Last week, in a move intended to lower interest rates on federal student loans, the U.S. House of Representatives passed the Bipartisan Student Loan Certainty Act , which had previously been passed by the Senate. The Act changes the interest rates for federal student loans other than Perkins Loans made on or after July 1, 2013. While the new rates are fixed rates, the Act provides that the rates can be adjusted annually for new loans based on changes in the yield on 10-year Treasury notes, subject to specified caps. The CFPB has listed on its website what the new rates will be for loans made on after July 1, 2013.
The timing of the change in rates creates compliance challenges for lenders and servicers in providing the Truth in Lending disclosures required for private student loans. Both the TILA loan application and solicitation disclosure form and the TILA loan approval disclosure form must include the current rates for various types of federal student loan programs (in a section labeled “Federal Loan Alternatives”). Since the new rates will immediately become effective retroactively to July 1 when the law is signed by President Obama, any TILA disclosures already prepared when signing occurs but not yet delivered to consumers or prepared after signing will be inaccurate if they do not reflect the new rates.
In light of the compliance challenges, four industry trade groups have sent a letter to the CFPB asking for a 30-day grace period for lenders and servicers to make the necessary changes to their systems to accurately reflect the new rates in their TILA disclosures. The letter points out that lenders have multiple application processes that need to be changed and tested prior to implementation and many lenders work with multiple vendors. The trade groups also want the CFPB to clarify that lenders and servicers will not be required to send borrowers modified TILA disclosures to replace those provided prior to or during the grace period.