A private education loan with a previously reported default that is earmarked for rehabilitation under provisions of regulatory relief legislation enacted last spring is entitled to a safe harbor from federal credit reporting requirements, federal banking regulators advised Monday.
In a Financial Institution Letter (FIL), the Federal Deposit Insurance Corp. (FDIC) said it and the Federal Reserve were jointly providing an advisory to make banks and other financial institutions aware of the provision held in last year’s Economic, Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155). Section 602 of the new law, the agencies said, amends that part of the Fair Credit Reporting Act (FCRA) (sec. 623) relating to the education loans.
“Financial institutions that choose to establish a private education loan rehabilitation program under Section 602 of the EGRRCPA (Section 602 Program) that satisfies the statutory requirements, including written approval of the terms and conditions from their federal regulatory agency, are entitled to a safe harbor from potential claims under the FCRA related to removal of the reported default” from a consumer’s credit report, the FIL states.
The FDIC noted in its letter (titled “Voluntary Private Education Loan Rehabilitation Programs”) that banks are not required to offer a Section 602 Program, although consumers may request that a bank remove a reported default regarding a private education loan.
However, those banks that do establish a program (if the program they set up satisfies the statutory requirements) are entitled to the safe harbor from potential claims under the FCRA of inaccurate reporting for removing a reported default.
“An existing or a future private education loan rehabilitation program will not be considered a Section 602 Program unless a financial institution designates it as such and it meets the statutory requirements of section 602 of EGRRCPA,” the FIL stated.