II 110th CONGRESS 1st Session S. 1831 IN THE SENATE OF THE UNITED STATES July 19, 2007 Mr. Schumer introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Truth in Lending Act, to improve disclosures for private student loans, and for other purposes.

1.

Short title

This Act may be cited as the Private Student Loan Disclosure Enhancement Act of 2007.

2.

Application of Truth in Lending Act

Section 104(3) of the Truth in Lending Act (15 U.S.C. 1603(3)) is amended by inserting before the period at the end the following , and other than private education loans, as that term is defined in section 128(e), regardless of the amount financed.

3.

Enhanced disclosures for private student loans

(a)

In general

Section 128 of the Truth in Lending Act (15 U.S.C. 1638) is amended by adding at the end the following: (e)

Terms and disclosure with respect to private student loans

(1)

Disclosures required in private student loan applications and solicitations

In any application for a private student loan, or a solicitation for a private student loan without requiring an application, the lender shall disclose to the borrower, clearly and conspicuously— (A)the potential range of annual percentage rates of interest applicable to the private student loan; (B)whether the rate of interest applicable to the private student loan is fixed or variable; (C)limitations on interest rate adjustments, both in terms of frequency and amount, or the lack thereof; (D)requirements for a parent or co-borrower, including any changes in the applicable interest rates without a parent or co-borrower; (E)all potential finance charges, late fees, penalties, and adjustments to principal, based on transgressions of the borrower; (F)fees or range of fees (along with basis for variations in fees) applicable to the private student loan; (G)the term of loan; (H)whether interest will accrue while the student to whom the private student loan relates is enrolled at an institution of higher education; (I)payment deferral options, including whether the deferment would apply to interest or principal, or both; (J)if only principal may be deferred, whether the student may postpone the payment of interest by capitalization of the interest; (K)whether deferrals may be extended for additional periods of enrollment at an institution of higher education; (L)the duration of any payment grace period; (M)eligibility criteria for the private student loan; (N)3 examples of the total cost of the private student loan over the life of the loan— (i)2 of which shall be calculated using the same principal amount, one of those using the maximum possible rate of interest (or 36 percent, if no maximum amount is specified in the terms of the loan); and (ii)calculated both with and without capitalization of interest if that is an option for postponing interest payments; (O)in any case in which the applicable rate of interest is variable, a disclosure that interest rates are variable and that any projected cost at less than the maximum rate of interest is likely to go up significantly; (P)a statement that an institution of higher education may have school-specific student loan benefits and terms not detailed on the disclosure form; and (Q)such other information as the Board shall prescribe, by rule, as necessary for consumers to make informed borrowing decisions. (2)

Disclosures at the time of private student loan approval

Contemporaneously with the approval of a private student loan application, and before the loan transaction is consummated, the lender shall disclose to the borrower, clearly and conspicuously— (A)the applicable rate of interest; (B)whether the rate of interest applicable to the private student loan is fixed or variable; (C)limitations on interest rate adjustments, both in terms of frequency and amount, or the lack thereof; (D)the principal amount for repayment; (E)the applicable annual percentage rate (or APR) with respect to the private student loan; (F)applicable finance charges, late fees, penalties, and adjustments to principal, based upon borrower transgressions; (G)fees upon disbursement of the private student loan; (H)the term of the private student loan; (I)the monthly payment, calculated using the rate of interest in effect on the date of approval, initially required after the student to whom the private student loan relates is no longer enrolled at an institution of higher education, and the maximum monthly payment to which such amount could increase if rates are variable, which amounts shall be calculated— (i)using the principal amount that will be in effect at that post-enrollment time (incorporating accrual of interest during the educational years, if applicable), rather than at the time of consummation of the loan; and (ii)in the case of a variable rate private student loan that has no cap on the rate of interest, assuming a maximum interest rate of 36 percent; (J)an estimate of the total amount for repayment, at both the interest rate in effect on the date of approval, and at the maximum possible rate of interest if the rate is variable (assuming a maximum rate of 36 percent if no maximum rate is specified by the terms of the loan); (K)any principal and interest payments required while the student to whom the private student loan relates is enrolled at an institution of higher education and interest which will accrue during such enrollment; (L)payment deferral options, including whether the deferment would apply to interest or principal, or both; (M)if only principal may be deferred, whether the student may postpone the payment of interest by capitalization of the interest; (N)whether deferrals may be extended for additional periods of enrollment at an institution of higher education; (O)the duration of any payment grace period; (P)any penalty for early repayment of the private student loan; (Q)whether monthly payments are graduated; (R)that the borrower shall have 30 calendar days following the date on which the application for the private education loan is approved and the borrower receives the disclosure documents required under this subsection for the loan, to accept the terms of the private education loan and consummate the transaction, and the rates and terms of the loan may not be changed by the lender during that period; and (S)such other information as the Board shall prescribe, by rule, as necessary for consumers to make informed borrowing decisions. (3)

Format of disclosures

Disclosures required under paragraphs (1) and (2) shall appear in a clearly legible (not less than 12-point font), uniform format, subject to section 122(c). (4)

Effective period of approved rate of interest and loan terms

With respect to a private student loan, the borrower shall have 30 calendar days following the date on which the application for the private education loan is approved and the borrower receives the disclosure documents required under this subsection for the loan to accept the terms of the loan and consummate the transaction, and the rates and terms of the loan may not be changed by the lender during that period, subject to the rules of the Board. (5)

Definitions

For purposes of this subsection— (A)the term institution of higher education has the same meaning as in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002); (B)the term lender means a creditor, other than an issuer of credit under a residential mortgage transaction, and any agent thereof; and (C)the term private education loan means a private loan provided by a lender that— (i)is not made, insured, or guaranteed under any Federal, State, or local government unit, including under subtitle B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and (ii)is issued by a lender for postsecondary educational expenses to a student, or the parent of the student, regardless of whether the loan is provided through the educational institution that the student attends or directly to the student or parent from the lender. . (b)

Regulations To carry out private education loan disclosures

(1)

In general

The Board of Governors of the Federal Reserve System (in this section referred to as the Board) shall issue regulations in final form to carry out section 128(e) of the Truth in Lending Act, as added by this section, not later than 6 months after the date of enactment of this Act. (2)

Development and testing of disclosure statement

The Board shall, in issuing regulations under paragraph (1), develop and test for readability a disclosure statement for student borrowers that is consistent with the requirements of section 122(c) of the Truth in Lending Act (15 U.S.C. 1638(c)). (c)

Conforming amendment

Section 122(c) of the Truth in Lending Act (15 U.S.C. 1632(c)) is amended by inserting and in section 128(e) before shall be.

4.

Enforcement of requirements for private education loans

Section 130 of the Truth in Lending Act (15 U.S.C. 1640) is amended— (1)in subsection (a), in the fourth sentence of the undesignated matter at the end, by inserting or section 128(e), before or for failing; and (2)in subsection (e), in the first sentence, by inserting before the period the following: , except that, in the case of a private education loan (as defined in section 127(e)), such an action may be brought not later than one year after the date on which the first monthly payment on the loan is due after the student to whom the private student loan relates is no longer enrolled at an institution of higher education, unless full repayment begins earlier with no deferral of interest or principal.

5.

Disclosures of Federal loan availability

(a)

Disclosure required

The Board shall issue regulations in final form not later than 6 months after the date of enactment of this Act to require each lender to disclose in accordance with subsection (b), contemporaneously with the disclosures required under paragraphs (1) and (2) of section 128(e) of the Truth in Lending Act (as added by this Act), that the student borrower may be eligible for a Federal education loan. (b)

Development and testing of disclosure statement

The Board shall, in issuing regulations under subsection (a), develop and test for readability a disclosure statement for student borrowers that— (1)encourages students to maximize their use of Federal education loans; (2)discloses that Federal educational loans are less costly than private education loans; and (3)discloses the average rate of interest for Federal educational loans. (c)

Format

The disclosures developed under this section shall be made in clear language and in a conspicuous location separate from the disclosures made under section 128(e) of the Truth in Lending Act, as added by this Act, using at least size 12 point font. (d)

Definitions

As used in this section— (1)the term Board means the Board of Governors of the Federal Reserve System ; (2)the term Federal education loan means a loan that is — (A)made, insured, or guaranteed under title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and (B)is issued for postsecondary educational expenses to a student, or the parent of the student, regardless of whether the loan is provided through the educational institution that the student attends or directly to the student or parent from the lender; (3)the term institution of higher education has the same meaning as in section 102 of the Higher Education Act of 1965 (20 U.S.C. 1002); (4)the term lender means a creditor, other than an issuer of credit under a residential mortgage transaction, and any agent thereof, as those terms are defined in section 103 of the Truth in Lending Act; and (5)the term private education loan means a private loan provided by a lender that— (A)is not made, insured, or guaranteed under any Federal, State, or local government unit, including under subtitle B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1070 et seq.); and (B)is issued by a lender for postsecondary educational expenses to a student, or the parent of the student, regardless of whether the loan is provided through the educational institution that the student attends or directly to the student or parent from the lender.