Student Lending: CFPB Investigates Point-of-Sale Financing

Financial Services Law

A leading online payments system platform that offers point-of-sale (POS) financing reports it received a Civil Investigative Demand (CID) from the Consumer Financial Protection Bureau (CFPB) for allowing educational institutions to encourage students to finance their educational services using the point-of-sale lending platform. We explain its significance below.

What Happened

The company at issue has disclosed that it received a CID from the Consumer Financial Protection Bureau relating to “the marketing and use of [its point-of-sale credit product] in connection with certain merchants that provide educational services.”

The disclosure comes after consumer advocacy groups accused the company of predatory financial practices for allegedly promoting its online loan product as a method of student borrowing at for-profit schools.

The advocacy group asserts that the lender put student borrowers at risk of serious financial harm by using deceptive marketing, charging exorbitant interest rates and late fees that far exceed the most expensive federal student loans, and using aggressive collection practices that increase costs and compound the harm to students.

Why It Matters

This is likely the first of several major initiatives we expect the CFPB to launch in the student lending space. More broadly, short-term financing and point-of-sale finance companies will likely face increased regulatory scrutiny under the Biden administration and should exercise caution when enabling educational institutions to use their platforms. Federal and state regulators have increasingly focused on misleading and exploitative student lending practices in the wake of rising student loan defaults, and new state laws have expanded the definition of a student loan and imposed a patchwork of licensure requirements for student loan servicers that impose various requirements with respect to originating, servicing and collecting student loans. Manatt has a leading practice in student lending law, and is currently advising clients on these issues. For more information, contact the authors or any of Manatt’s financial services team.



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