Second Regular Session Seventieth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 16-0580.01 Brita Darling x2241 SENATE BILL 16-043 SENATE SPONSORSHIP Carroll, HOUSE SPONSORSHIP Kagan, Senate Committees House Committees State, Veterans, & Military Affairs A BILL FOR AN ACT Concerning increased consumer protections in student lending for education loans. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill prohibits a private educational lender, as defined in the bill, from offering gifts to a covered educational institution, as defined in the bill, including public and private institutions of higher education, in exchange for any advantage or consideration related to loan activities or from engaging in revenue sharing. Further, the bill prohibits persons employed at covered educational institutions from receiving anything of value from private educational lenders. The bill makes it unlawful for a private educational lender to impose a fee or penalty on a borrower for early repayment or prepayment of a private education loan and requires a lender to disclose any agreements made with a card issuer or creditor for purposes of marketing a credit card. The bill requires private educational lenders to disclose information to a potential borrower or borrower both at the time of application for a private education loan and at the time of consummation of the loan. The required disclosures are described in the bill and include, among other disclosures, the interest rate for the loan and adjustments to the rate, potential finance charges and penalties, payment options, an estimate of the total amount for repayment at the interest rate, the possibility of qualifying for federal loans, the terms and conditions of the loan, and that the borrower may cancel the loan, without penalty, within 3 business days after the date on which the loan is consummated. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add 5-3-112 as follows: 5-3-112. Private education loans - requirements - disclosures - definitions. (1) As used in this section, unless the context otherwise requires: (a) "Covered educational institution" means any educational institution, including a public or private institution of higher education, that offers a postsecondary educational degree, certificate, or program of study, and includes an agent, officer, or employee of the educational institution. (b) "Private educational lender" means: (I) A financial institution that is listed in 12 U.S.C. sec. 1813, that solicits, makes, or extends private education loans; (II) A federal credit union, as defined in 12 U.S.C. sec. 1752, that solicits, makes, or extends private education loans; and (III) Any other person engaged in the business of soliciting, making, or extending private education loans that is not a federal, state, or local government or governmental corporation or enterprise. (c) "Private education loan" means a loan provided by a private educational lender that: (I) Is not made, insured, or guaranteed under 20 U.S.C. sec. 1070 et seq.; (II) Is issued 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 private educational lender; and (III) Does not include an extension of credit under a revolving credit plan, a reverse mortgage transaction, a residential mortgage transaction, or any other loan that is secured by real property or a dwelling. (2) A private educational lender shall not, directly or indirectly: (a) Offer or provide any gift to a covered educational institution in exchange for any advantage or consideration provided to the private educational lender related to its private educational loan activities; or (b) Engage in revenue sharing with a covered educational institution. (3) (a) A person shall not receive anything of value from a private educational lender or group of such lenders if the person: (I) (A) Is employed in the financial aid office of a covered educational institution; or (B) Otherwise has responsibilities with respect to private education loans or other financial aid of the institution; and (II) Serves on an advisory board, commission, or group established by a private educational lender or group of such lenders. (c) Nothing in this subsection (3) prohibits the reimbursement of reasonable expenses incurred by an employee of a covered educational institution as part of the employee's services on an advisory board, commission, or group described in this subsection (3). (4) It is unlawful for a private educational lender to impose a fee or penalty on a borrower for early repayment or prepayment of a private education loan. (5) A covered educational institution shall publicly disclose any contract or other agreement made with a card issuer or creditor for the purpose of marketing a credit card. (6) In any application for a private education loan, or a solicitation for a private education loan without requiring an application, the private educational lender shall disclose to the borrower, clearly and conspicuously: (a) The potential range of rates of interest applicable to the private education loan; (b) Whether the rate of interest applicable to the private education loan is fixed or variable; (c) The presence or absence and relevant terms governing interest rate adjustments, both in terms of frequency and amount; (d) Requirements for the 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 the range of fees applicable to the private education loan; (g) The term of the private education loan; (h) Whether interest will accrue while the student to whom the private education loan relates is enrolled at a covered educational institution; (i) Payment deferral options; (j) General eligibility criteria for the private education loan; (k) An example of the total cost of the private education loan over the life of the loan, which example shall be calculated using the principal amount and the maximum rate of interest actually offered by the private educational lender, and calculated both with and without capitalization of interest, if an option exists for postponing interest payments; (l) That a covered educational institution may have school-specific education loan benefits and terms not detailed on the disclosure form; (m) That the borrower may qualify for federal student financial assistance through a program under Title IV of the "Higher Education Act of 1965", 20 U.S.C. sec. 1070 et seq., in lieu of, or in addition to, a loan from a nonfederal source; (n) The interest rates available with respect to such federal student financial assistance through a program under Title IV of the "Higher Education Act of 1965", 20 U.S.C. sec. 1070 et seq.; (o) That, as provided in subsection (9) of this section: (I) The borrower has the right to accept the terms of the loan and consummate the transaction at any time within thirty calendar days, or such longer period as the private educational lender provides, following the date on which the application for the loan is approved and the borrower receives the disclosure documents required for the loan pursuant to this subsection (6); and (II) Except for changes based on adjustments to the index used for the loan, the private educational lender cannot change the rates and terms of the loan during the period described in subparagraph (I) of this paragraph (o); (p) That the borrower may cancel a private education loan within three business days after the date on which the loan is consummated; and (q) That the borrower may obtain additional information concerning federal student financial assistance from his or her institution of higher education or at the web site of the United States department of education. (7) Contemporaneously with the approval of the private education loan application, and before the loan transaction is consummated, the private educational 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 education loan is fixed or variable; (c) The presence or absence and relevant terms governing interest rate adjustments, both in terms of frequency and amount; (d) The initial approved principal amount; (e) Applicable finance charges, late fees, penalties, and adjustments to principal, based on borrower defaults or late payments, including limitations on the discharge of a private education loan in bankruptcy; (f) The fees or range of fees applicable to the private education loan; (g) The maximum term under the private education loan program; (h) 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 offered by the private educational lender and applicable to the borrower, to the extent that such maximum rate may be determined, or if not, a good-faith estimate of the maximum rate; (i) Any principal and interest payment required while the student is enrolled at a covered educational institution and unpaid interest that will accrue during such enrollment; (j) Payment deferral options applicable to the borrower; (k) Whether monthly payments are graduated; (l) That, as provided in subsection (9) of this section: (I) The borrower has the right to accept the terms of the loan and consummate the transaction at any time within thirty calendar days, or such longer period as the private educational lender may provide, following the date on which the application for the loan is approved and the borrower receives the disclosure documents required for the loan pursuant to this subsection (7); and (II) Except for changes based on adjustments to the index used for the loan, the private educational lender cannot change the rates and terms of the loan during the period described in subparagraph (I) of this paragraph (l); (m) (I) That the borrower may qualify for federal student financial assistance through a program under Title IV of the "Higher Education Act of 1965", 20 U.S.C. sec. 1070 et seq., in lieu of, or in addition to, a loan from a nonfederal source; and (II) That the borrower may obtain additional information concerning federal student financial assistance from his or her institution of higher education or at the web site of the United States department of education; (n) The interest rates available with respect to such federal student financial assistance through a program under Title IV of the "Higher Education Act of 1965", 20 U.S.C. sec. 1070 et seq.; (o) The maximum monthly payment, calculated using the maximum rate of interest offered by the private educational lender and applicable to the borrower, to the extent that such maximum rate may be determined, or if not, a good-faith estimate of the maximum rate; and (p) That the borrower may cancel a private education loan within three business days after the date on which the loan is consummated. (8) To the extent possible, a private educational lender shall use model forms H-21 and H-23 of the consumer financial protection bureau, or successor forms, to provide the disclosures required pursuant to this section. (9) The borrower has the right to accept a private education loan and consummate the transaction at any time within thirty calendar days, or such longer period as the private educational lender provides, following the date on which the application for the loan is approved and the borrower receives the disclosure documents required for the loan pursuant to subsection (6) of this section, and the private educational lender shall not change the rates and terms of the loan during that period. Except for changes based on adjustments to the index used for the loan, the private educational lender shall not change the rates and terms of the loan prior to the earlier date of acceptance of the terms of the loan and consummation of the loan by the borrower or the expiration of the period described in this subsection (9). (10) (a) A borrower may cancel a private education loan without penalty to the borrower at any time within three business days after the date on which the loan is consummated. (b) Private education loan funds shall not be disbursed prior to the three-day period described in paragraph (a) of this subsection (10). SECTION 2. Act subject to petition - effective date. This act takes effect September 15, 2016; except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within the ninety-day period after final adjournment of the general assembly, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2016 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.