1. John L. Culhane, Jr., Partner Consumer Financial Services Group 215.864.8535 culhane@ballardspahr.com It’s All Your Fault! Recent Developments with CFPB Examinations and Enforcement Actions 2015 NCHER Knowledge Symposium November 5, 2015 San Antonio, TX Copyright 2015 by Ballard Spahr LLP John C. Grugan, Partner Consumer Financial Services Group 215.864.8226 gruganj@ballardspahr.com Bowen W. Ranney, Associate Consumer Financial Services Group 646.346.8064 ranneyb@ballardspahr.com

2. 2 The Structure of CFPB Examinations

3. 3 The CFPB Examination Cycle – Pre-exam CFPB prioritization process -General approach to examinations -Special considerations with student loans Notice of examination -Timing and logistical considerations -Impact of student loan business cycles Information Request -Managing the process -Other recommendations for student loan originators and servicers

4. 4 The CFPB Examination Cycle – On-Site Presenting your company and your compliance management system Preparing for and handling employee interviews Role of CFPB enforcement attorneys during the on-site examination Addressing proposed findings during the examination The calculus of self-reporting to the CFPB during an ongoing examination Examination length (it will only seem interminable)

5. 5 The CFPB Examination Cycle – Post-Exam Possible outcomes in this specific marketplace -Supervisory action or enforcement action -Substantive compliance violations -Compliance management deficiencies -Management oversight shortcomings -Customer remediation options and alternatives -Monetary penalties -Public action or non-public action Time frames

6. 6 Recent Developments with CFPB Examinations

7. 7 Impact of Joint Statement of Principles Consistent, emphasizing statutory or regulatory, internal, and possibly even client service level requirements, including specific standards for adequate and timely customer service -Payment processing -Servicing transfers -Responses to customer requests for information -Error resolution procedures -Disclosure of borrower repayment options and benefits

8. 8 Impact of Joint Statement of Principles Accurate and actionable, emphasizing delivery of information about account features, borrower protections, and loan terms and response to deficiencies -Internal instructions regarding repayment options -Evaluation of effectiveness of instructions and borrower assistance and ability of borrowers to act on same -Negative outcomes are the result of deficiencies in instructions and assistance and not borrower failures -Duty to mitigate risks and costs of default but not entirely clear how far this is supposed to go

9. 9 Impact of Joint Statement of Principles Accountable, emphasizing (telegraphing?) broad avenues of recourse by CFPB for student loan servicer’s failure to serve borrowers fairly, efficiently, and effectively -Federal consumer financial laws -State consumer financial laws -Higher Education Act -Contractual requirements -Other federal regulations

10. 10 Impact of Joint Statement of Principles Transparency, emphasizing focal points for gathering of data and dissemination of data about loan performance and the specific practices of individual lenders and servicers -Borrower characteristics -Portfolio composition -Delinquency and default -Payment plan enrollment -Use of forbearance and deferment -Administration of borrower benefits and protections -Handling of borrower complaints

11. 11 Recent Developments with CFPB Enforcement Actions

12. 12 Student Loan Servicer Consent Order CFPB alleged the following student loan servicing practices -Overstatement of minimum amount due on statements (issues with accruing interest) -Errors in information regarding interest paid and deductibility of student loan interest -Improper calls both before and after permissible times of day under the FDCPA -Failure to give FDCPA validation notices with regard to loans in default when acquired

13. 13 Student Financial Aid Services Consent Order CFPB alleged the following practices in connection with subscription services related to financial aid -Misleading and deceptive sales practices (including advertising service plans as an “upgrade” at “no additional cost”) -Failure to comply with signed written authorization requirements for ACH and debit cards both in online and in phone channels Enrolling customers without their knowledge or consent Failing to explain amounts and dates of future charges Failing to provide copies of authorizations as required by law

14. 14 Student Financial Resource Center Lawsuit CFPB alleged the following practices in connection with financial aid services -Misleading consumers into thinking that they were applying for financial aid services -Falsely representing an affiliation with the government or academic institutions -Pressuring consumers with threats of losing financial aid opportunities -Failing to provide the initial privacy notices required in connection with the establishment of a customer relationship

15. 15 Thank you! Panelists John L. Culhane, Jr. Partner Consumer Financial Services 215.864.8535 culhane@ballardspahr.com John C. Grugan Partner Consumer Financial Services 215.864.8226 gruganj@ballardspahr.com Bowen W. Ranney Associate Consumer Financial Services 646.346.8064 ranneyb@ballardspahr.com

16. 16 Panelist – John L. Culhane, Jr. Partner at Ballard Spahr and a member of the firm’s Consumer Financial Services and Higher Education Groups as well as its Fair Lending Task Force, Collection Documentation Task Force, and TCPA Task Force Compliance practice emphasizes counseling clients on the development and implementation of innovative loan, leasing, and payment programs, and includes counseling on fair lending, servicing and collection issues Regulatory practice includes preparing clients for banking agency and CFPB examinations as well as assisting in the defense of consumer class actions, attorney general investigations, and agency enforcement actions Recognized as a top consumer financial services lawyer by Chambers USA, 2015 Charter member of the American College of Consumer Financial Services Lawyers Former Chair of the Subcommittee on Fair Lending of the ABA Committee on Consumer Financial Services

17. 17 Panelist – John C. Grugan Partner at Ballard Spahr and co-leader of the firm’s Municipal Securities Regulation and Enforcement Group, as well as a member of the firm’s Consumer Financial Services, Litigation, White Collar Defense/Internal Investigations, and Securities Litigation Groups Concentrates his practice on government enforcement defense, regularly defending clients during investigations conducted by, and in litigation brought by, the U.S. Securities and Exchange Commission, the U.S. Department of Justice, the U.S. Department of Education, the Consumer Financial Protection Bureau, self-regulatory organizations, state attorneys general, and state securities and banking regulators Experience includes representing clients in responding to initiatives, investigations and enforcement actions by market regulators, including defending litigation brought by the government, and conducting internal investigations on behalf of companies or their boards of directors

18. 18 Panelist – Bowen “Bo” Ranney Associate in the Consumer Financial Services and Mortgage Banking Groups at Ballard Spahr Practice focuses on assisting clients with the implementation of compliance systems, preparation for CFPB examinations, and the handling of CFPB and other agency examinations, civil investigations, and enforcement proceedings Regularly defends financial institutions in connection with responding to PARR letters from the CFPB Additionally advises on compliance with the full range of federal and state consumer financial services laws, including the various laws enumerated by the Dodd-Frank Act, prohibitions against unfair, deceptive and abusive acts and practices, and usury, licensing, and privacy laws Previously a Presidential Management Fellow and later an Examiner with the CFPB, Mr. Ranney worked in both supervision, where he served as an EIC, and in other leadership positions on examinations and in enforcement, where he played a key role on the team that filed the CFPB’s first application for a temporary restraining order