HF 2244 (LSB 5867YH (2) 86)

HOUSE FILE 2244

BY  WINCKLER

A BILL FOR

An Act relating to interest rate limitations and disclosure requirements applicable to specified postsecondary educational loans, and making civil penalties applicable.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  261F.5A  Interest rates —— limitation.
   1.  For purposes of this section, “federal student loan interest rate” means the interest rate applied to an educational loan made, insured, or guaranteed under Tit. IV of the federal Higher Education Act of 1965, as amended, directly to a borrower solely for educational purposes and as described by the federal student aid office of the United States department of education.
   2.  a.  Notwithstanding any provision to the contrary, the interest rate collected or imposed by a lender or lending institution on a private educational loan in this state shall not be more than one percentage point over the corresponding federal student loan interest rate for the life of the loan.
   b.  For purposes of determining the applicable corresponding federal student loan interest rate, the lender or lending institution shall apply the current federal interest rate that corresponds to the category of the loan, including but not limited to whether the loan is subsidized or unsubsidized, and the category of the borrower, including but not limited to whether the borrower is an undergraduate or graduate student.
   3.  This section shall not be interpreted to supersede, conflict with, or apply to the requirements applicable to a loan that is made, insured, or guaranteed by the federal government or to any other loan providing for postsecondary educational expenses pursuant to a federal program.
    Sec. 2.  Section 261F.7, Code 2016, is amended to read as follows:
   261F.7  Disclosure requirements. 
   1.  Except for educational loans made, insured, or guaranteed by the federal government, a lending institution included on a covered institution’s preferred lender list shall, upon receiving a request from a borrower, covered institution, or government entity, disclose to the requester in reasonable detail and form, the terms of private educational loans made to borrowers by that lending institution and the rates of interest charged to borrowers for private educational loans in the year preceding the disclosures.
   2.  A lender or lending institution providing a private educational loan to a borrower in this state shall, prior to the borrower signing a loan agreement, disclose to the borrower in reasonable detail and form, the terms of the loan being provided to the borrower. Such disclosure shall include but is not limited to an estimate of the total cost of the loan, taking into consideration the interest rate applied to the loan. The borrower shall sign a statement attesting to receipt of the disclosure required under this subsection, which statement shall be affixed to the loan agreement.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to private educational loans provided to borrowers in this state.
   The bill provides that the interest rate applied by a lender or lending institution to a private educational loan provided to a borrower in Iowa cannot be more than one percentage point over the corresponding federal student loan interest rate for the life of the loan. The bill defines “federal student loan interest rate” as the interest rate applied to an educational loan made, insured, or guaranteed under title IV of the federal Higher Education Act of 1965, as amended. To determine the applicable corresponding federal student loan interest rate, the lender or lending institution shall apply the current federal interest rate that corresponds to the category of the loan and the category of the borrower, as described in the bill. The bill states that the interest rate limitation shall not be interpreted to apply to educational loans made, insured, or guaranteed by the federal government.
   The bill requires a lender or lending institution to disclose the terms of a private educational loan to a borrower prior to the borrower signing an agreement for the loan. The disclosure must include an estimate of the total cost of the loan, taking the applicable interest rate into account. The borrower must sign a statement attesting to having received the disclosure, and the statement shall be affixed to the loan agreement.
   Pursuant to current Code section 261F.8, a lender or lending institution that violates a provision of Code chapter 261F is subject to a civil penalty of $5,000 per violation, in addition to other specified sanctions.