Title: ISA Act of 2017
Policy area: Education

Summary:
Investing in Student Achievement Act of 2017 or the ISA Act of 2017
This bill provides for income-share agreements whereby a student agrees to pay a percentage of future income, for a specified period of time, in exchange for funds to pay for educational expenses.


[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3145 Introduced in House (IH)]

<DOC>






115th CONGRESS
  1st Session
                                H. R. 3145

 To provide the legal framework and income tax treatment necessary for 
   the growth of innovative private financing options, and for other 
                               purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 29, 2017

 Mr. Messer (for himself, Mr. Polis, Mr. Hollingsworth, Mrs. Walorski, 
   Mr. Paulsen, Mr. Banks of Indiana, Ms. Sinema, and Mr. Hultgren) 
 introduced the following bill; which was referred to the Committee on 
   Financial Services, and in addition to the Committees on Ways and 
   Means, Education and the Workforce, Armed Services, and Veterans' 
Affairs, for a period to be subsequently determined by the Speaker, in 
   each case for consideration of such provisions as fall within the 
                jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
 To provide the legal framework and income tax treatment necessary for 
   the growth of innovative private financing options, and for other 
                               purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Investing in 
Student Achievement Act of 2017'' or the ``ISA Act of 2017''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
           TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS

Sec. 101. Tax treatment of proceeds and payments of future income.
Sec. 102. Terms and conditions of income-share agreement contracts.
Sec. 103. Rulemaking; model disclosure forms.
Sec. 104. Truth in Lending Act.
Sec. 105. Consent to continuing release of taxpayer information under 
                            income share agreement.
     TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW

Sec. 201. Lawfulness of contracts; preemption of State law.
Sec. 202. Preemption of State law with respect to usury.
Sec. 203. Preemption pre-existing State laws with respect to ability-
                            to-repay and licensing laws.
                  TITLE III--QUALIFIED EDUCATION LOAN

Sec. 301. Qualified education loan.
   TITLE IV--FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF INCOME-SHARE 
                               AGREEMENTS

Sec. 401. Proceeds not treated as income in calculation of financial 
                            need under the Higher Education Act of 
                            1965.
                TITLE V--TREATMENT UNDER SECURITIES LAWS

Sec. 501. Income-share agreements not treated as securities.
Sec. 502. Businesses making income-share agreements excluded from 
                            investment company treatment.
        TITLE VI--TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS

Sec. 601. Income-share agreement anti-discrimination protections.
Sec. 602. Prohibition on requiring preauthorized electronic fund 
                            transfers.
Sec. 603. Treatment under the Fair Credit Reporting Act.
Sec. 604. Application of the Military Lending Act.
Sec. 605. Application of the Servicemembers Civil Relief Act.
Sec. 606. Rulemaking.
                 TITLE VII--TREATMENT UNDER OTHER LAWS

Sec. 701. Insurance and wagering.
Sec. 702. Payments not considered prepayments.

SEC. 2. DEFINITIONS.

    For purposes of this Act:
            (1) Comparable loan.--The term ``comparable loan'' means, 
        with respect to an income-share agreement, a loan that--
                    (A) has an original principal amount such that, 
                after any origination fees on the loan are paid, the 
                amount of loan financing received by the individual is 
                equal to the total amount of funding provided under the 
                income-share agreement to or on behalf of the 
                individual subject to the agreement;
                    (B) has the same term to maturity as the duration 
                of the income-share agreement; and
                    (C) is fully amortized over such term with monthly 
                payments of principal and interest.
            (2) Income-share agreement.--The term ``income-share 
        agreement'' means an agreement--
                    (A) between an individual and an ISA funder;
                    (B) which meets the requirements of section 102; 
                and
                    (C) under which--
                            (i) the ISA funder pays amounts to, or on 
                        behalf of, such individual for costs associated 
                        with a postsecondary training program, or any 
                        other program designed to increase the 
                        individual's human capital, employability, or 
                        earning potential (and not limited to programs 
                        eligible to participate in programs under title 
                        IV of the Higher Education Act of 1965), as 
                        well as any personal expenses (such as books, 
                        supplies, transportation, and living costs) 
                        incurred by the individual while enrolled in 
                        such a program, or for the refinancing of debt 
                        used for these purposes (hereinafter in this 
                        Act referred to as ``income-share funding''); 
                        and
                            (ii) such individual pays to such ISA 
                        funder (or the ISA funder's successor in 
                        interest) amounts equal to a specified 
                        percentage of the individual's future income, 
                        for a defined term (hereinafter in this Act 
                        referred to as ``income-share payments'').
            (3) ISA funder.--With respect to an income-share agreement, 
        the term ``ISA funder'' means the party to such agreement who--
                    (A) pays amounts to, or on behalf of, an individual 
                solely for the purposes specified in paragraph 
                (2)(C)(i); and
                    (B) has the right to receive a specified percentage 
                of the individual's future income.
            (4) Qualified isa.--The term ``Qualified ISA'' means an 
        income-share agreement that complies with the following:
                    (A) Affordability for low after-school income.--The 
                income-share agreement provides that when an individual 
                subject to the agreement has an income that is equal to 
                or below the amount that is 150 percent of the poverty 
                line for a single person (as defined in section 673 of 
                the Community Services Block Grant Act (42 U.S.C. 
                9902)), the percentage of income obligation for the 
                individual is zero. The preceding sentence may not be 
                interpreted to preclude the charging of fees or nominal 
                payments (as described under section 102(a)(5)) during 
                this period.
                    (B) Limit on percentage of income.--The maximum 
                percentage of income an individual would be required to 
                pay under the agreement does not exceed 20 percent, and 
                the product of such percentage and the number of years 
                of the agreement does not exceed 2.25 (which figure is 
                the product of 7.5 percent and the number of years in 
                the longest allowable contract under section 
                102(a)(3)).
                    (C) Appropriate risk sharing.--The payments 
                required under such agreement for an individual with 
                income during the payment term equal to 175 percent of 
                the poverty line for a single person (as defined in 
                section 673 of the Community Services Block Grant Act 
                (42 U.S.C. 9902)) would not exceed the payments on a 
                comparable loan that bears interest at a rate equal to 
                the annual percentage rate of interest limitation under 
                section 987(b) of title 10, United States Code.
            (5) State.--The term ``State'' means the several States of 
        the Union, the Commonwealth of Puerto Rico, the District of 
        Columbia, Guam, American Samoa, the Virgin Islands, the 
        government of the Northern Mariana Islands, and the Trust 
        Territory of the Pacific Islands.
            (6) State law.--The term ``State law'' means any law, 
        decision, rule, regulation, or other action having the effect 
        of a law of any State or any political subdivision of a State, 
        or any agency or instrumentality of a State or political 
        subdivision of a State, except that a law of the United States 
        applicable only to the District of Columbia shall be treated as 
        a State law (rather than a law of the United States).

           TITLE I--TAX TREATMENT OF INCOME-SHARE AGREEMENTS

SEC. 101. TAX TREATMENT OF PROCEEDS AND PAYMENTS OF FUTURE INCOME.

    For purposes of the Internal Revenue Code of 1986--
            (1) Funding excluded from gross income.--In the case of an 
        individual, gross income shall not include the amount of any 
        income-share funding which is paid to or on behalf of such 
        individual under an income-share agreement.
            (2) Difference in repayment not included as gross income.--
        In the case of an income-share agreement under which the 
        income-share funding exceeds the total income-share payments 
        (in any period over the life of the contract), the individual's 
        gross income shall not include the amount of such excess.
            (3) Treatment of payments of future income.--The amount of 
        any income-share payments under an income-share agreement shall 
        be treated--
                    (A) first, with respect to so much of such amount 
                as does not exceed the income-share funding under such 
                agreement, as a recovery of investment (with a 
                corresponding reduction in basis) in the contract; and
                    (B) second, as income on the contract which is 
                includible in gross income.

SEC. 102. TERMS AND CONDITIONS OF INCOME-SHARE AGREEMENT CONTRACTS.

    (a) Terms and Conditions.--An income-share agreement shall not be 
treated as meeting the requirements of this section unless:
            (1) Specified percentage of income.--The agreement 
        specifies the percentage of future income required to be paid.
            (2) Definition of income.--The income-share agreement 
        specifies the definition of income to be used for purposes of 
        calculating an individual's obligation to pay under the 
        agreement, which shall not in any case include the income of 
        the individual's children.
            (3) Specified duration; extension of period.--
                    (A) Duration.--The agreement specifies the maximum 
                period of time during which the individual will be 
                obligated to pay a percentage of the individual's 
                future income (excluding periods when just a nominal 
                payment (as described under paragraph (5)) is 
                required), which may not (except as provided in 
                subparagraph (B)) exceed 360 months.
                    (B) Extension of period.--The agreement may provide 
                for the extension of such period by a number of months 
                during which the individual's percentage of income 
                obligation (excluding nominal payments and fees) was 
                zero, either because of further enrollment in education 
                or training or the individual's income was below the 
                level at which payments are required in the agreement.
            (4) Early termination.--The agreement specifies the terms 
        and conditions under which the individual subject to the 
        agreement may terminate the agreement.
            (5) Nominal payments.--The agreement specifies any nominal 
        monthly payment that is required during periods when the 
        individual subject to the agreement has no percentage of income 
        obligation, except that such nominal monthly payment shall not 
        exceed twenty-five dollars per month (adjusted each year to 
        reflect changes in the Consumer Price Index for All Urban 
        Consumers published by the Bureau of Labor Statistics of the 
        Department of Labor for the most recent 12-month period for 
        which the data are available).
    (b) Required Disclosures.--An income-share agreement does not 
comply with the requirements of this section unless the individual who 
is committing under the agreement to pay future income is provided, 
before entering into such agreement, a written document that clearly 
and simply discloses--
            (1) that the agreement is not a debt instrument, and that 
        the amount the individual will be required to pay under the 
        agreement--
                    (A) may be more or less than the amount provided to 
                the individual pursuant to the agreement; and
                    (B) will vary in proportion to the individual's 
                future income;
            (2) that the obligations of the individual under the 
        agreement are not dischargeable under bankruptcy law, except in 
        a case that would impose an undue hardship on the debtor and 
        the debtor's dependents;
            (3) whether the obligations of the individual under the 
        agreement may be extinguished through prepayment and, if so, 
        under what terms;
            (4) the duration of the individual's obligations under the 
        agreement (absent such prepayments), including any 
        circumstances under which the duration of the agreement would 
        be extended or discharged;
            (5) the percentage of income the individual is committing 
        to pay under the agreement, including whether the percentage of 
        income is fixed or variable under the agreement, and the 
        minimum amount of annual income that triggers the individual's 
        obligation under the agreement to make payments for such year;
            (6) the definition of income to be used for purposes of 
        calculating the individual's obligation under the agreement;
            (7) a comparison of--
                    (A) the amounts an individual would be required to 
                pay under the income-share agreement at a range of 
                annual income levels, which income levels shall 
                correspond to the levels the individual might 
                reasonably be expected to make given the intended use 
                of the funds provided under the agreement, as 
                determined in accordance with guidance issued by the 
                Director of the Bureau of Consumer Financial 
                Protection; to
                    (B) the amounts required to be paid under one or 
                more comparable loans, including a loan at an interest 
                rate determined by the Director of the Bureau of 
                Consumer Financial Protection to be an approximation of 
                the interest rate available to student loan borrowers 
                in the private marketplace and, where applicable, a 
                Federal Stafford loan;
            (8) income verification documentation, including personal 
        tax records submitted to the Internal Revenue Service, that the 
        individual may be required to provide under the agreement;
            (9) intent to conduct annual reconciliation relating to 
        obligations owed by the individual under the agreement; and
            (10) any nominal payments required under the agreement.
    (c) Non-Interference.--An income-share agreement represents an 
obligation by the individual pay the specific percentage of future 
income, but shall not be construed to give the contract holder any 
rights over an individual's actions.
    (d) Effect of Failure To Provide Documentation.--
            (1) In general.--Absent income documentation from an 
        individual under an income-share agreement, the ISA funder of 
        such agreement (or the funder's successor in interest) may 
        assume a certain income level for the individual, up to the 
        level that would create an obligation equal to the maximum 
        payment amount under the agreement.
            (2) Treatment under state law.--Any obligation resulting 
        from an assumed income level under paragraph (1) shall not be 
        considered to be imposing an unlawful fee under a State law 
        unless such State law was issued after the date of the 
        enactment of this Act and such State law expressly states that 
        it is intended to apply to income-share agreements.
            (3) Verification of income.--If an individual supplies an 
        ISA funder (or its successor in interest) with their income 
        verification information within 180 days of the ISA funder (or 
        its successor in interest) assuming an income level for such 
        individual under paragraph (1), the individual shall be 
        entitled to have any payments that were made in excess of their 
        actual obligation under the contract either refunded to them or 
        credited to future obligations under the contract.

SEC. 103. RULEMAKING; MODEL DISCLOSURE FORMS.

    (a) No Bureau General Rulemaking Authority.--Except as provided 
under subsection (b) and section 102(b)(7), the Director of the Bureau 
of Consumer Financial Protection may not issue regulations under this 
title.
    (b) Model Disclosure Forms.--
            (1) In general.--Not later than 180 days after the date of 
        the enactment of this Act, the Director of the Bureau of 
        Consumer Financial Protection, after engaging in appropriate 
        consumer testing of such forms, shall promulgate a model 
        disclosure form for the disclosures required under section 
        102(b).
            (2) Safe harbor.--Any person who uses the model disclosure 
        form promulgated pursuant to paragraph (1) and includes 
        accurate information required under section 102(b) shall be 
        deemed to be in compliance with the disclosure requirements 
        under section 102(b).

SEC. 104. TRUTH IN LENDING ACT.

    Any income-share agreement that complies with the disclosure 
requirements of section 102(b) shall be deemed to be in compliance with 
the Truth in Lending Act.

SEC. 105. CONSENT TO CONTINUING RELEASE OF TAXPAYER INFORMATION UNDER 
              INCOME SHARE AGREEMENT.

    The Secretary of the Treasury shall modify Treasury Regulations and 
guidance to provide for continuing consent to disclosure of an 
individual's return information to an ISA funder (or the funder's 
successor in interest) under an income-share agreement, but only for 
periods relevant to, and only to the extent the Secretary determines is 
necessary and appropriate in carrying out the terms of, such agreement.

     TITLE II--TREATMENT OF INCOME-SHARE AGREEMENTS UNDER STATE LAW

SEC. 201. LAWFULNESS OF CONTRACTS; PREEMPTION OF STATE LAW.

    Any income-share agreement that complies with the requirements of 
section 102 shall be a valid, binding, and enforceable contract 
notwithstanding any State law limiting or otherwise regulating 
assignments of future wages or other income.

SEC. 202. PREEMPTION OF STATE LAW WITH RESPECT TO USURY.

    A Qualified ISA shall not be subject to State law with respect to 
usury, unless such State law was issued after the date of the enactment 
of this Act and such State law expressly states that it is intended to 
apply to income-share agreements.

SEC. 203. PREEMPTION PRE-EXISTING STATE LAWS WITH RESPECT TO ABILITY-
              TO-REPAY AND LICENSING LAWS.

    A Qualified ISA shall not be subject to a State law with respect to 
``ability-to-repay'' requirements, and an ISA funder issuing a 
Qualified ISA shall not be subject to any State law with respect to 
licensing or registration, unless such State law was issued after the 
date of the enactment of this Act and such State law expressly states 
that it is intended to apply to income-share agreements.

                  TITLE III--QUALIFIED EDUCATION LOAN

SEC. 301. QUALIFIED EDUCATION LOAN.

    (a) In General.--Paragraph (1) of section 221(d) of the Internal 
Revenue Code of 1986 is amended by adding at the end the following: 
``Such term includes any income-share agreement (as such term is 
defined in section 2 of the Investing in Students Act of 2017) that 
complies with the requirements of section 102 of such Act, except that 
payments made by the taxpayer during the taxable year to meet an 
income-share agreement obligation shall not be taken into account under 
subsection (a).''.
    (b) Information Reporting Not Required.--Subsection (e) of section 
6050S of such Code is amended by inserting ``(without regard to the 
last sentence thereof)'' after ``section 221(d)(1)''.

   TITLE IV--FEDERAL INDIVIDUAL ASSISTANCE TREATMENT OF INCOME-SHARE 
                               AGREEMENTS

SEC. 401. PROCEEDS NOT TREATED AS INCOME IN CALCULATION OF FINANCIAL 
              NEED UNDER THE HIGHER EDUCATION ACT OF 1965.

    No portion of any amounts received by an individual for entering 
into an income-share agreement that complies with the requirements of 
section 102 of this Act shall be included as income or assets in the 
computation of expected family contribution for any program funded in 
whole or in part under the Higher Education Act of 1965 (20 U.S.C. 1001 
et seq.).

                TITLE V--TREATMENT UNDER SECURITIES LAWS

SEC. 501. INCOME-SHARE AGREEMENTS NOT TREATED AS SECURITIES.

    An income-share agreement shall not be treated as a security for 
purposes of the securities laws (as defined in section 3(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a))), any similar State 
law, or any State law that directly or indirectly prohibits, limits, or 
imposes conditions, based on the merits of an offering or issuer of 
securities, upon the offer or sale of any security. Nothing in the 
preceding sentence shall be construed to prevent an instrument that is 
collateralized by, or serviced by the cash flows of, an income-share 
agreement from being treated as a security for purposes of any law 
described in such sentence.

SEC. 502. BUSINESSES MAKING INCOME-SHARE AGREEMENTS EXCLUDED FROM 
              INVESTMENT COMPANY TREATMENT.

    Section 3(c) of the Investment Company Act of 1940 (15 U.S.C. 80a-
3(c)) is amended--
            (1) in paragraph (4), by inserting after ``industrial 
        banking,'' the following: ``income-share agreements (as defined 
        in section 2 of the Investing in Students Act of 2017),''; and
            (2) in paragraph (5)--
                    (A) by inserting ``, including purchasing or 
                otherwise acquiring income-share agreements (as defined 
                in section 2 of the Investing in Students Act of 
                2017)'' after ``services'' the first place it appears; 
                and
                    (B) by inserting ``, including making income-share 
                agreements (as so defined)'' after ``services'' the 
                second place it appears.

        TITLE VI--TREATMENT UNDER FEDERAL CONSUMER FINANCE LAWS

SEC. 601. INCOME-SHARE AGREEMENT ANTI-DISCRIMINATION PROTECTIONS.

    Section 702 of the Equal Credit Opportunity Act (15 U.S.C. 1691a) 
is amended--
            (1) in subsection (d), by inserting before the period the 
        following: ``, or the right granted under an income-share 
        agreement (as defined in section 2 of the Investing in Students 
        Act of 2017)''; and
            (2) in subsection (e)--
                    (A) by striking ``or any assignee'' and inserting 
                ``any assignee''; and
                    (B) by inserting before the period the following: 
                ``; or any person who regularly extends, renews, or 
                continues funding under an income-share agreement (as 
                defined in section 2 of the Investing in Students Act 
                of 2017)''.

SEC. 602. PROHIBITION ON REQUIRING PREAUTHORIZED ELECTRONIC FUND 
              TRANSFERS.

    Section 913(1) of the Electronic Fund Transfer Act (15 U.S.C. 
1693k(1)) is amended by inserting after ``a consumer'' the following: 
``or the entering into of an income-share agreement (as defined in 
section 2 of the Investing in Students Act of 2017) with a consumer''.

SEC. 603. TREATMENT UNDER THE FAIR CREDIT REPORTING ACT.

    Section 605 of the Fair Credit Reporting Act (15 U.S.C. 1681c) is 
amended by adding at the end the following:
    ``(i) Income-Share Agreement Information.--With respect to an 
income-share agreement (as defined in section 2 of the Investing in 
Students Act of 2017), a consumer report made by a consumer reporting 
agency--
            ``(1) may include a description of the contract terms of 
        the income-share agreement and, subject to subsection (a), 
        information with respect to amounts that are owed under such 
        agreement; and
            ``(2) may not include any speculation about future amounts 
        that may be owed under the income-share agreement.''.

SEC. 604. APPLICATION OF THE MILITARY LENDING ACT.

    Section 987 of title 10, United States Code, is amended--
            (1) by redesignating subsection (i) as subsection (j); and
            (2) by inserting after subsection (h) the following:
    ``(i) Treatment of Income-Share Agreements.--The Secretary of 
Defense shall issue regulations to apply this section to income-share 
agreements (as defined in section 2 of the Investing in Students Act of 
2017), and an income-share agreement shall be deemed to meet the annual 
percentage rate of interest limitation under subsection (b) if such 
agreement would meet the requirements of section 2(4)(C) of the 
Investing in Student Achievement Act of 2017 (related to appropriate 
risk sharing) but with reference to the rate specified in subsection 
(b).''.

SEC. 605. APPLICATION OF THE SERVICEMEMBERS CIVIL RELIEF ACT.

    Section 207 of the Servicemembers Civil Relief Act (50 U.S.C. 3937) 
is amended by adding at the end the following:
    ``(f) Treatment of Income-Share Agreements.--The Secretary of 
Defense shall issue regulations to apply this section to income-share 
agreements (as defined in section 2 of the Investing in Students Act of 
2017), specifically by stating that an income-share agreement shall be 
considered to have met the requirements of this section if the 
agreement would meet the requirements of section 2(4)(C) of the 
Investing in Student Achievement Act of 2017 (relating to appropriate 
risk sharing) but with reference to the rate specified in subsection 
(a)(1).''.

SEC. 606. RULEMAKING.

    Not later than 180 days after the date of enactment of this Act--
            (1) the Director of the Bureau of Consumer Financial 
        Protection shall issue regulations to carry out the amendments 
        made by section 601 and 602; and
            (2) the Secretary of Defense shall issue regulations to 
        carry out the amendment made by section 604 and 605.

                 TITLE VII--TREATMENT UNDER OTHER LAWS

SEC. 701. INSURANCE AND WAGERING.

    Income-share agreements shall not be treated as a contract for 
insurance or a betting or wagering contract under any Federal or State 
law.

SEC. 702. PAYMENTS NOT CONSIDERED PREPAYMENTS.

    With respect to an income-share agreement, any requirement that an 
individual pay an amount greater than the income-share funding in order 
to extinguish the income-share agreement obligation earlier than the 
end of the term shall not be considered a prepayment penalty for 
purposes of any Federal or State law with respect to prepayment 
penalties.
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