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Group Comment to the Department of Financial Protection and Innovation on Income Share Agreements (ISAs)

March 15, 2021
Consumer Finance
Comment Letter

On September 25, 2020, Governor Newsom signed AB 1864 (Chapter 157, Statutes of 2020), establishing the California Consumer Financial Protection Law (“CCFPL”) under Division 24 of the Financial Code. The undersigned consumer advocates are encouraged to see that the Department of Financial Protection and Innovation (“DFPI” or the “Department”) is seeking input from stakeholders in developing regulations to implement the CCFPL.

We write this comment in response to the following questions regarding registration requirements that the DFPI posed in 3(a)-(b):

For what industries should the DFPI first establish registration requirements under Financial Code section 90009, subdivision (a)? What consumer protection risks do those industries present to consumers that would make it appropriate to prioritize the registration of those industries over others?

For each industry that a stakeholder states should be a priority for registration, what rules should the DFPI establish to facilitate oversight of the industry, what records should the DFPI require those registrants to maintain, and what requirements should the DFPI impose to ensure that covered persons are legitimate? (Fin. Code § 90009, subd. (b).) What data should the DFPI require registrants to submit in annual or special reports to the DFPI? (Fin. Code § 90009, subd. (f)(2)). Why should the DFPI collect this data?

The focus of this comment will be on providers of private financing to students and families when paying for college (“Student Financing Providers”), including lenders providing so-called Income Share Agreements (ISAs). These firms often attempt to evade oversight from state regulators on the basis that their so-called innovative nature renders them unique financial products that, they argue, are not providing credit.

Under 90009(a), the DFPI is authorized “to prescribe rules regarding registration requirements applicable to a covered person engaged in the business of offering or providing a consumer financial product or service[.]”

We urge the DFPI to register Student Financing Providers, including ISA lenders, using DFPI’s authority under the CCFPL over credit. Registration would further the stated intent of the DFPI: to promote nondiscriminatory access to responsible, affordable credit that reflect consumers ability to repay; to promote products that are not unfair deceptive, or abusive; and to promote consumer-protective innovation.

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