Q: I work at an independent school that allows families to pay tuition in installments. Does this make us subject to TILA?
A: The Truth in Lending Act (TILA) is a federal law that was enacted, in large part, to protect the interests of borrowers relative to loans issued by creditors for specific purposes. The act was passed to curb unfair and predatory lending practices by requiring transparency so that consumers can understand loans offered to them. TILA was not, as one may assume, designed specifically with independent schools in mind; however, TILA also was not narrowly tailored to fit only one type of lender or loan. As a consequence, some of the lending practices that independent schools routinely engage in may fall under TILA’s coverage.
The breadth of what is considered a loan for the purposes of TILA can be surprising to many institutions. Under TILA, not only are traditional loans covered, but the issuance of credit is as well. How an independent school accepts payment for tuition, including room and board, is the most common area where it may fall under the provisions of TILA. Simply put, this is because a school is considered to have issued credit (or a loan) to a student/family when it allows a student/family to pay any time after the school begins to provide services, including housing, to a student. Any deferment of payment for services rendered is considered to be an issuance of credit or lending, which is one way in which TILA can be triggered.
In order for an independent school to be covered under TILA, the following factors must be present:
- More than 25 families participate in applicable tuition payment plans; and
- Tuition is under $69,500; and
- Families have the option to pay in more than 4 installments; or
- The school assesses a finance charge for a family to utilize any installment plan, even if the plan is in 4 or less installments. (NOTE: discounts for upfront payment effectively create a finance charge as to staggered payment plans and may trigger TILA).
In other words, if a family selects a payment plan in more than 4 installments or an independent school assesses a finance charge to utilize any payment plan, the school likely must comply with TILA.
Once TILA applies, the student/family selecting the applicable payment plan must be provided a TILA disclosure form as prescribed under the regulations. To determine the appropriate timing and contents of the disclosure form, consultation with knowledgeable counsel is recommended.
It is important to understand these obligations and remain in compliance as violations of TILA may subject a school to damages, costs and reasonable attorney fees. Administrators with concerns as to whether TILA applies should seek advice from counsel.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to firstname.lastname@example.org. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.