New York Attorney General Andrew Cuomo’s Code of Conduct Plan for Banks: Why Not A Plan for Qualified Intermediaries and Mortgage Industry?

The mortgage lending industry is not the only lending niche in trouble these days. With the outrageous 1031 disasters of Ed Okun and Donald McGhan splashed all over the court systems of America, consumers are become distrustful, as a rule of thumb, and weary of any tax strategies or lending transactions in their future.

In the college tuition lending niche, at least some of the abuses have been addressed by aggressive policy making. New York’s Attorney General Andrew Cuomo provided a good example of the type of laws or provisions that need to be enacted in order to rein in abuses by large banking institutions lending money for tuition financing.

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In June of this year, Attorney General Andrew Cuomo of New York outlined and implemented a Code of Conduct plan for the 6 largest student loan lenders. Cuomo’s plan includes the following 7 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.

Look at these provisions carefully. Would you want to collaborate or become a customer of an organization that is being reprimanded for provisions 2 and 3. Essentially these are rules against kickbacks. Does it not make sense to search for an alternative to the stratospheric, exorbitant costs of college tuition loans?

What would you rather have as your plan to finance a student’s education: a high interest rate and long term loan that creates financial unrest for your family for years or a financial plan that allows you to take advantage of the millions of dollars of government financial aid that goes untapped every year?

Hopefully Attorney General Cuomo’s work will be viewed by other law makers as an avenue to advance consumer rights and alleviate consumer fears in both the lending industry and the 1031 exchange industry.

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