[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2894 Placed on Calendar Senate (PCS)]
Calendar No. 702
110th CONGRESS
2d Session
S. 2894
[Report No. 110-327]
To establish requirements for private lenders to protect student
borrowers receiving private educational loans, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
April 21, 2008
Mr. Dodd, from the Committee on Banking, Housing, and Urban Affairs,
reported the following original bill; which was read twice and placed
on the calendar
_______________________________________________________________________
A BILL
To establish requirements for private lenders to protect student
borrowers receiving private educational loans, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Private Student
Loan Transparency and Improvement Act of 2007''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Regulations.
Sec. 4. Effective dates.
TITLE I--PREVENTING UNFAIR AND DECEPTIVE PRIVATE EDUCATIONAL LENDING
PRACTICES AND ELIMINATING CONFLICTS OF INTEREST
Sec. 101. Amendment to the Truth in Lending Act.
Sec. 102. Civil liability.
Sec. 103. Clerical amendment.
TITLE II--IMPROVED DISCLOSURES FOR PRIVATE EDUCATIONAL LOANS
Sec. 201. Private educational loan disclosures and limitations.
Sec. 202. Application of Truth in Lending Act to all private
educational loans.
TITLE III--COLLEGE AFFORDABILITY
Sec. 301. Community Reinvestment Act credit for low-cost loans.
TITLE IV--FINANCIAL LITERACY
Sec. 401. Coordinated education efforts.
TITLE V--STUDY AND REPORT ON NONINDIVIDUAL INFORMATION
Sec. 501. Study and report on nonindividual information.
SEC. 2. DEFINITIONS.
As used in this Act--
(1) the term ``Board'' means the Board of Governors of the
Federal Reserve System;
(2) the term ``covered educational institution''--
(A) means any educational institution that offers a
postsecondary educational degree, certificate, or
program of study (including any institution of higher
education); and
(B) includes an agent or employee of the
educational institution;
(3) the terms ``Federal banking agencies'' and
``appropriate Federal banking agency'' have the same meanings
as in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813);
(4) 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);
(5) the term ``postsecondary educational expenses'' means
any of the expenses that are included as part of the cost of
attendance of a student, as defined under section 472 of the
Higher Education Act of 1965 (20 U.S.C. 1087ll);
(6) the term ``private educational lender'' means--
(A) a financial institution, as defined in section
3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)
that solicits, makes, or extends private educational
loans;
(B) a Federal credit union, as defined in section
101 of the Federal Credit Union Act (12 U.S.C. 1752)
that solicits, makes, or extends private educational
loans; and
(C) any other person engaged in the business of
soliciting, making, or extending private educational
loans; and
(7) the term ``private educational loan''--
(A) means a loan provided by a private educational
lender that--
(i) is not made, insured, or guaranteed
under part B of title IV of the Higher
Education Act of 1965 (20 U.S.C. 1070 et seq.);
and
(ii) is issued by a private educational
lender expressly for postsecondary educational
expenses to a borrower, regardless of whether
the loan is provided through the educational
institution that the subject student attends or
directly to the borrower from the lender; and
(B) does not include an extension of credit under
an open end consumer credit plan, a residential
mortgage transaction (as those terms are defined in
section 103 of the Truth in Lending Act), or any other
loan that is secured by real property or a dwelling.
SEC. 3. REGULATIONS.
The Board shall issue final regulations to implement this Act and
the amendments made by this Act not later than 180 days after the date
of enactment of this Act.
SEC. 4. EFFECTIVE DATES.
This Act and the amendments made by this Act shall become effective
180 days after the date on which regulations to carry out this Act and
the amendments made by this Act are issued in final form.
TITLE I--PREVENTING UNFAIR AND DECEPTIVE PRIVATE EDUCATIONAL LENDING
PRACTICES AND ELIMINATING CONFLICTS OF INTEREST
SEC. 101. AMENDMENT TO THE TRUTH IN LENDING ACT.
Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is
amended by adding at the end the following new section:
``Sec. 140. Preventing unfair and deceptive private educational lending
practices and eliminating conflicts of interest
``(a) Definitions.--As used in this section--
``(1) the term `covered educational institution'--
``(A) means any educational institution that offers
a postsecondary educational degree, certificate, or
program of study (including any institution of higher
education); and
``(B) includes an agent or employee of the
educational institution;
``(2) the term `gift'--
``(A) means any gratuity, favor, discount,
entertainment, hospitality, loan, or other item having
a monetary value of more than $10, including a gift of
services, transportation, lodging, or meals, whether
provided in kind, by purchase of a ticket, payment in
advance, or reimbursement after the expense has been
incurred; and
``(B) does not include--
``(i) standard informational material
related to a loan (such as a brochure);
``(ii) food, refreshments, training, or
informational material furnished to an employee
or agent of a covered educational institution,
as an integral part of a training session or
through participation in an advisory council
that is designed to improve the service of the
lender to the covered educational institution,
if such training or participation contributes
to the professional development of the employee
or agent of the covered educational
institution; or
``(iii) favorable terms, conditions, and
borrower benefits on an educational loan
provided to a student employed by the covered
educational institution;
``(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 `postsecondary educational expenses' means
any of the expenses that are included as part of the cost of
attendance of a student, as defined under section 472 of the
Higher Education Act of 1965 (20 U.S.C. 1087ll);
``(5) the term `private educational lender' means--
``(A) a financial institution, as defined in
section 3 of the Federal Deposit Insurance Act (12
U.S.C. 1813) that solicits, makes, or extends private
educational loans;
``(B) a Federal credit union, as defined in section
101 of the Federal Credit Union Act (12 U.S.C. 1752)
that solicits, makes, or extends private educational
loans; and
``(C) any other person engaged in the business of
soliciting, making, or extending private educational
loans;
``(6) the term `private educational loan'--
``(A) means a loan provided by a private
educational lender that--
``(i) is not made, insured, or guaranteed
under part B of title IV of the Higher
Education Act of 1965 (20 U.S.C. 1070 et seq.);
and
``(ii) is issued by a private educational
lender expressly for postsecondary educational
expenses to a borrower, regardless of whether
the loan is provided through the educational
institution that the subject student attends or
directly to the borrower from the lender; and
``(B) does not include an extension of credit under
an open end consumer credit plan, a residential
mortgage transaction, or any other loan that is secured
by real property or a dwelling; and
``(7) the term `revenue sharing' means an arrangement
between a covered educational institution and a private
educational lender under which--
``(A) a private educational lender provides or
issues private educational loans to students attending
the covered educational institution or to the parents
of such students;
``(B) the covered educational institution
recommends to students or others the private
educational lender or the private educational loans of
the private educational lender; and
``(C) the private educational lender pays a fee or
provides other material benefits, including profit or
revenue sharing, to the covered educational institution
or to the officers, employees, or agents of the covered
educational institution in connection with the private
educational loans provided to students attending the
covered educational institution or a borrower acting on
behalf of a student.
``(b) Prohibition on Certain Gifts and Arrangements.--A private
educational lender, including any officer or employee thereof, may not,
directly or indirectly--
``(1) offer or provide any gift to a covered educational
institution or a covered educational institution employee, nor
may such covered educational institution, officer, or employee
receive any such gift, in exchange for any advantage or
consideration provided to such private educational lender
related to its private educational loan activities; or
``(2) engage in revenue sharing with a covered educational
institution.
``(c) Prohibition on Co-Branding.--A private educational lender may
not use the name, emblem, mascot, or logo of the covered educational
institution, or other words, pictures, or symbols readily identified
with the covered educational institution, in the marketing of private
educational loans in any way that implies that the covered educational
institution endorses the private educational loans offered by the
lender.
``(d) Advisory Board Compensation.--Any person who is employed in
the financial aid office of a covered educational institution, or who
otherwise has responsibilities with respect to private educational
loans or other financial aid of the institution, and who serves on an
advisory board, commission, or group established by a private
educational lender or group of such lenders shall be prohibited from
receiving anything of value from the private educational lender or
group of lenders. Nothing in this subsection shall prohibit the
reimbursement of reasonable expenses incurred by an employee of a
covered educational institution as part of their service on an advisory
board, commission, or group described in this subsection, subject to
the rules of the Board.
``(e) Prohibition on Prepayment or Repayment Fees or Penalty.--It
shall be unlawful for any private educational lender to impose a fee or
penalty on a borrower, directly or indirectly, for early repayment or
prepayment, of any private educational loan.''.
SEC. 102. CIVIL LIABILITY.
Section 130 of the Truth in Lending Act (15 U.S.C. 1640) is
amended--
(1) in subsection (a)--
(A) in paragraph (3), by inserting ``or section
128(e)(6)'' after ``section 125''; and
(B) in the fourth sentence of the undesignated
matter at the end--
(i) by striking ``125 or'' and inserting
``125,''; and
(ii) by inserting ``or of section 128(e),''
before ``or for failing''; and
(2) in subsection (e), by inserting before the first
period, the following: ``or, in the case of a violation
involving a private educational loan, 1 year from the date on
which the first regular payment of principal is due under the
loan''.
SEC. 103. CLERICAL AMENDMENT.
The table of sections for chapter 2 of title I of the Truth in
Lending Act (15 U.S.C. 1631 et seq.) is amended by adding at the end
the following:
``140. Preventing unfair and deceptive private educational lending
practices and eliminating conflicts of
interest.''.
TITLE II--IMPROVED DISCLOSURES FOR PRIVATE EDUCATIONAL LOANS
SEC. 201. PRIVATE EDUCATIONAL LOAN DISCLOSURES AND LIMITATIONS.
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 Educational
Loans.--
``(1) Disclosures required in private educational loan
applications and solicitations.--In any application for a
private educational loan, or a solicitation for a private
educational loan without requiring an application, the lender
shall disclose to the borrower, clearly and conspicuously--
``(A) the potential range of rates of interest
applicable to the private educational loan;
``(B) whether the rate of interest applicable to
the private educational 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 co-borrower, including any
changes in the applicable interest rates without a co-
borrower;
``(E) potential finance charges, late fees,
penalties, and adjustments to principal, based on
defaults or late payments of the borrower;
``(F) fees or range of fees applicable to the
private educational loan;
``(G) the term of the private educational loan;
``(H) whether interest will accrue while the
student to whom the private educational 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) general eligibility criteria for the private
educational loan;
``(K) an example of the total cost of the private
educational loan over the life of the loan--
``(i) which shall be calculated using the
principal amount and the maximum rate of
interest actually offered by the lender; and
``(ii) calculated both with and without
capitalization of interest, if that is an
option for postponing interest payments;
``(L) a statement that an institution of higher
education may have school-specific educational loan
benefits and terms not detailed on the disclosure form;
``(M) that the borrower may qualify for Federal
financial assistance through a program under title IV
of the Higher Education Act of 1965, in lieu of, or in
addition to, a loan from a non-Federal source;
``(N) the interest rates available with respect to
such Federal financial assistance through a program
under title IV of the Higher Education Act of 1965;
``(O) that, as provided in paragraph (5)--
``(i) the borrower shall have up to 30
calendar days following the date on which the
application for the private educational loan is
approved and the borrower receives the
disclosure documents required under this
subsection for the loan to accept the terms of
the private educational loan and consummate the
transaction; and
``(ii) except for changes based on
adjustments to the index used for a loan, the
rates and terms of the loan may not be changed
by the lender during that 30-day period; and
``(P) such other information as the Board shall
prescribe, by rule, as necessary or appropriate for
consumers to make informed borrowing decisions.
``(2) Disclosures at the time of private educational loan
approval.--Subject to the rules of the Board, contemporaneously
with the approval of a private educational 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 in effect on
the date of approval;
``(B) whether the rate of interest applicable to
the private educational loan is fixed or variable;
``(C) limitations on interest rate adjustments,
both in terms of frequency and amount, or the lack
thereof;
``(D) the initial approved principal amount;
``(E) applicable finance charges, late fees,
penalties, and adjustments to principal, based upon
borrower defaults or late payments;
``(F) the maximum term under the private
educational loan program;
``(G) 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 actually offered by the lender, to the extent
that such maximum rate may be determined, or if not, a
good faith estimate thereof;
``(H) any principal and interest payments required
while the student to whom the private educational loan
relates is enrolled at an institution of higher
education and interest which will accrue during such
enrollment;
``(I) payment deferral options, including whether
the deferment would apply to interest or principal, or
both;
``(J) whether monthly payments are graduated;
``(K) that, as provided in paragraph (5)--
``(i) the borrower shall have up to 30
calendar days following the date on which the
application for the private educational loan is
approved and the borrower receives the
disclosure documents required under this
subsection for the loan to accept the terms of
the private educational loan and consummate the
transaction; and
``(ii) except for changes based on
adjustments to the index used for a loan, the
rates and terms of the loan may not be changed
by the lender during that 30-day period;
``(L) that the borrower may qualify for Federal
financial assistance through a program under title IV
of the Higher Education Act of 1965, in lieu of, or in
addition to, a loan from a non-Federal source;
``(M) the interest rates available with respect to
such Federal financial assistance through a program
under title IV of the Higher Education Act of 1965;
``(N) the maximum monthly payment, calculated using
the maximum rate of interest actually offered by the
lender, to the extent that such maximum rate may be
determined, or if not, a good faith estimate thereof;
and
``(O) such other information as the Board shall
prescribe, by rule, as necessary or appropriate for
consumers to make informed borrowing decisions.
``(3) Disclosures at the time of private educational loan
consummation.--Subject to the rules of the Board,
contemporaneously with the consummation of a private
educational loan, the lender shall make each of the disclosures
described in subparagraphs (A) through (J) and (L) through (O)
of paragraph (2) to the borrower.
``(4) Format of disclosures.--Disclosures required under
paragraphs (1), (2), and (3) shall appear in a clearly legible,
uniform format, subject to section 122(c).
``(5) Effective period of approved rate of interest and
loan terms.--
``(A) In general.--With respect to a private
educational loan, the borrower shall have the right to
accept the terms of the loan and consummate the
transaction at any time within 30 calendar days
following the date on which the application for the
private educational loan is approved and the borrower
receives the disclosure documents required under this
subsection for the loan, 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.
``(B) Prohibition on changes.--Except for changes
based on adjustments to the index used for a loan, the
rates and terms of the loan may not be changed by the
lender prior to the earlier of--
``(i) the date of acceptance of the terms
of the loan and consummation of the transaction
by the borrower, as described in subparagraph
(A); or
``(ii) the expiration of the 30-day period
referred to in subparagraph (A).
``(C) Prohibition on disbursement.--No funds may be
disbursed with respect to a private educational loan
until acceptance of the loan by the borrower under
subparagraph (A) and the expiration of the 3-day period
under paragraph (6).
``(6) Right to cancel.--With respect to a private
educational loan, the borrower may cancel the loan, without
penalty to the borrower, at any time within 3 business days of
the date on which the loan is consummated, subject to the rules
of the Board. No funds may be transferred to the borrower
during that 3-day period.
``(7) 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 `private educational lender' means--
``(i) a financial institution, as defined
in section 3 of the Federal Deposit Insurance
Act (12 U.S.C. 1813) that solicits, makes, or
extends private educational loans;
``(ii) a Federal credit union, as defined
in section 101 of the Federal Credit Union Act
(12 U.S.C. 1752) that solicits, makes, or
extends private educational loans; and
``(iii) any other person engaged in the
business of soliciting, making, or extending
private educational loans; and
``(C) the term `private educational loan'--
``(i) means a loan provided by a private
educational lender that--
``(I) is not made, insured, or
guaranteed under part B of title IV of
the Higher Education Act of 1965 (20
U.S.C. 1070 et seq.); and
``(II) is issued by a private
educational lender expressly for
postsecondary educational expenses to a
borrower, regardless of whether the
loan is provided through the
educational institution that the
subject student attends or directly to
the borrower from the lender; and
``(ii) does not include an extension of
credit under an open end consumer credit plan,
a residential mortgage transaction, or any
other loan that is secured by real property or
a dwelling.''.
SEC. 202. APPLICATION OF TRUTH IN LENDING ACT TO ALL PRIVATE
EDUCATIONAL LOANS.
Section 104(3) of the Truth in Lending Act (15 U.S.C. 1603(3)) is
amended by inserting ``and other than private educational loans (as
that term is defined in section 140(a))'' after ``consumer''.
TITLE III--COLLEGE AFFORDABILITY
SEC. 301. COMMUNITY REINVESTMENT ACT CREDIT FOR LOW-COST LOANS.
(a) In General.--The appropriate Federal financial supervisory
agency shall give a private educational lender credit toward meeting
the credit needs of its community for purposes of the Community
Reinvestment Act of 1977, for making low-cost private educational loans
to low-income borrowers.
(b) Regulations.--The Board shall develop regulations determining
which private educational loans are available for the credit under this
section.
(c) Definition.--As used in this section, the term ``appropriate
Federal financial supervisory agency'' has the same meaning as in
section 803 of the Community Reinvestment Act of 1977 (12 U.S.C. 2902).
TITLE IV--FINANCIAL LITERACY
SEC. 401. COORDINATED EDUCATION EFFORTS.
(a) In General.--The Secretary of the Treasury (in this section
referred to as the ``Secretary''), in coordination with the Secretary
of Education, the Secretary of Agriculture (with respect to land grant
covered educational institutions), and any other appropriate agency
that is a member of the Financial Literacy and Education Commission
established under the Financial Literacy and Education Improvement Act
(20 U.S.C. 9701 et seq.), shall seek to enhance financial literacy
among students at institutions of higher education through--
(1) the development of initiatives, programs, and curricula
that improve student awareness of the short- and long-term
costs associated with educational loans and other debt assumed
while in college, their repayment obligations, and their rights
as borrowers; and
(2) assisting such students in navigating the financial aid
process.
(b) Duties.--For purposes of this section, the Secretary, working
in conjunction with the Secretary of Education, the Secretary of
Agriculture, and the Financial Literacy and Education Commission,
shall--
(1) identify programs that promote or enhance financial
literacy for college students, with specific emphasis on
programs that impart the knowledge and ability for students to
best navigate the financial aid process, including those that
involve partnerships between nonprofit organizations, colleges
and universities, State and local governments, and student
organizations;
(2) evaluate the effectiveness of such programs in terms of
measured results, including positive behavioral change among
college students;
(3) promote the programs identified as being the most
effective; and
(4) encourage institutions of higher education to implement
financial education programs for their students, including
those that have the highest evaluations.
(c) Report.--
(1) In general.--Not later than 2 years after the date of
enactment of this Act, the Financial Literacy and Education
Commission shall submit a report to Congress on the state of
financial education among students at institutions of higher
education.
(2) Content.--The report required by this subsection shall
include a description of progress made in enhancing financial
education with respect to student understanding of financial
aid, including the programs and evaluations required by this
section.
(3) Appearance before congress.--The Secretary shall, upon
request, provide testimony before the Committee on Banking,
Housing, and Urban Affairs of the Senate concerning the report
required by this subsection.
TITLE V--STUDY AND REPORT ON NONINDIVIDUAL INFORMATION
SEC. 501. STUDY AND REPORT ON NONINDIVIDUAL INFORMATION.
(a) Study.--The Comptroller General of the United States (in this
section referred to as the ``Comptroller'') conduct a study--
(1) on the impact on and benefits to borrowers of the
inclusion of nonindividual factors, including cohort default
rate, accreditation, and graduation rate at institutions of
higher education, used in the underwriting criteria to
determine the pricing of private educational loans;
(2) to examine whether and to what extent the inclusion of
such nonindividual factors--
(A) increases access to private educational loans
for borrowers who lack credit history or results in
less favorable rates for such borrowers; and
(B) impacts the types of private educational loan
products and rates available at certain institutions of
higher education, including a comparison of such
impact--
(i) on private and public institutions; and
(ii) on historically Black colleges and
universities (defined for purposes of this
section as a ``part B institution'', within the
meaning of section 322 of the Higher Education
Act of 1965 (20 U.S.C. 1061)) and other
colleges and universities; and
(3) to assess the extent to which the use of such
nonindividual factors in underwriting may have a disparate
impact on the pricing of private educational loans, based on
gender, race, income level, and institution of higher
education.
(b) Report.--Not later than 1 year after the date of enactment of
this Act, the Comptroller shall submit a report to Congress on the
results of the study required by this section.
Calendar No. 702
110th CONGRESS
2d Session
S. 2894
[Report No. 110-327]
_______________________________________________________________________
A BILL
To establish requirements for private lenders to protect student
borrowers receiving private educational loans, and for other purposes.
_______________________________________________________________________
April 21, 2008
Read twice and placed on the calendar