1.This Act may be cited as the
Know Before You Owe Private Student
Loan Act of 2012
.
2.Amendments to the
Truth in Lending Act
(a)Section 128(e) of the
Truth in Lending Act (15 U.S.C. 1638(e)) is amended—
(1)by striking
paragraph (3) and inserting the following:
(3)Institutional
certification required
(A)Except as provided in
subparagraph (B), before a creditor may issue any funds with respect to an
extension of credit described in this subsection, the creditor shall obtain
from the relevant institution of higher education where such loan is to be used
for a student, such institution's certification of—
(i)the enrollment
status of the student;
(ii)the student's
cost of attendance at the institution as determined by the institution under
part F of title IV of the Higher Education Act of 1965; and
(iii)the difference
between—
(I)such cost of
attendance; and
(II)the student's
estimated financial assistance, including such assistance received under title
IV of the Higher Education Act of 1965 and other financial assistance known to
the institution, as applicable.
(B)Notwithstanding
subparagraph (A), a creditor may issue funds with respect to an extension of
credit described in this subsection without obtaining from the relevant
institution of higher education such institution’s certification if such
institution fails to provide within 15 business days of the creditor’s request
for such certification—
(i)the requested
certification; or
(ii)notification
that the institution has received the request for certification and will need
additional time to comply with the certification request.
(C)Loans Disbursed
Without CertificationIf a creditor issues funds without
obtaining a certification, as described in subparagraph (B), such creditor
shall report the issuance of such funds in a manner determined by the Director
of the Consumer Financial Protection
Bureau.
;
(2)by redesignating
paragraphs (9), (10), and (11) as paragraphs (10), (11), and (12),
respectively; and
(3)by inserting after
paragraph (8) the following:
(9)
(A)Provision of
Information to Students
(i)A creditor that issues any funds with respect to an
extension of credit described in this subsection shall send loan statements,
where such loan is to be used for a student, to borrowers of such funds not
less than once every 3 months during the time that such student is enrolled at
an institution of higher education.
(ii)Contents of
Loan StatementEach statement described in clause (i)
shall—
(I)report the
borrower's total remaining debt to the creditor, including accrued but unpaid
interest and capitalized interest;
(II)report any debt
increases since the last statement; and
(III)list the
current interest rate for each loan.
(B)Notification of
loans disbursed without certificationOn or before the date a creditor issues any
funds with respect to an extension of credit described in this subsection, the
creditor shall notify the relevant institution of higher education, in writing,
of the amount of the extension of credit and the student on whose behalf credit
is extended. The form of such written notification shall be subject to the
regulations of the Consumer Financial Protection Bureau.
(C)A creditor that issues
funds with respect to an extension of credit described in this subsection shall
prepare and submit an annual report to the Consumer Financial Protection Bureau
containing the required information about private student loans to be
determined by the Consumer Financial Protection Bureau, in consultation with
the Secretary of
Education.
.
(b)Definition of
Private Education LoanSection 140(a)(7)(A) of the Truth in
Lending Act (15 U.S.C. 1650(a)(7)(A)) is amended—
(1)by redesignating
clause (ii) as clause (iii);
(2)in clause (i), by
striking and
after the semicolon; and
(3)by adding after
clause (i) the following:
(ii)is not made,
insured, or guaranteed under title VII or title VIII of the Public Health
Service Act (42 U.S.C. 292 et seq. and 296 et seq.);
and
.
(c)Not later than 365 days after the date of
enactment of this Act, the Consumer Financial Protection Bureau shall issue
regulations in final form to implement paragraphs (3) and (9) of section 128(e)
of the Truth in Lending Act (15 U.S.C. 1638(e)), as amended by subsection (a).
Such regulations shall become effective not later than 6 months after their
date of issuance.
3.Amendment to the
Higher Education Act of 1965
(a)Amendment to the
Higher Education Act of 1965Section 487(a) of the Higher
Education Act of 1965 (20 U.S.C. 1094(a)) is amended by striking paragraph (28)
and inserting the following:
(28)(A)The institution shall—
(i)upon the request of a private educational
lender, acting in connection with an application initiated by a borrower for a
private education loan in accordance with section 128(e)(3) of the Truth in
Lending Act, provide certification to such private educational lender—
(I)that the student
who initiated the application for the private education loan, or on whose
behalf the application was initiated, is enrolled or is scheduled to enroll at
the institution;
(II)of such student's
cost of attendance at the institution as determined under part F of this title;
and
(III)of the
difference between—
- (aa)the cost of
attendance at the institution; and
- (bb)the student's
estimated financial assistance received under this title and other assistance
known to the institution, as applicable; and
(ii)provide the
certification described in clause (i), or notify the creditor that the
institution has received the request for certification and will need additional
time to comply with the certification request—
(I)within 15
business days of receipt of such certification request; and
(II)only after the
institution has completed the activities described in subparagraph (B).
(B)The institution shall, upon receipt of a
certification request described in subparagraph (A)(i), and prior to providing
such certification—
(i)determine whether the student who initiated
the application for the private education loan, or on whose behalf the
application was initiated, has applied for and exhausted the Federal financial
assistance available to such student under this title and inform the student
accordingly; and
(ii)provide the borrower whose loan application
has prompted the certification request by a private education lender, as
described in subparagraph (A)(i), with the following information and
disclosures:
(I)The availability of, and the borrower’s
potential eligibility for, Federal financial assistance under this title,
including disclosing the terms, conditions, interest rates, and repayment
options and programs of Federal student loans.
(II)The borrower's ability to select a private
educational lender of the borrower's choice.
(III)The impact of a
proposed private education loan on the borrower's potential eligibility for
other financial assistance, including Federal financial assistance under this
title.
(IV)The borrower’s right to accept or reject a
private education loan within the 30-day period following a private educational
lender’s approval of a borrower’s application and about a borrower’s 3-day
right to cancel period.
(C)For purposes of
this paragraph, the terms private educational lender
and
‘private education loan’ have the meanings given such terms in section 140 of
the Truth in Lending Act (15 U.S.C.
1650).
.
(b)The amendment made by subsection (a) shall take effect on
the effective date of the regulations described in section 2(c).
4.Not later than 24 months after the issuance
of regulations under section 2(c), the Director of the Consumer Financial
Protection Bureau and the Secretary of Education shall jointly submit to
Congress a report on the compliance of institutions of higher education and
private educational lenders with section 128(e)(3) of the Truth in Lending Act
(15 U.S.C. 1638(e)), as amended by section 2, and section 487(a)(28) of the
Higher Education Act of 1965 (20 U.S.C. 1094(a)), as amended by section 3. Such
report shall include information about the degree to which specific
institutions utilize certifications in effectively encouraging the exhaustion
of Federal student loan eligibility and lowering student private education loan
debt.