Income Share Agreements and the FTC’s Holder Rule

Abstract

The results of an investigation by the Student Borrower Protection Center offer new evidence that for-profit coding bootcamps and ISA companies may be systemically violating federal law by omitting a legally mandated term from the contracts underlying students’ ISAs—language required under the Federal Trade Commission’s (FTC) “Holder Rule.” The Holder Rule is a federal regulation intended to help consumers when a defective or fraudulent product or service is purchased with credit extended directly by the seller or arranged by the seller. The rule allows the consumer to assert the seller’s fraud (or the product’s defect) as a defense to repayment of their credit obligation, even where a new entity owns their credit contract—or even to sue for reimbursement of money already paid for the fraudulent or defective products or services. In addition to being against the law, the omission of this required contract language could leave tens of thousands of students holding the bag when lofty promises from coding schools disappointingly manifest in low-quality educational products.