Thursday, May 31, 2007
Yara Zakharia, Esq.
Wells Fargo, the fifth leading college loan provider in the U.S., reached an accord with New York's Attorney General Andrew M. Cuomo concerning educational lending practices. In the latest chapter of the ongoing national investigation, the San Francisco-based company signed on to a code of conduct created by Cuomo's Office aimed at regulating the relationship between creditors and colleges. Four other prominent student loan companies agreed to abide by the code.
"The message is clear – lenders large and small must adhere to best practices and help restore integrity to the student loan industry", said Cuomo. Under the code, quid pro quo arrangements whereby a university is offered incentives, such as money, to send its students to a particular loan provider are prohibited.
As it currently stands, 24 schools (college and universities) have pledged to comply with the Attorney General's Code of Conduct. Nine of those institutions plan to compensate students with more than $3 million for the amount expended on revenue sharing agreements. In addition to Wells Fargo, the top four education loan providers in the U.S.- Sallie Mae, Bank of America, JP Morgan Chase, and Citibank- along with CIT and Education Finance Partners (EFP) expressed their commitment to the code. Furthermore, Citibank, CIT, EFP, and Sallie Mae have agreed to free up $9.5 million as contribution to Cuomo's national fund that will provide information about the financial aid process to high school students and their parents.
On May 7th of this year, New York's state legislature approved the Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007, which Cuomo sponsored and which is the first U.S. law whose objective is to put an end to the prevalent conflict of interests in the student loan sector.
Among the notable provisions set forth in the Code of Conduct and adopted by Wells Fargo are the following:
1. Trip and gift ban:
The code prohibits creditors from offering university employees anything exceeding a nominal value. Included in the ban are trips for financial aid advisors and other university administrators that are financed by lending institutions.
2. Prohibition on financial ties:
Creditors cannot offer any item of value to a university with the expectation of acquiring an advantage.
3. Disclosure of loan resale:
A creditor must conspicuously and completely disclose to students and their families any arrangement he has entered into to sell the loan to another lender.
4. Prohibition on payment for preferred lender listing:
The code bans lending institutions from paying or offering universities any type of financial incentive for purposes of obtaining the preferred lender status.
5. Disclosure of defaults and extent of rates:
Lenders are required to disclose to any requesting college the rates range that students at the university are subject to, the creditor's default rate at the university, and the number of borrowers at each rate at the university.
6. Call-Center and staffing ban:
A creditor has a duty to prevent its employees from presenting themselves to students as employees of the schools. Also, a creditor's employees may not be employed in or offer staffing assistance to a university's financial aid office.
7. Advisory board rules:
The code prohibits a creditor from offering any item of value to school employees for serving on the former's advisory board.
