HB5524 101ST GENERAL ASSEMBLY

LRB101 17540 BMS 66956 b

101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
HB5524

Introduced , by Rep. Emanuel Chris Welch

SYNOPSIS AS INTRODUCED:

See Index

Amends the Consumer Installment Loan Act. Provides that an income share agreement provider shall clearly and conspicuously disclose specified information in an income-based financing transaction no later than 3 business days before the consummation of the transaction. Requires an income share agreement provider to disclose a borrower's effective annual percentage rate under specified scenarios. Requires an income share agreement provider to provide a borrower with a monthly statement within 15 days before a payment due date, and to provide a borrower with an annual statement. Provides that the contractual payment percentage of an agreement may not exceed 5% of a borrower's qualified income, and no income share agreement term may exceed 60 months. Provides that an income share agreement provider shall not contract for a payment cap that exceeds 1.10 times the amount of the advance or extend an advance that exceeds $5,000. Provides that no payment may be collected under the terms of an income share agreement when a borrower is enrolled in a covered educational program, or during the 6-month grace period after a borrower leaves such a program. Provides that an income share agreement provider shall not engage in unfair or deceptive practices toward a borrower or misrepresent or omit any material information in connection with an income-based financing transaction. Provides that a borrower must exhaust all sources of federal student loans and state grants for which the borrower is directly eligible before entering into an educational income share agreement. Requires an income share agreement provider to provide readily accessible methods for consumers to submit a request for assistance to the provider, and to implement a process by which a borrower can escalate any request for assistance. Makes other changes. Defines terms.

A BILL FOR

AN ACT concerning regulation.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. This Act may be referred to as the Income Share Agreement Consumer Protection Act.

Section 5. The Consumer Installment Loan Act is amended by adding Sections 17.6, 17.7, 17.8, 17.9, 17.10, 17.11, 17.12, 17.13, 17.14, 17.15, 17.16, 17.17, 17.18, 17.19, 17.20, 17.21, 17.22, 17.23, 17.24, 17.25, 17.26, and 17.27 as follows:

(205 ILCS 670/17.6 new)

Sec. 17.6. Income share agreements; scope and definitions.

(a) Sections 17.7 through 17.27 of this Act apply exclusively to income share agreements as defined in subsection (b).

(b) As used in Sections 17.7 through 17.27:

"Advance" means the amount of money or tuition that is credited or paid to or on behalf of the borrower in exchange for a contractual payment percentage.

"Annual percentage rate" means the percentage rate calculated according to the Federal Reserve Board's methodology as set forth under Regulation Z, 12 CFR Part 1026.

"Bona fide payment event" means a period during which a borrower is earning income less than the income threshold amount. A bona fide payment event constitutes a qualifying payment.

"Borrower" means the obligor of an income share agreement.

"Calculated monthly payment" means the amount of money an income share agreement provider determines is due from a borrower's qualified income according to the terms of a contractual payment percentage.

"Cash price" has the meaning given to that term in 12 CFR 1026.2(a)(9).

"Contractual payment percentage" means the share or percentage of qualified income a borrower is required to pay pursuant to the terms of an income share agreement.

"Covered educational program" means a federally eligible educational program or vocational educational program.

"Educational expenses" means tuition, fees, and other related expenses for a borrower to enroll in or attend a covered educational program.

"Eligible education debt" means federal education loans, private education loans, and income share agreements.

"Educational income share agreement" means an income share agreement offered in whole or in part to finance educational expenses.

"Federally eligible educational program" means a college, university, trade school, or other post-secondary educational institution eligible to participate in a student aid program run by the United States Department of Education.

"Grace period" means the period after the income share agreement is entered and before the start of the repayment period.

"Income share agreement" means an agreement under which a borrower commits to pay a percentage of his or her future income in exchange for money, payments, or credits applied to or on behalf of a borrower. An income share agreement constitutes a loan and debt within the meaning of this Act.

"Income-based financing transaction" means a transaction repaid by a borrower pursuant to the terms of an income share agreement.

"Income share agreement provider" means:

(1) a person that directly or indirectly provides money, payments, or credits to or on behalf of a borrower pursuant to the terms of an income share agreement;

(2) a person that participates in the creation or administration of an income share agreement, including by:

(A) providing, originating, or underwriting services or assistance;

(B) calculating, collecting, or processing payments;

(C) collecting income from any source;

(D) arranging one or more income-based financing transactions; or

(E) performing any other administrative service pursuant to the terms of an income share agreement; or

(3) an assignee or recipient of the proceeds of an income share agreement.

"Income documentation" means evidence of a borrower's income used to determine qualified income.

"Income threshold" means 250% of the federal poverty guidelines for the family size of the borrower, as updated periodically in the Federal Register by the U.S. Department of Health and Human Services under the authority of 42 U.S.C. 9902(2).

"Maximum payment term" means the maximum time in months it takes for an income share agreement to be repaid and completely satisfied.

"Maximum required payments" means the total number of qualifying payments a borrower must make to fully satisfy an income share agreement.

"Payment cap" means the maximum amount of money a borrower must pay to satisfy the terms of an income share agreement.

"Qualified income" means that part of the borrower's compensation (including, but not limited to, salary, bonuses, commissions, and vacation pay) from an employer remaining after the deduction of health insurance premiums and any amounts required by law to be withheld. As used in this definition, "amounts required by law to be withheld" include amounts for deductions such as Social Security taxes and withholding taxes, but do not include any amounts withheld pursuant to a court order.

"Qualifying payment" means a calculated monthly payment that counts toward the payment cap or maximum payment term.

"Repayment period" means the time after which the income share agreement provider calculates or collects a borrower's qualifying payment.

"Request for assistance" means any inquiry, complaint, account dispute, or request for documentation an income share agreement provider receives from a borrower.

"Vocational educational program" means any post-secondary training program or other program that is designed or marketed to increase the individual's human capital, employability, or earning potential, and is not eligible to participate in a student aid program run by the United States Department of Education.

(205 ILCS 670/17.7 new)

Sec. 17.7. Income share agreements; disclosure of terms.

(a) In an income-based financing transaction under this Act, the income share agreement provider must clearly and conspicuously disclose the following:

(1) the income share agreement provider making the disclosures;

(2) the amount advanced;

(3) the contractual payment percentage;

(4) the maximum required payments;

(5) the maximum term;

(6) the threshold amount;

(7) the payment cap;

(8) a statement that the borrower's estimated annual percentage rates are illustrations of what may occur and not guarantees of what will occur;

(9) a description and breakdown of the fees charged at the time of origination;

(10) the annual percentage rate disclosed in a manner as set forth under Section 17.8;

(11) the definition of qualifying income;

(12) the date repayment will begin;

(13) a statement that the borrower's monthly payment may vary in proportion to his or her future income;

(14) the procedure for verifying a borrower's qualifying income;

(15) the conditions under which a borrower may experience an increase in payment, including a detailed description of the methodology by which such payment will be calculated;

(16) the applicable grace period;

(17) the applicable terms of deferments;

(18) a schedule of fees a borrower is subject to after the commencement of the transaction;

(19) information about applicable credit reporting practices;

(20) the prepayment methodology set forth under Section 17.17;

(21) the terms under which the borrower may be considered in default;

(22) the borrower's rights with respect to:

(A) filing a dispute;

(B) delinquency or default;

(C) overpayment or underpayment;

(D) disability;

(E) borrower death;

(F) service as a member of the armed services, including the National Guard and Reserves; and

(G) closed school discharge.

(23) a statement that the income share agreement represents the obligation of the borrower to pay a specific percentage of his or her income and does not give the income share agreement provider any rights regarding the borrower's educational or employment pursuits; and

(24) an address and telephone number where a borrower can submit a request for assistance.

(b) In an income-based financing transaction consisting of an educational income share agreement, the income share agreement provider shall disclose the following terms in addition to those set forth under subsection (a):

(1) a statement, when applicable, that a borrower must exhaust all sources of federal student loans and state grants for which the borrower is directly eligible before entering into an income share agreement;

(2) the consequences of failing to complete an educational program; and

(3) the cash price of tuition.

(c) The income share agreement provider shall ensure the consumer receives the disclosures required under this Section no later than 3 business days before the consummation of the transaction.

(d) If one of the disclosures provided under subsection (a) becomes inaccurate due to an increase in annual percentage rate or other cost to the consumer before the consummation of the transaction, the income share agreement provider shall ensure that the consumer receives corrected disclosures containing all changed terms in accordance with the requirements of Sections 17.7 through 17.27.

(e) If any disclosures required under this Section are not provided to the consumer in person, the consumer is considered to have received the disclosures 3 business days after they are delivered or placed in the United States mail. As used in this subsection, "business day" means all calendar days except Sundays and legal public holidays.

(205 ILCS 670/17.8 new)

Sec. 17.8. Income share agreements; income-based financing; estimated annual percentage rate.

(a) An income share agreement provider shall disclose a borrower's effective annual percentage rate by using the Federal Reserve Board's annual percentage rate calculation as set forth in Regulation Z, 12 CFR Part 1026, based on the following scenarios:

(1) the borrower's income stays constant throughout the term of the income share agreement;

(2) the borrower's income is 50% less than expected at the outset of the agreement and continues through the term at this reduced income rate; and

(3) the borrower's income is 50% more than expected at the outset of the agreement and continues through the term at this increased income rate.

(b) The figure calculated under this Section shall:

(1) assume 12 qualifying payments are received at the contractual payment percentage; and

(2) include any grace period.

(c) The estimated income projection as stated in paragraph (1) of subsection (a) shall be calculated using the best information reasonably available to the income share agreement provider.

(d) An income share agreement provider shall retain data and documentation sufficient to demonstrate the manner and methodology used to estimate a borrower's annual percentage rate under this Section.

(205 ILCS 670/17.9 new)

Sec. 17.9. Income share agreements; periodic monthly statement. An income share agreement provider shall provide a borrower with a monthly statement within 15 days before a payment due date that clearly and conspicuously discloses:

(1) the amount of the calculated monthly payment;

(2) the amount of a qualifying monthly payment;

(3) the due date of the monthly payment;

(4) the number of qualifying payments received;

(5) the dollar total of qualifying payments;

(6) the number of payments remaining toward the maximum qualifying payments;

(7) the dollar amount remaining toward the satisfaction of the payment cap;

(8) a description of the information relied on to determine the borrower's calculated monthly payment;

(9) a statement regarding a borrower's rights with respect to filing a dispute and contact information for a borrower to submit a request for assistance or dispute to the income share agreement provider; and

(10) the income share agreement provider's policies and procedures related to submitting income documentation, including, at minimum:

(A) acceptable types and categories of documentation;

(B) time within which documentation must be received by the income share agreement provider;

(C) location and methods for a borrower to submit documentation to the income share agreement provider;

(D) the manner in which an income share agreement provider will review a borrower's documentation;

(E) the method for a borrower to dispute a determination related to the submission of documentation;

(F) third-party vendors the income share agreement providers rely on to determine a borrower's income;

(G) any applicable rights to cure a default; and

(H) the consequences under the income share agreement for failure to submit income documentation.

(205 ILCS 670/17.10 new)

Sec. 17.10. Income share agreements; annual statement.

(a) An income share agreement provider shall provide a borrower with an annual statement.

(b) The annual statement shall disclose, at minimum:

(1) the number of qualifying payments a borrower has made;

(2) the number of payments remaining of the maximum required payments;

(3) the total dollar amount of payments the borrower has made;

(4) the number of months the borrower has experienced a bona fide payment event; and

(5) contact information for a borrower to submit a request for assistance or dispute to the income share agreement provider.

(205 ILCS 670/17.11 new)

Sec. 17.11. Income share agreements; determination of qualified income; borrower protections.

(a) An income share agreement provider shall adopt policies and procedures concerning the determination of a borrower's qualified income.

(b) An income share agreement provider shall provide readily accessible methods for the borrower to submit a request for assistance to the income share agreement provider on a matter related to the borrower's payment.

(205 ILCS 670/17.12 new)

Sec. 17.12. Income share agreements; charges permitted.

(a) The contractual payment percentage may not exceed 5% of a borrower's qualified income.

(b) At no time may the percentage of such individual's income that the individual has agreed to pay under an educational income share agreement and any other eligible educational debt exceed 10%.

(205 ILCS 670/17.13 new)

Sec. 17.13. Income share agreements; limitation on the length of agreements. No income share agreement term may exceed 60 months, including months in which no payment is due because of a bona fide payment event.

(205 ILCS 670/17.14 new)

Sec. 17.14. Income share agreements; payment multiplier. No income share agreement provider shall contract for a payment cap that exceeds 1.10 times the amount of the advance.

(205 ILCS 670/17.15 new)

Sec. 17.15. Income share agreements; advance limit. No income share agreement provider shall extend an advance that exceeds $5,000.

(205 ILCS 670/17.16 new)

Sec. 17.16. Income share agreements; grace period.

(a) No payment may be collected pursuant to the terms of an income share agreement:

(1) when a borrower is enrolled in a covered educational program; or

(2) during the 6-month grace period that begins on the date the borrower graduates or withdraws from or falls below half-time enrollment status in a covered educational program.

(b) No educational income share agreement may contain a grace period that is less than 6 months.

(c) A borrower may voluntarily elect to make qualifying payments to an income share agreement provider during a grace period.

(205 ILCS 670/17.17 new)

Sec. 17.17. Income share agreements; prepayment. A borrower may satisfy an income share agreement before the maximum term subject to the following conditions:

(1) If a borrower has made qualifying payments in an amount less than the advance, then the borrower may satisfy the income share agreement by paying the difference between the advance and the dollar amount of payments and fees the borrower has made to the income share agreement provider pursuant to the terms of the income share agreement.

(2) If a borrower has made qualifying payments in an amount that exceeds the advance, then the borrower may satisfy the income share agreement by paying the difference between the payment cap and the dollar amount of payments and fees the borrower has made to the income share agreement provider pursuant to the terms of the income share agreement.

(205 ILCS 670/17.18 new)

Sec. 17.18. Income share agreements; prohibitions.

(a) An income share agreement provider shall not engage in unfair or deceptive practices toward a borrower or misrepresent or omit material information in connection with an income-based financing transaction, including, but not limited to: misrepresenting the amount, nature, or terms of a fee or payment due or claimed to be due on an income share agreement; the terms and conditions of the income share agreement; the terms of a repayment plan; or the borrower's obligations under the income share agreement.

(b) An income share agreement provider may not misapply or miscredit payments made by a borrower pursuant to the terms of an income share agreement.

(c) An income share agreement shall oversee third parties, including subservicers, debt collectors, independent contractors, subsidiaries, affiliates, or other agents, to ensure that those companies comply with this Act when working on behalf of the income share agreement provider.

(d) No payment shall be due or otherwise collected from a borrower pursuant to the terms of an income share agreement if a borrower has a bona fide payment event.

(e) No income share agreement provider may make any written or verbal statement regarding a borrower's estimated income that is false or misleading.

(f) A borrower must exhaust all sources of federal student loans and state grants for which the borrower is directly eligible before entering into an educational income share agreement if the borrower is eligible for such funding. The income share agreement provider shall verify whether a borrower has exhausted applicable funding.

(g) If an income share agreement provider declares a borrower in default, including due to missing or delayed income documentation, such provider may not take additional collection action or otherwise impose a penalty unless the borrower is given the opportunity to cure the default.

(h) No income share agreement may contain provisions related to:

(1) confessions of judgment;

(2) assignment of wages; or

(3) prejudgment attachment.

(i) No income share agreement shall provide for any rights regarding the borrower's educational or employment pursuits.

(j) An income share agreement provider shall comply with the requirements of the Fair Credit Reporting Act.

(205 ILCS 670/17.19 new)

Sec. 17.19. Income share agreements payment processing.

(a) An income share agreement provider shall credit borrower payments promptly and accurately.

(b) An income share agreement provider shall provide borrowers with prompt notice if the income share agreement provider changes the address to which the borrower needs to send payments.

(205 ILCS 670/17.20 new)

Sec. 17.20. Income share agreements fees.

(a) Unless otherwise provided by federal law, an income share agreement provider may only charge late fees that are reasonable and proportional to the cost it incurs related to a late payment.

(b) Unless otherwise provided by federal law, an income share agreement provider may not charge a borrower or cosigner any fee to modify, defer, forbear, renew, extend, or amend the borrower's income share agreement.

(205 ILCS 670/17.21 new)

Sec. 17.21. Income share agreements; discrimination prohibited. It is unlawful for any income share agreement provider to discriminate against a borrower with respect to an aspect of an income share agreement or income-based financing transaction:

(1) on the basis of race, color, religion, national origin, immigration status, sex, gender identity, sexual orientation, marital status, or age (provided the applicant has the capacity to contract);

(2) because all or part of the applicant's income derives from a public assistance program; or

(3) because the applicant has in good faith exercised a right under this Act.

(205 ILCS 670/17.22 new)

Sec. 17.22. Income share agreements; conflicts of interest. An educational income-based agreement provider may not, directly or indirectly:

(1) offer or provide a gift to a covered educational program in exchange for an advantage or consideration provided to such income share agreement provider related to its income-based financing transactions; or

(2) engage in revenue sharing with a covered educational program.

(205 ILCS 670/17.23 new)

Sec. 17.23. Income share agreements; bankruptcy. The provisions of this Act with respect to the treatment of income share agreements under Illinois law may not be construed to qualify such agreements as qualified education loans under 26 U.S.C. 221(d)(1) or debt that is excepted from discharge under 11 U.S.C. 523.

(205 ILCS 670/17.24 new)

Sec. 17.24. Income share agreements; cancellation and discharge. An income share agreement shall be void if:

(1) a borrower receives a determination from the Social Security Administration that he or she is totally and permanently disabled;

(2) a borrower is determined by the Secretary of Veterans Affairs to be unemployable due to a service-related disability;

(3) a borrower dies; or

(4) a borrower's covered educational program closes prior to the borrower completing the program.

(205 ILCS 670/17.25 new)

Sec. 17.25. Requests for assistance; account dispute resolution; appeals.

(a) An income share agreement provider shall implement reasonable policies and procedures for accepting, processing, investigating, and responding to requests for assistance in a timely and effective manner, including, but not limited to, the following requirements:

(1) An income share agreement provider shall provide readily accessible methods for consumers to submit a request for assistance to the income share agreement provider, including such methods as phone, email, and United States mail.

(2) An income share agreement provider shall post on its website and disclose on its billing statements:

(A) the toll-free telephone number, email address, and mailing address for consumers to submit a request for assistance to the income share agreement provider; and

(B) the procedures for a borrower to send a written communication to the income share agreement provider regarding any request for assistance.

(3) For any request for assistance that includes a request for documentation or information where a response cannot be immediately provided, an income share agreement provider shall provide the requested documentation or information to the borrower within 14 calendar days after the request; if an income share agreement provider determines in good faith that it is unable to provide the documentation or information within 14 calendar days, promptly after making that determination the income share agreement provider shall notify the borrower of the expected response period, which must be reasonable for the request for assistance.

(b) An income share agreement provider shall implement a process by which a borrower can escalate any request for assistance. Such process shall allow a borrower who has made a request for assistance on the phone and who receives a response during the call to obtain immediate review of the response by an employee of the income share agreement provider at a higher supervisory level.

(c) The following requirements shall apply when a borrower submits a written or oral request for assistance that contains an account dispute to an income share agreement provider:

(1) Within 14 calendar days after its receipt of the written communication or oral request for further escalation, an income share agreement provider shall attempt to make contact with the borrower, including providing the borrower with name and contact information of the representative handling the account dispute, by phone or in writing, and shall document such attempt in the borrower's account.

(2) An income share agreement provider shall complete the following actions within 30 calendar days after its receipt of the written communication or oral request for further escalation, subject to paragraph (3) of this subsection:

(A) conduct a thorough investigation of the account dispute;

(B) make all appropriate corrections to the account of the borrower, including crediting any late fees assessed and derogatory credit furnishing as the result of any error, and if any corrections are made, sending the borrower a written notification that includes the following information:

(i) an explanation of the correction or corrections to the borrower's account that have been made; and

(ii) the toll-free telephone number, email address, and mailing address of the income share agreement provider's personnel knowledgeable about the investigation and resolution of the account dispute.

(3) If an income share agreement provider determines in good faith that it cannot complete a thorough investigation of the account dispute within 30 calendar days after receiving the written communication or oral request for further escalation regarding the account dispute, then promptly after making that determination the income share agreement provider shall notify the borrower of the expected resolution time period, which must be reasonable for the account dispute. An income share agreement provider must complete the actions listed in this subsection within this time period.

(4) If an income share agreement provider determines as a result of its investigation that the requested changes to a borrower's dispute will not be made, the income share agreement provider shall provide the borrower with a written notification that includes the following information:

(A) a description of its determination and an explanation of the reasons for that determination;

(B) the toll-free telephone number, email address, and mailing address of the income share agreement provider's personnel knowledgeable about the investigation and resolution of the account dispute;

(C) instructions about how the borrower can appeal the income share agreement provider's determination in accordance with paragraph (5) of this subsection; and

(D) information regarding the method by which a borrower may request copies of documents an income share agreement provider relied on to make a determination that no changes to a borrower's account will be made.

(5) After the borrower receives a determination regarding an account dispute in accordance with paragraph (4) of this subsection, the income share agreement provider shall allow a process by which the borrower can appeal, in writing, the determination. The appeals process shall include:

(A) a written acknowledgment notifying the borrower that the income share agreement provider has commenced the appeals process; such acknowledgment must be sent within 14 calendar days after receiving a written request for appeal from the borrower;

(B) an independent reassessment of the income share agreement provider's determination regarding the account dispute, performed by another employee of the income share agreement provider at an equal or higher supervisory level than the employee or employees involved in the initial account dispute determination;

(C) investigation and resolution of appeals within 30 calendar days after an income share agreement provider's commencement of the appeals process; and

(D) written notification sent to the borrower documenting the outcome of the appeal, including any reason for denial.

(d) While a borrower has a pending account dispute, including an applicable appeal, an income share agreement provider shall take reasonable steps to:

(1) prevent negative credit reporting with respect to the borrower's account while the dispute is under review; and

(2) suspend all collection activities on the account while the account dispute is being researched or resolved if the account dispute is related to the delinquency.

(205 ILCS 670/17.26 new)

Sec. 17.26. Income share agreements; miscellaneous provisions.

(a) An agreement, contract, or transaction that is willfully structured to evade the definition of an income share agreement is deemed an income share agreement for purposes of this Act.

(b) If there is a conflict between Sections 17.6 through 17.27 and any other Sections of this Act, Sections 17.6 through 17.27 shall control.

(205 ILCS 670/17.27 new)

Sec. 17.27. Enforcement of the Consumer Fraud and Deceptive Business Practices Act. The Attorney General may enforce a violation of Sections 17.7 through 17.27 of this Act as an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act.