 of clauses (i) through (v) but does not include 19 the statement described in clause (vi), then the 20 financial product is not an income share agree- 21 ment and shall be considered credit. 22 (17) INCOME THRESHOLD.—The term ‘‘income 23 threshold’’ means a fixed dollar amount that is the 24 minimum income per payment period that an ISA 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 11 •S 136 IS recipient is required to earn before the ISA recipient 1 is required to make a payment on an income share 2 agreement for such payment period. 3 (18) INSTITUTION OF HIGHER EDUCATION.— 4 The term ‘‘institution of higher education’’ has the 5 meaning given the term in section 102 of the Higher 6 Education Act of 1965 (20 U.S.C. 1002). 7 (19) ISA DURATION.—The term ‘‘ISA dura- 8 tion’’ means the maximum length of time during 9 which the income of an ISA recipient can be subject 10 to an ISA payment (absent periods of payment relief 11 pause at the request of the ISA recipient). 12 (20) ISA FINANCING.—The term ‘‘ISA financ- 13 ing’’ means the disbursement of funds by an ISA 14 provider under an income share agreement. 15 (21) ISA MAXIMUM NUMBER OF PAYMENTS.— 16 The term ‘‘ISA maximum number of payments’’ 17 means the maximum number of ISA payments (dur- 18 ing ISA payment periods in which the ISA recipi- 19 ent’s income is greater than the income threshold) 20 that an ISA recipient could be required to make. 21 (22) ISA PAYMENT.—The term ‘‘ISA pay- 22 ment’’— 23 (A) means the amount of an ISA recipi- 24 ent’s periodic payment obligation, based on the 25 VerDate Sep 11 2014 21:24 Feb 09, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S136.IS S136 pbinns on DSKJLVW7X2PROD with $$_JOB 12 •S 136 IS terms of the income share agreement, during 1 any payment period for which the ISA recipi- 2 ent’s income is greater than the income thresh- 3 old; and 4 (B) is calculated using the ISA payment 5 calculation method, based on the ISA recipi- 6 ent’s income for the specified period. 7 (23) ISA PAYMENT CALCULATION METHOD.— 8 The term ‘‘ISA payment calculation method’’ means 9 the ISA percentage, or the schedule of fixed dollar 10 amounts based on the ISA recipient’s income for a 11 payment period, that is used to calculate an ISA re- 12 cipient’s ISA payment under the income share 13 agreement. 14 (24) ISA PAYMENT WINDOW.—The ‘‘ISA pay- 15 ment window’’ means the period during which the 16 ISA recipient is required to make ISA payments in 17 periods where the ISA recipient’s income is greater 18 than the income threshold for the income share 19 agreement. 20 (25) ISA PERCENTAGE.—The term ‘‘ISA per- 21 centage’’ means a percentage of income (or schedule 22 of per [Text truncated for display. Full text available on Congress.gov.]

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