You likely know better than anyone: running a school has become an increasingly labor-intensive mission — primarily due to a wealth of ever-changing rules and regulations. And just when you thought it couldn’t become any more complex, there’s yet another set of requirements you may need to add to your stack: the Truth and Lending Act (TILA).
Most people associate TILA with financial institutions that issue credit cards and fund mortgages. But, as it turns out, most independent schools are also subject to TILA provisions — and failing to comply could create some serious complications for your institution.
What exactly is the TILA? How does it apply to independent schools, and what do you need to do to ensure you’re not in violation?
Today, we’re breaking down everything you need to know:
What is the Truth In Lending Act?
The Truth in Lending Act is a federal law passed in 1968 to ensure all consumers are treated fairly and adequately informed on all the terms and costs associated with borrowing from a creditor or lender. The TILA requires lenders to disclose credit terms in a way that’s easy to understand, so consumers can confidently compare interest rates and conditions and make informed decisions.
Because independent schools provide an educational service in exchange for compensation, they’re considered merchants. Additionally, the TILA may regard tuition payment plans as “extensions of credit,” making your school a creditor, too. And, as a creditor, you’re responsible for providing necessary disclosures.
The TILA exists to stimulate competition within the market by encouraging consumers to shop around for the best credit rate and terms. And while most families aren’t shopping around and comparing tuition payment plans, per se, independent schools are still obligated to provide a disclosure (called a Regulation Z Form) before completing each transaction.
Does TILA Apply to My School?
So, is your school beholden to the rules of the Federal Truth in Lending Act? It all depends on your school’s size and the types of payment plans you offer.
If your school meets the following criteria, then TILA applies:
- Your school offers or extends credit to consumers. (In this case, “consumers” refers to the families you serve.)
- Your school offers or extends credit regularly. (In this case, “regularly” is defined as more than 25 times in the previous calendar year.)
- Your school imposes a finance charge, like interest, or makes tuition payable in more than four installments as defined within a written agreement.
- You offer or extend credit primarily for personal, family, or household purposes.
Opting Out or Complying
If your school is subject to the TILA, you have two choices: you can either opt-out, or you can comply.
To opt-out, you’ll likely need to restructure your enrollment agreements by doing the following:
- Eliminate finance charges
- Do not exceed four payments (excluding the enrollment deposit)
- Have your agreements reviewed by an attorney to ensure no other elements fall within the TILA criteria.
To comply, you’ll need to ensure you include all the FDIC-required information on each disclosure form. This means creating a two-step enrollment process: First, parents must choose their preferred payment plan. Second, you must prepare an enrollment agreement and disclosure form. This form should use all the same language used in the enrollment contract.
SchoolAdmin automates this process for you and your families.
How to Structure TILA
There are ten items you’ll need to include in your TILA disclosure at the time of signing:
- The total amount financed
- An itemization of the total amount financed
- Finance charges
- Annual percentage rate
- Payment schedule
- Total of payments
- Demand feature
- Prepayment fees
- Late payment disclosure
- Total sale price
It’s helpful to review the model forms and best practices from the Consumer Financial Protection Bureau (CFPB). By following these guidelines, you can mitigate potential risks and make it easier for legal counsel to review your contracts.
What You Should Do
All of this information can be a little overwhelming, but the price for non-compliance is pretty steep — so it’s crucial you set yourself up for success.
Here are a few action items we recommend taking immediately:
1. Take TILA seriously
Failing to comply is more than a slap on the wrist — it can be financially damaging to your school, too. At the very least, a parent could cite your school’s failure to provide a TILA disclosure as their reason for avoiding the payment terms of your enrollment contract. Additionally, you could be fined for statutory damages of two times the total of your school’s finance charges, up to $4,000, plus attorney’s fees — or subject to a class-action lawsuit with damages up to $1 million or 1% of your school’s net worth, according to Fisher Phillips, LLP.
2. Do your research
Carefully examine your enrollment process — including your contracts and payment plan terms — to determine if you meet the criteria to be considered a “creditor” under the TILA. Then, review the CFPB’s best practices and model forms to better understand what you need to do to comply.
3. Consult with legal counsel
Given the complexity of the Truth in Lending Act, you must consult with an attorney. Ask them to review your enrollment contracts as well as any TILA disclosure templates you’re sharing with the families you serve.
4. Invest in an enrollment management platform that automates the TILA process
Handling this process manually requires an inordinate amount of work, but an enrollment management platform like SchoolAdmin can do the work for you.
How SchoolAdmin Can Help
Unfortunately, much of the Truth and Lending Act compliance efforts fall to admissions and enrollment professionals — like you. And, as you may already know, it’s incredibly tedious and time-consuming. First, you’d have to calculate the terms and costs to include in the disclosure for each of the different tuition and payment plan scenarios, and then manually add them to each contract before delivering them to the parents.
SchoolAdmin, however, can calculate and present a full TILA disclosure in real-time — taking optional fees and the parent’s payment plan selection into account — and displaying it before the parent signs. You can ensure compliance without lifting a finger. This can save you and your team from hours of work (and more than a few headaches).
The TILA is a multi-faceted and complex law, and failure to comply — even inadvertently — can cost you a significant sum of money. Meanwhile, manually handling disclosures requires meticulous focus, adding work to your already-overburdened team. Only with SchoolAdmin can you fully automate this process and ensure compliance, giving you the security and time to focus on what’s most important – students and families.
Download our TILA checklist to make sure you’ve included all of the required elements in your TILA disclosure.