Alert August 11, 2009

FRB Amends Regulation Z to Implement Provisions of the Higher Education Opportunity Act

The FRB published a final rule that amends Regulation Z to implement the Higher Education Opportunity Act. The rule requires creditors offering private student loans to provide a number of new disclosures that must be given at different times in the loan origination process. At the application stage (and with solicitations that don’t require an application) creditors must provide general information about loan rates, fees and terms, including an example of the total cost of a loan based on the maximum interest rate the creditor can charge. These disclosures must inform the prospective borrower of, among other things, the potential availability of federal student loans and the interest rate for those loans, and that additional information about federal loans may be obtained from schools or the Department of Education website. Also, once a consumer applies for a loan, the rule requires the consumer to complete a “self certification form” with information about the cost of attendance at the subject school. At the time an application is approved, the creditor must provide a set of transaction-specific disclosures, including information about the rate, fees and other terms of the loan. The creditor must disclose, for example, estimates of the repayment amount based on both the current interest rate and the maximum rate that may be charged. The creditor must also disclose the monthly payment at the maximum rate of interest. At consummation, the creditor must provide updated cost disclosures substantially similar to those provided at approval. The consumer’s three-day right to cancel the transaction must also be disclosed. In addition to the new disclosure requirements, the rule implements the Higher Education Opportunity Act’s restriction on the use of an educational institution’s name, emblem, mascot, or logo in a way that implies that the institution endorses a creditor’s loan product. The effective date of the rule is 180 days after publication in the Federal Register. Click here for the rule and here for the FRB’s press release which includes links to model disclosure forms and samples.