Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

CFPB Update by jolinmilioncherie


									   CFPB Update

       John Dean
Washington Partners, LLC
     January 2012
       About this presentation
• This presentation is not legal advice and
  should not be relied upon as such.
• Information included represents the views and
  perspectives of the presenter and not
  Washington Partners, LLC, the Consumer
  Bankers Association, or any member of CBA.
• Information is believed to be accurate as of
  the date of this presentation.
                    The CFPB
• In a nutshell, with a director now in place CFPB
  has full rulemaking, supervision, and
  enforcement authority relating to consumer
  protection that were previously exercised by the
  Fed, FDIC, OCC, and FTC. Covered statutes
  include Truth-in-Lending, Fair Credit, and Fair
• New authorities include rulemaking and
  enforcement relating to "unfair, deceptive or
  abusive" acts and practices. (Could loans made
  by for-profit schools be an early area of activity?)
    The CFPB and Student Loans
Private Education Loans are a major priority of
  the Bureau:
• Section 1077 Report.
• Private Student Loan Ombudsman.
• Know Before You Owe.
• Student Loan Repayment Guidance.
• Focus on Collections.
• Enforcement Actions.
   Private Education Loan Report
• Section 1077 of Dodd-Frank—due July 21,
• Report to be written with involvement of ED,
  the Department of Justice, and the FTC.
• Report is likely to include recommendations
  (including legislative changes) for “effective”
  disclosures and communications with
  borrowers (including co-signers)
• CFPB collecting data for use in writing report.
           Private Loan Report
Report Contents:
• Definition of market, including retrospective.
• Attempt to understand market drivers.
• Focus on use of private loans (arguably with
  presumption that loans are sometimes used
• A review of private loan borrowers
                        Private Loan Report
Report Contents:
• Review of lenders (including non-banks and
• Fair Lending-relevant data—underwriting
  criteria (i.e., use of school criteria).
• Review of loan products.
• Inquiry into existing consumer protections.
• Recommendations.
     Are recommendations already
• “Consumer advocates” don’t need a report to
  know what is needed.

• Will the CFPB simply adopt the myriad of
  already outstanding recommendations made
  by these groups? Will the section 1077 report
  findings really only be “supporting
  information” for recommendations already
  decided upon?
     Project on Student Debt Agenda
      Help more Americans complete meaningful education and training at a
         reasonable cost
      – Improve and promote tools to help students make wise choices about
         costs and debt
      – Strengthen policies to protect students and taxpayers from waste,
         fraud and abuse
      – Promote strong and effective regulation of career education programs
      Strengthen consumer protections for private student loan borrowers
      – Protect borrowers from unfair and deceptive private loan practices
      – Require lenders to certify loans with the borrower's school before
         disbursing funds
      – Improve reporting and data collection about private student loans
      – Treat private student loans like other consumer debt in bankruptcy .
            Projections on Findings
• Current Title X Disclosures are not carefully read by borrowers and
  thus to not achieve the consumer education and protection
• Significant unnecessary borrowing is occurring.
• Available data is inadequate to determine compliance with Fair
  Lending, but evidence suggests there may be violations.
• Some products (especially loans made by proprietary schools) are
  abusive. Debt service often exceeds ability of borrower to repay.
• Current product diversity confuses borrowers, especially in terms of
  flexible repayment. This diversity is not in best interest of
• Loan servicing practices often contribute to delinquency/default.
• Borrowers do not have easy enough access to consumer help in the
  event of problems.
 Projections on Recommendations
• Increased borrower disclosure intended to discourage
  “unnecessary” borrowing, especially where ability to repay
  may be questionable.
• New disclosure procedures to assure information is
  received and acted upon.
• Increased federally-mandated data collection by the CFPB
  for use in enforcing Fair Lending and other consumer
  protection laws.
• Consideration of servicing standards for private education
• Promotion of additional resources for borrowers with
  repayment problems; include info on such resources in
  Private Education Loans: Nov. 17 RFI
• On Nov. 17, the CFPB issued a RFI seeking data and
  comment on what information would help students
  make informed decisions about which financial
  services and products are right for them and what
  approaches would best assist recent graduates facing
  (or about to face) difficulty making private education
  loan payments.
• The questions are grouped into four broad categories:
  (1) scope and use of private education loans, (2)
  information and shopping for private education loans,
  (3) institutional loans, and (4) repayment.
            November 17 RFI
• Some questions appear drafted to solicit
  responses that will support increased data
  collection and other policy outcomes already
  identified by consumer advocates.
• Lenders limiting responses to RFI questions to
  those on which substantive, supportable
  answers are possible.
• Will CFPB reject “speculative” responses
  submitted by other groups?
        “Know Before You Owe”
“For generations, a college degree has helped
  Americans . . . achieve a better future. But the
  increasing cost of higher education, the
  financial crisis, and continuing tough
  economic times mean that more students will
  rely on student loans to pay for tuition and
  make ends meet while in school. Students
  should be able to understand the costs, risks,
  and benefits of the loans they will use to help
  pay for the school of their choice.”
                “Know Before You Owe”
• CFPB: “The school financial aid offer is one of the most
  important ways students receive this information. But
  we’ve heard from students, college counselors, and
  community organizations that many of these offers
  don’t always effectively deliver this information. They
  may be filled with jargon or difficult to compare, and
  they may not clearly distinguish loans from other forms
  of aid.”

• At Congress’ direction, ED will publish a model format
  for the financial aid award offer letter.
   Private Student Loan Ombudsman
Rohit Chopra announced as first Private Student Loan Ombudsman.
        (1) in accordance with regulations of the Director, receive, review, and attempt to resolve
        informally complaints from borrowers of loans described in subsection (a), including, as
        appropriate, attempts to resolve such complaints in collaboration with the Department of
        Education and with institutions of higher education, lenders, guaranty agencies, loan servicers,
        and other participants in private education loan programs;
        (2) establish a memorandum of understanding with the student loan ombudsman established
        under section 141(f) of the Higher Education Act of 1965 (20 U.S.C. 1018(f)), to ensure
        coordination in providing assistance to and serving borrowers seeking to resolve complaints
        related to their private education or Federal student loans;
        (3) compile and analyze data on borrower complaints regarding private education loans; and
        (4) make appropriate recommendations to the Director, the Secretary, the Secretary of Education,
        the Committee on Banking, Housing, and Urban Affairs and the Committee on Health, Education,
        Labor, and Pensions of the Senate and the Committee on Financial Services and the Committee
        on Education and Labor of the House of Representatives.
          Other Initiatives: Student Debt
              Repayment Assistant
Computerized guidance to borrowers on repaying their
  loan: “While our Student Debt Repayment Assistant
  can’t give you advice for your exact situation, we hope
  it can point you in the right direction and help you
  learn about some of your options.”

“Call your non-federal loan servicer and ask what options
  are available to you. Most of the big lenders say that
  they have alternate payment programs for borrowers
  who might not be able to make a full payment. You can
  often find out about these options on your servicer’s
            “Abusive” Acts or Practices
Here's what the CFPB Supervision and Examination Manual defines as “abusive” acts
   or practices:
•   Materially interferes with the ability of a consumer to understand a term or condition of a
    consumer financial product or service or
•   Takes unreasonable advantage of –
      – A lack of understanding on the part of the consumer of the material risks, costs, or
         conditions of the product or service;
      – The inability of the consumer to protect its interests in selecting or using a consumer
         financial product or service; or
      – The reasonable reliance by the consumer on a covered person to act in the interests of
         the consumer.
•   Although abusive acts also may be unfair or deceptive, examiners should be aware that the
    legal standards for abusive, unfair, and deceptive each are separate.“

The term "abusive" is more subjective and more extensive than the previously
   established standards of "unfair or deceptive." The CFPB manual provides no
   concrete examples. A full understanding of what CFPB will find to be a violation of
   this standard can only be gained as we observe examination findings.
Link to CFPB examination manual:
             Collection Agencies
• The FTC, the agency previously charged with enforcement
  and rulemaking under the FDCPA, had limited jurisdiction
  over nonprofit debt collectors. By some accounts, it’s
  rulemaking and enforcement under the FDCPA was “less
  threatening” than that is expected from the CFPB.

• Richard Cordray was a critic of collection agencies while
  Ohio AG. In September 2009, he issued a public warning to
  collectors based on consumer complaints. In April 2010, he
  announced a large settlement with National Enterprise
  Systems based on complaints the company was harassing
  consumers while attempting collection.
        Office of Financial Education
• CFPB Website: “Coming Soon”
• Expected to be active on the Financial Literacy and
  Education Commission and the President’s Advisory
  Council on Financial Capability.
  center/financial-education/Pages/Advisory.aspx and

• Part of Office of Consumer Education & Engagement
   – Same CFPB silo as “Office of Students,” “Office of
     Seniors,” “Office of Servicemembers,” etc.
   – Office headed by Gail Hillebrand, formerly senior
     attorney with Consumers Union.
                Additional Resources
CBA Org Chart of the CFPB:
                Thank You
John Dean
Washington Partners, LLC

To top