Compliance Center: NCUA Releases Guidance on Private Student Loans with Graduated Repayment Terms

At the end of January, the NCUA, along with other federal financial regulatory agencies, issued guidance for financial institutions on private student loans with graduated repayment terms at origination. The guidance provides principles that financial institutions should consider in their policies and procedures for originating private student loans with graduated repayment terms. Graduated repayment terms are structured to provide for lower initial monthly payments that gradually increase. Financial institutions should consider the following principles in their policies and procedures for underwriting private student loans with graduated repayment terms at origination:

  • Ensure orderly repayment. Private student loans should have defined repayment periods and promote orderly repayment over the life of the loans. Graduated repayment terms should ensure timely loan repayment and be appropriately calibrated according to reasonable industry and market standards based on the amount of debt outstanding. Graduated repayment terms should avoid negative amortization or balloon payments.
  • Avoid payment shock. Graduated repayment terms should result in monthly payments that a borrower can meet in a sustained manner over the life of the loan. Graduated increases in a borrower’s monthly payment should begin early in the repayment period and phase in the amortization of the principal balance to limit payment shock to the borrower.
  • Align payment terms with a borrower’s income. Graduated repayment terms should be based on reasonable assumptions about the ability to repay of the borrower and cosigner, if any. Lender underwriting should include an assessment of a borrower’s (and, if applicable, a cosigner’s) ability to repay the highest amortizing payment over the term of the loan. Graduated repayment terms should not be structured in a way that could mask delinquencies or defer losses.
  • Provide borrowers with clear disclosures. Financial institutions that offer private student loans with graduated repayment terms should provide borrowers with disclosures in compliance with all applicable laws and regulations. For example, the Truth in Lending Act, as implemented by Regulation Z, includes specific private student loan disclosure content requirements.6 Ensuring that disclosures clearly communicate the timing and the amount of payments facilitates borrowers’ understanding of their loans’ terms and features.
  • Comply with all applicable federal and state consumer laws and regulations and reporting standards.7 Private student loans with graduated repayment terms must comply with all applicable consumer protection laws. These include, but are not limited to, the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, federal and state prohibitions against unfair, deceptive, or abusive acts or practices (such as section 5 of the Federal Trade Commission Act and sections 1031 and 1036 of the Dodd–Frank Wall Street Reform and Consumer Protection Act), the Truth in Lending Act, and the regulations issued pursuant to those laws.
  • Contact borrowers before reset dates. Before originating private students loans with graduated repayment terms, financial institutions should develop processes for contacting borrowers before the start of the repayment period and before each payment reset date. These contacts can help establish student debt as a priority in borrowers’ payment hierarchies and aid borrowers in responding effectively to payment increases and other potential repayment challenges.

Compliance Question of the Week

Is there a limit on how many direct deposits an account can receive from the IRS for tax refunds?

Yes. In order to combat fraud and identity theft, the IRS will begin limiting the number of tax refunds that can be directly deposited to a financial account. Beginning in January 2015, the IRS will be limiting tax refund direct deposits to just 3 per single financial account. If the IRS receives refund requests beyond the limit for the same account, a paper check will be issued to the taxpayer.


Legal Briefs

National Credit Union Administration (NCUA)

The NCUA released its 2015 Regulation Review List. In its announcement, the NCUA stated that it is now accepting public comments on the list of regulations it will review.

The NCUA has announced a new partnership with the Small Business Administration. The partnership will strive to connect small businesses with local credit unions for better access to capital.

The NCUA announced that it will begin streaming Open Board Meetings live. Credit unions need to register for each board meeting that they want to view live, but archived versions of the board meetings will still be available on the NCUA’s website.

The NCUA announced that it will hold a Fair Lending and HMDA Compliance on February 20, 2015.  This webinar will cover best practices, an overview of the NCUA’s fair lending examination program, and HMDA requirements. Credit unions can register for the webinar here.

Consumer Financial Protection Bureau (CFPB)

The CFPB made technical corrections to its proposed rule on Prepaid Accounts Under Reg E and Reg Z (originally proposed in December 2014).

The CFPB announced that it will be holding a Consumer Advisory Board Meeting in Washington D.C. on February 19, 2015.

Federal Financial Institutions Examination Council (FFIEC)

The FFIEC announced that it has released a new appendix to the Business Continuity Planning Booklet, which is part of the IT Examination Handbook. The new appendix is Appendix J: Strengthening the Resilience of Outsourced Technology Services.

Financial Crimes Enforcement Network (FinCEN)

FinCEN released a new 314(a) Fact Sheet.

Federal Reserve Bank (FRB)

The FRB released the updated Consumer Credit G.19 Report.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of January 27, 2015. The last update prior to this was January 16, 2015.

The Treasury released written testimony on the changes made to OFAC regarding Cuba regulations. The changes include increasing access to financial services.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, Federal, NCUA.