4 Cfpb focusThe Consumer Financial Protection Bureau (“CFPB”) has focused heavily on student lending.Among the CFPB’s primary goals has been increasing disclosures and transparency by student lenders and their partners:“The private student loan market is one of the least understood consumer credit markets …. [that] has been operating in the shadows for too long.” Raj Date, Former Special Advisor for the CFPB, Nov. 16, 2011“Students and their families should know if their school…is being compensated to encourage students to use a specific account or card product. When financial institutions secretly give kickbacks to schools, they are engaging in risky practices.” Richard Cordray, CFPB Director, Dec. 17, 2013“[The CFPB is] also sending alerts to schools to make sure they know that their bank partner has not yet committed to transparency when it comes to student financial products.” Alerting colleges about secret banking contracts, CFPB Press Release, Aug. 6, 2014
5 Among the CFPB’s initial projects upon opening its doors in 2011 were: INITIAL CFPB PROJECTSAmong the CFPB’s initial projects upon opening its doors in were:Know Before You Owe: Student Loans ProjectInitiated in 2011, this joint project with the U.S. Department of Education (“DoE”) created a financial aid “shopping sheet” for higher education institutions to assist students in understanding the types and amounts of loans available.The “shopping sheet” was finalized in July As of April 2014, more than 2,000 schools have adopted the document.CFPB and DoE joint inspection of the private student loan industry.Led to the issuance of a Joint Report in August 2012.
6 CFPB/DoE JOINT reportThe CFPB/DoE Joint Report notes a number of issues of concern:Marketing of student loans has led to confusion among borrowers, particularly with respect to the difference between federal and private loans;Use of cohort default rates to determine loan eligibility, underwriting, and pricing could lead to a disparate impact affecting minority borrowers;Limitations in available student data may impact regulators’ ability to evaluate compliance with fair lending laws; andLack of a “consumer protection framework” for products that serve as economic substitutes for student loans (e.g., lines of credit).*CFPB and U.S. Dep’t of Ed., Private Student Loans 3 (2012).
7 Additional studies and findings Since the Joint Report, the CFPB has continued to request information and issue reports regarding the private student loan industry, particularly with respect to borrower repayment, defaults, and servicer behavior.February 2013: CFPB issues request for information regarding ways to encourage the development of more affordable loan repayment options for private student loan borrowers.April 2014: CFPB Student Loan Ombudsman Mid-Year Report highlights borrower complaints of “auto-defaults” by lenders as a result of a death, bankruptcy, or proposed release of a co-signer.August 2014: CFPB blog post discusses CFPB inquiry into lenders that market financial products to students based on agreements with schools. The Bureau subsequently sends “alerts” to schools to warn them that some financial institutions have not publicly disclosed marketing agreements.
8 Additional studies and findings January 14, 2015: CFPB issues a Request for input on its “Safe Student Account Scorecard” for colleges.Scorecard would help schools avoid partnering with financial institutions that offer credit services with “tricks and traps.”Financial institutions would be required to provide clear descriptions of product fees and features, give full disclosure about its marketing practices, disclose earnings from student accounts, and provide an annual fees summary.January 29, 2015: In a blog post, CFPB Student Loan Ombudsman Rohit Chopra requests that private student lenders and servicers review “what progress they’ve made” regarding the loan modification options that they offer, how customers can learn about repayment options, and how borrowers can be approved.Chopra states that many consumers have inquired why private lenders will not make loan modifications. He also asserts that even where lenders do make modifications, borrowers remain unclear about their repayment plans.
9 COMPLAINT DATAThe CFPB continues to collect and monitor student lending complaint data.In 2012, 3,900 out of 91,000 consumer complaints received by the CFPB, related to student loans. In 2013, the number was 4,300 out of 163,700.Between October 2013 and September 2014, the CFPB received 6,200 student loan complaints. The complaint form was updated in December57% of complaints related to dealing with the lender/servicer.39% of complaints related to inability to repay the loan.20122013Source: Semi-Annual Report of the CFPB, Mar. 2013; CFPB Consumer Response Annual Report (Jan. 1 – Dec. 31, 2013)
11 SUPERVISIONThe information that the CFPB has collected has assisted it in its supervision of student lenders.CFPB has supervisory authority over any covered person that offers or provides private education loans.In addition, the CFPB has supervisory authority over any covered persons who are considered larger participants in a market for consumer financial products or services.In connection with its supervisory authority, the CFPB has the “exclusive authority to prescribe rules, issue guidance, conduct examinations, require reports, or issue exemptions.” 12 U.S.C (d).
12 larger participantsIn December 2013, the CFPB issued a Final Rule defining certain nonbank student loan servicers as “larger participants,” and therefore subject not just to Bureau enforcement but also to its supervisory authority.Under this rule, student loan servicers with more than one million accounts are considered a larger participant.
14 Enforcement actionsThe CFPB has initiated several enforcement actions against for-profit colleges and student debt relief services relating to the prohibition against Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”).CFPB v. ITT Educational Services, Inc. (Feb. 2014)In its Complaint, the CFPB alleged that ITT had engaged in predatory student lending practices, including:Creating a business model that targets students with poor credit profiles and low earnings to pay tuition through financial aid.Aggressive tactics to enroll consumers in its programs for student loans and failing to provide sufficient information prior to execution of financial aid forms.Creating private loan programs to finance student “tuition gaps” and failing to adequately inform students that they had taken out a loan with high interest rates, origination fees and finance charges.
15 Enforcement actions CFPB v. Corinthian Colleges, Inc. (Sept. 2014) In its Complaint, the CFPB alleged that Corinthian had engaged in predatory student lending practices, including:Intentionally creating a “funding gap” between available federal student loan funding and tuition rates, forcing low-income students into excessive private loans.Aggressively pursuing illegal debt collection practices, including preventing students from attending or registering for class until payment was made.In early February, the CFPB announced that the purchaser of most of Corinthian’s campuses had agreed to:Provide more than $480 million in debt relief to Corinthian students;Not offer private student loan programs for a period of seven years;Remove negative information from students’ credit reports; andImplement new consumer protections, including more flexible withdrawal policies and clear information on job prospects.
16 Enforcement actionsCFPB v. College Education Services (Dec. 2014) – In its Complaint, the CFPB alleged that CES advertised student debt relief services to borrowers with loans in default, then illegally charged consumers between $195 and $2,000 in upfront fees.CES also promised to lower monthly payments and/or provide quick relief from default or garnishment through loan consolidation. However, some consumers experienced an increase in payments, and loan consolidation did not provide the results as promised.CFPB v. IrvineWebWorks, Inc., d/b/a Student Loan Processing (Dec. 2014) – In its Complaint, the CFPB alleged that SLP, a debt assistance company, falsely represented itself as having an affiliation with the DoE. The CFPB also alleged that:SLP charged consumers illegal upfront enrollment fees of either 1% of the student's federal student loan balance or $250, whichever was higher.Fee payment was required before consumers were mailed application materials.Monthly services fees were not clearly explained or disclosed, resulting in the charge of a monthly fee until the consumer's federal loans were paid in full or discharged.
18 Looking aheadThe CFPB has entered into more than 50 consent orders, spanning the financial services industry, in the past three years.Although student lenders have not been the subject of any of these consent orders, the types of practices at issue in these orders are instructive for the student lending industry.
19 servicing Servicing issues have been a primary focus for the CFPB. The CFPB discussed several student loan servicing issues in its Fall Supervisory Highlights publication, including debt collection, consumer reporting, and payment posting.Between March 2014 and June 2014, CFPB examiners found that one or more student loan servicers were:Allocating payments to maximize late fees and charging illegal late fees.Misrepresenting minimum payments.Failing to provide accurate tax information.Misleading consumers about bankruptcy protections.Making illegal debt collection calls to consumers at inconvenient times.Several of these issues were the subject of an enforcement action by the FDIC against Sallie Mae Bank (May 2014).
20 SERVICING - Credit reporting Ensuring accurate credit reporting by loan servicers is also a priority for the CFPB.Consent orders relating to credit reporting include:First Investors Financial Services Group Inc. (Aug. 2014)After a CFPB investigation, the Bureau alleged that the auto finance company had furnished inaccurate consumer information to credit reporting agencies for at least three years beginning in 2011, and did not attempt to replace its reporting system or correct the inaccurate information it supplied.As a result of its misreporting, information about borrower payments, overdue amounts, delinquency dates, and the number of delinquent accounts was incorrect. Additionally, consumers who voluntarily surrendered their vehicles were still reported as having their vehicle repossessed.The CFPB has also noted the importance of regular credit report checks by service-disabled veterans who have requested to have their student debt discharged under benefits offered by the DoE.
21 Other Servicing Enforcement actions Other servicing enforcement actions include:SunTrust Mortgage, Inc. (CFPB, HUD and State AGs, June 2014)The Bank allegedly failed to promptly and accurately apply borrower payments, charged unauthorized fees for default-related services, failed to provide accurate information about loan modifications and other loss-mitigation services, and engaged in illegal foreclosure practices (including providing false or misleading information to consumers about the status of their foreclosure proceedings and robo-signing foreclosure documents).The Bank agreed to pay $40 million in consumer restitution, $418 million to the United States relating to the release of FHA origination claims, and $10 million as payment for losses by the FHA, VA and RHS.Ocwen Financial Corp. (CFPB and State AGs, December 2013)Ocwen allegedly engaged in systemic misconduct by failing to timely and accurately apply payments to account statements, charging consumers unauthorized fees, providing inaccurate information in response to consumer complaints about loan modifications and foreclosures, and robo-signing foreclosure documents.Ocwen agreed to pay $125 million in consumer restitution and $2 billion in principal reduction to borrowers who were underwater on their mortgages.
22 FAIR LENDING The CFPB has actively enforced the fair lending laws. A key fair lending concern relating to student lending has been lenders’ use of a school’s cohort default rate (“CDR”) – the percentage of a school’s borrowers who default before the end of the second fiscal year following the fiscal year in which the borrowers entered repayment – for underwriting and pricing decisions.CFPB Report on Private Student Loans (July 2012) found that some student lenders use the CDR in custom scorecards used for underwriting and pricing decisions.CDR use “may have a disparate impact on minority students by reducing their access to credit and requiring those minority students who meet the lenders’ eligibility thresholds to pay higher rates than are otherwise available to similarly creditworthy non-Hispanic White students at schools with lower CDRs.” CFPB Report, 80.The CFPB has jurisdiction to enforce compliance with the ECOA and Regulation B, and has indicated that it will consider disparate impact as a method of proving lending discrimination.
23 Disparate impactAlthough the CFPB continues to pursue investigations and enforcement actions under the disparate impact theory, it is disputed whether the theory is valid in the fair lending context.On January 21, 2015, the Supreme Court heard oral argument in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., No , which may decide whether the disparate impact theory is valid under the Fair Housing Act.The Court’s decision could impact whether disparate impact is cognizable under the Equal Credit Opportunity Act as well.A ruling is expected by the end of June 2015.
24 MarketingThe CFPB has also emphasized compliance with consumer protection laws relating to marketing.In the CFPB Examination Procedures Manual for Education Loans, “Advertising, Marketing, and Lead Generation,” which is the first module, states:Examiners are instructed to review the process of how student loans are developed and marketed, by reviewing marketing samples such as print, electronic, Internet, , text messages, telephone scripts, and agreements and disclosures.Through blog posts, press releases, and its campaign to bring transparency to college credit card products, the CFPB has publicly “warned” consumers and schools about aggressive marketing practices, student debt relief scams, and other “tricks” of financial institutions.
25 MarketingNumerous CFPB enforcement actions have challenged marketing practices.The CFPB has issued four consent orders in the past month relating to allegedly deceptive marketing practices, including:Flagship Financial Group, LLC (Feb. 2015)The CFPB alleged that beginning in July 2011, Flagship, operating as a mortgage lender/broker, advertised mortgage products via direct-mail campaigns that improperly suggested Flagship was endorsed or sponsored by the US. Dep’t. of Housing and Urban Development (“HUD”), and its VA loans were “HUD-Approved.”Flagship also allegedly distributed thousands of mailers advertising mortgage credit products that looked like a government notice, instructing consumers to call their “assigned FHA loan specialist.”Flagship agreed to pay $225,000 in civil money penalties.
26 Limited English proficiency (lep) Issues relating to Limited English Proficiency are of particular interest to the CFPB.The National Center for Education Statistics reports that in 2012, there were 4.4 million students who are English language learners.In California, 29% of public school students are reportedly learning English as a second language.In an effort to reach more consumers, the CFPB launched its plain-language Spanish website in May 2013, and currently takes complaints over the telephone in 180 languages.
27 Limited English proficiency (LEP) Marketing a product in a foreign language, but not fulfilling the product in that language, may elevate fair lending or UDAAP risk.Likewise, failing to provide any foreign language translation services may elevate fair lending or UDAAP risk if a large percentage of customers or potential customers speak a foreign language.CFPB enforcement actions have addressed LEP issues, including:Synchrony Bank, f/k/a GE Capital Retail Bank (DOJ and CFPB, June 2014)DOJ and CFPB alleged national origin discrimination based on GE Capital’s failure to extend debt repayment and settlement offers to customers who indicated a preference to communicate in Spanish or had a mailing address in Puerto Rico.American Express Centurion Bank (CFPB and FDIC, Dec. 2013)CFPB and FDIC alleged that American Express had deceptively marketed an ancillary credit card product (“Lost Wallet Protector”) by making telemarketing sales calls in Spanish to customers in Puerto Rico without requiring uniformity in the Spanish language scripts and providing all written materials in English.
28 Third party oversightIn April 2012, the CFPB issued a bulletin relating to Third Party Oversight, stating that supervised institutions are expected to:Conduct due diligence to verify the service provider’s understanding and capability of compliance.Request and review the service provider’s policies, procedures, internal controls, and training.Include contract provisions addressing compliance standards and enforcement.Establish internal controls and ongoing monitoring.Promptly remediate non-compliance.The Bureau has entered into several consent orders relating to inadequate third party oversight, including:U.S. Bank (Sept. 2014)CFPB alleged that the Bank had unfairly charged for certain identity protection and credit monitoring services that they did not receive. These credit monitoring programs were marketed by U.S. Bank and administered by its third-party vendor.Among other things, the Consent Order requires U.S. Bank to improve oversight of third party vendors.