Attorney General Cuomo Announces Agreement With Three Lenders
NEW YORK, NY (June 20, 2007) – Attorney General Andrew M. Cuomo today announced agreements with three more lenders resulting from his ongoing investigation of the student loan industry: National City Bank, Regions Financial Corporation, and Wachovia Education Finance, Inc. (“Wachovia”), a division of Wachovia Bank. Wachovia, National City Bank, and Regions Financial Corporation have all agreed to abide by the Attorney General’s Code of Conduct for education loan practices. The agreement with Wachovia, the nation’s sixth largest provider of student loans, means that Cuomo has now reached agreements with the top six largest student loans providers in the country.
Attorney General Cuomo said, “With this agreement, the six largest providers of student loans in the country have signed on to my office’s Code of Conduct. With each agreement, more students and families are protected from corruption, more lenders and schools are compelled to reform their practices, and more integrity is restored to the student loan industry.”
Cuomo’s Code of Conduct, which has been the basis for the recent reforms in the student loan industry, was codified into law with New York State’s Student Lending Accountability, Transparency, and Enforcement (SLATE) Act of 2007. This legislation, which was sponsored at the request of Cuomo, was the first piece of legislation in the country aimed at ending the widespread conflicts of interest the student loan industry. Proposed federal legislation regarding the student loan industry also incorporates Cuomo’s Code of Conduct; the Student Loan Sunshine Act that is currently being considered by the U.S. Senate would require schools to adopt a Code of Conduct. The U.S. House of Representatives recently passed this legislation in a virtually unanimous vote of 414-3. Cuomo and Florida Attorney General Bill McCollum have sent letters to President Bush and Senate leaders urging them to support this legislation.
Cuomo continued, “As a result of the SLATE Act, protections against conflicts of interest in the student loan industry are now the law of the land in New York. But as my office’s investigation has shown, the problems in this industry affect students and their families throughout the nation. As such, federal legislation is the best way to ensure that the rights of all students and all families are protected. We will continue to urge Congress to take swift and appropriate action to restore integrity to the student loan industry. With ten major lenders, including the nation’s six largest, signing the Code of Conduct, there can no longer be any objection to Congressional passage of the Sunshine Act.”
To date, 26 schools have committed to Cuomo’s Code of Conduct, 10 of which have agreed to reimburse students over $3 million for the cost of revenue sharing agreements. With today’s agreements, Cuomo’s investigation has resulted in agreements with the nation’s six largest student loan providers - Citibank, Sallie Mae, JP Morgan Chase, Bank of America, Wells Fargo, and Wachovia - as well as with Education Finance Partners (EFP), CIT, National City Bank, and Regions Financial Corporation. Sallie Mae, Citibank, EFP, CIT, Johns Hopkins University, Columbia University, Mercy College, and Career Education Corporation have also agreed to contribute $11.2 million to a national fund established by Cuomo that will educate high school students and their families about the financial aid process.
The Code of Conduct adopted by the lenders includes the following provisions:
1. Ban on Financial Ties. Lenders are prohibited from giving anything of value to any college in exchange for any advantage sought by the lender. This severs any inappropriate financial arrangements between lenders and schools and specifically prohibits "revenue sharing" arrangements.
2. Ban on Payments for Preferred Lender Status. Lenders may not pay or give colleges any financial benefits whatsoever to get on a college’s preferred lender list.
3. Gift and Trip Prohibition. Lenders are prohibited from giving college employees anything of more than nominal value. This includes a prohibition on trips for financial aid officers and other college officials paid for by lenders.
4. Advisory Board Rules. Lenders are prohibited from paying college employees anything of value for serving on the advisory boards of the lenders.
5. Call-Center and Staffing Prohibition. Lenders must ensure that employees of lenders never identify themselves to students as employees of colleges. No employee of a lender may ever work in or providing staffing assistance to a college financial aid office.
6. Disclosure of Range of Rates and Defaults. Lenders must disclose to any requesting school the range of rates they charge to students at the school, the number of borrowers at each rate at the school, and the lender’s historic default rate at the school. This will ensure that schools will have the information they need to select preferred lenders who are best for students and their families.
7. Loan Resale Disclosure. Lenders shall fully and prominently disclose to students and their parents any agreements they have to sell loans to any other lender.