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VNITED STAl'ES DEPARTMtNT OF EDUCAllON

Jlr. John Dean Clohan i Dean

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ConlhUiltr Bankers Association · UOl Var.ao11t Ava. , IIW hit• 400 W&llhingtcm,. IX zooos

Dear xr. Dean:

Wo have oora-ran-ed. vit:h Fe4e.ra1 Trade Cmnad:~caion (P'l'C) .ta~r to reach the general responses to eOIRa recent quastions that vera

. rai•ed on the rl'C Bol4er Jtula. Since you have expressed interest iD 'this area r am ir10lociJlcg a copy ot 'thosa queetion• an4 ansvere.

As you knov, because the Fl'C prowlqatecl and administers the Holder Jb&le, the Depe~rtment JaWJt 9iva dderenc::e i:o 'UAY interprebtion ~ the FTC of the application or the rule. An FTC opinion as to Whether the rule applies in particular fact: situations vill th~~ore ·be ordinarily clispositi"Ve o.n ~""t :i.•s&le .in any dispute ~eg-arclincJ the entoreeability of an FPEL Prog::cam loan. The rrc .bas provided CIXPlanat.ory IJtatemal'lts in the resteral Register reg-arding th• applic:ativn or tba Bold.r Ru1e. ~ese are ~ound. in the [S4eral Beq!ster of November 11, 1175 (40 !'R 53~06), August 16, 1.976 (41 n 43594), aDd June 29, 1992 (57 F.R 21814).

If you have further questions, please feel free to contact me.

Dclosure

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Sincerely,

~.~ Robart.,·W. Evans Direc:tor D~vis1on ot Policy oevelopmen~ .Policy, Trai.ni.hg-, a.nc:l Analysis Service

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Federal Trade Commission (FTC) Holder Rule Questions/ Answers

1. Question: Student A asks School.A the name of a lender where he/she can get a school loan.

Answer. No referral or business arrangement is created if the school does no inore ·than give information that loans are available from certain lenders.

Question: Studc:nl A asb School A _to submit his/her completed student loan application 'to a lender but does not specify the lender. School A submits the Joan to n lender chosen by the school on behalf of the student.

Answer: A school that selects the lender for the student is recommending that lender and creates thereby a referral relationship if the lender know$ or has reason to know that this recommendation! referral is taking place. Section 483(a)O)of the HEA

· requires that the student indicate on the application a choice of lender. and a school that selects the lender for the student violates Ibis requirement.

3. Question: School A's financial aid offi~c bas a list of eight lenders which make loans to students at the institution. School A asks StUdent A to make a selection of a lender if hel&he wishes to apply for a loan. The student makes a lender selection and the institution forwards the loan application on behalf of the 5ttldent to that lender.

Answer: A school does not create a referral relationship if it merely presents to students a list of lenders that are willing to make loans to students at the school. Forwarding the completed loan applicatiop to the lender selected from die list by the student does not create a referral or business arrangement with that lender.

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FTC Holder Rule Questions/ Answers

4. Question: Student A asks School A to electronically submit his/her application to a lender.

Answer: A school that is willing _,.to esta~llsh and use an cla.1IUDic application submission procedure with aax bank that is will~ to lend to its students doa not by doing so create a referml or business arrangement with the lenders. Ho.wcver, if the school excludes banks that do not accept electrOnic application transmissions from the li~ of lenders whom it discloses to students, that action tends to show that a -special relationship and business arraJ12ement exists between the school and the listed banks.

5. Question: School A bas an electronic funds transfer procedure with a single lender. School A has an electronic funds transfer procedure with multiple lenders.

Answer: A school that is willing to ~tablish and usc an electronic ·funds t:ramfer procedure with an.x bank that is willing to lend to its Jludents docs not by dojng JO create a referral business 8.Il'3ngement with the lender. However, if the school excludes banks that do not use electronic funds transferi from the list of lenders that it discloses to students, that action tends to show that a special relationship and b11siness arrangement exists between the school and the listed banks.

6. Question: Lender B visits School A on a quarterly basis to assist with default prevention activities (e.g. eounselin' students).

Answer: A school that uses counseling assistance provided by a bank does not create a referral or business arrangement by so doing if it invites, and accepts ofrers:of, such cuunselin& from alllc:ndcrs niaking loans to its students.

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FTC Holder Rule Questions/ Answers

7.. Question: School A uses Lender B·s default prevention brochures and videOs. Lender B provides lhcse material free of charge to school A .

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Answer: A school that uses brochures and videos prepared for default prevention ratba- tlmn for advertising PmPoses that are available free of ·charge from a lender to all schools at which its borrowers are enrolled does not create by that action a referral nr bW\iness arrangement.

I. Question: An ED Dear Colleague Letter (Gen-88-34) allows an institution to justify SLS eligibility for dependent undergraduate students .in lieu of a· letter of denial of a PX.,US Ioan because School A

-· baS documentation from Lender B that indicates that the lender who generally makes PLUS loans to parents of students enrolled at the school would not make PLUS loan to parents of a student under circumstances that are applicable to those parents.

Answer: A school that relies on its own experience with decisions of a lender that makes PLUS loans to other parents of its students. or that relies on statements form the bank of its credit policies that are ~ly available to inquiring parties with reprd to PLUS loans,. does not by those actions create a refenal or business arrangement with that bank.

./ 9. Question: School A submits a loan to a lender·of-last resort on student A's behalf.

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Answer: A sehool that submits a loan tO a lender-of-last rcsurL does not by that action create a referral relationship if it merely identifies that lender, as a source of;ercdit to the borrower, but may create o rcfeaal if it ~ommends that lender to the borrower.

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FrC Holder R.ule Questions/ Answers

10. Question: Lender B sends School A copies of loan denial letters sent to students and/or parents.

Answer: A lender that sends copies of loan denial leaers as a normal bllsincss practice to all schools aSsociated with the loan applications it receives does I10l by lhat action create a business arrang~ment with a particular school.

11. Question: School A prOvides borrower address updates for Lender B on a monthly basis ro facilitate ~rvicing of loans when students are in school.

Answer: A school that provides borrower address and other status updates required by statute and regulation to each lender that made a .loan to a stUdent enrolled at the school to assist the lender in servicing lhose loans does not by that action create a business arrangement with any of those lenders.

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&stj.~ Robert W. Evans Di~tor Division of Policy Development Policy, Training, and Analysis Service

July 27, 1993

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