Bankers group agrees to student-loan standards

A trade group that includes student-loan providers pledged to abide by certain ethical standards to reassure borrowers and lawmakers who are investigating the $85-billion-a-year industry for conflicts of interest.
Members including Citigroup Inc. and Wells Fargo & Co. promise to adhere to practices such as not offering gifts that could create the appearance of conflicts, the Arlington, Va.-based Consumer Bankers Association said in a statement last Wednesday. The group’s education funding committee had reached agreement on the standards days earlier, spokesman Fritz Elmendorf said.
Student-loan providers are facing investigations that have found lenders providing consulting fees and stock to college officials who recommended the companies to prospective borrowers. Congressional committees probing the practices also are considering cutting federal payments to such lenders for handling government-backed loans.
The list will “be used really to show that the industry is committed to the principles of responsible marketing,” Elmendorf said. The provisions on the list of “commitments” go beyond those required by the U.S. Department of Education, he said.
The standards include informing prospective borrowers that they can take out loans from any providers, not only those recommended by their schools. In addition, the criteria used by colleges and universities to select those so-called preferred lenders should be clearly stated, the association said.
Also last Wednesday, New York Gov. Eliot Spitzer signed into law a code of conduct for lending companies and higher-education institutions. The Student Lending Accountability, Transparency and Enforcement Act puts into effect an ethics code developed by the state’s attorney general, Andrew Cuomo, during a five-month investigation of the student-loan industry.
Seven lenders and 24 college and universities have adopted Cuomo’s ethics code. He also has reached financial agreements with loan providers and schools totaling $13.1 million.
The U.S. House of Representatives voted on May 9 to approve the Student Loan Sunshine Act, designed to make the student-loan system more transparent and less susceptible to conflicts of interest. A similar bill is before the Senate.