NY AG Cuomo Announces Code of Conduct for Private Student Loan Programs
New York Attorney General Andrew M. Cuomo reached a settlement with University Financial Services (UFS), a private student loan consolidation service and announced a Direct Marketing Code of Conduct that would apply to student loans marketed directly to students. This represents a new regulatory approach. The proposed code of conduct:(1) Prohibits lenders from using misleading tactics such as using insignia to appear to be a part of the federal government;
(2) Prohibits lenders from paying students to steer their peers to lenders;
(3) Requires submitting uniform disclosures to students at three different stages of the loan application process;
(4) Requires lenders to advise students to exhaust federal loan options before using private loans;
(5) Prohibits lenders from using gift cards or similar items to entice students;
(7) Requires lenders to disclose whether they intend to resell the student loans; and
(8) Prohibits lenders from levying early payment penalties
The settlement requires UFS to end arrangements with 63 colleges to market UFS’s consolidation loan services. UFS also agreed to publish advertisements advising students to be cautious when shopping for loans. AG Cuomo criticized some private lenders for co-branding their products with university mascots to appear as a university’s financial aid services.
AG Cuomo’s announcement mirrors some of the concerns that the NY legislature and the United States Congress raised. NY recently passed the Student Lending Accountability, Transparency and Enforcement Act while Senator Dodd (D-CT) introduced the Private Student Loan Transparency and Improvement Act of 2007 in June.
Lenders who offer loans directly to students should see this as the first of what may be a series of similar regulatory efforts aimed at student lenders outside the FFELP program or marketed through schools.