Student loan servicers fear 1-2 punch from CFPB, Education Dept.

Student loan service providers are gearing up for stricter oversight and fines from the Consumer Financial Protection Bureau, while the Biden administration tackles the thorny issue of massive student loan debt.

Rohit Chopra, the CFPB’s first student loan ombudsman, is likely to crack down on service providers once the Senate confirms him to head the office, observers say. Chopra is widely expected to join the servicers with his old boss, former CFPB director Richard Cordray, who is now the chief operating officer of State Student Aid, which is responsible for the Department of Education’s $ 1.7 trillion loan portfolio Dollar is responsible.

“Chopra’s main problem was student loans,” said Nate Viebrock, an attorney at Viebrock and DeNittis. “It could use rules like debt collection that are broad enough to address certain student loan manager practices.”

Rohit Chopra (left), awaiting Senate confirmation as CFPB director, and Richard Cordray of the Department of Education who once ran the CFPB, are expected to be part of an effort to reduce defaults and improve borrowers’ results.

Bloomberg

Chopra is in close contact with Senator Elizabeth Warren, D-Mass., Who last week along with Senate Majority Leader Chuck Schumer, DN.Y., and other lawmakers called for Biden to take a break in federal student loan payments until March 2022 extended. Warren also wants Biden to cancel the federal student debt.

Chopra and Cordray are expected to work with the Treasury Department on a roadmap for student loan reforms to reduce defaults and improve borrower outcomes.

“There will be a lot of coordinated work between the Department of Education and the CFPB on a number of different federal loan routes,” said Allyson Baker, partner at Venable law firm, who runs its financial services practice and has been a CFPB enforcement attorney.

Short-term, in a letter to President Biden on Wednesday, Democratic lawmakers voiced concerns that federal loan administrators will be overwhelmed once millions of borrowers whose payments have been suspended by the Coronavirus Aid, Relief and Economic Security Act resume payments in October should 1.

The resumption of payments “will present a significant challenge to borrowers, credit service providers and the Department of Education, and we urge you not to let the payment pause pass while borrowers are still in need of this financial relief,” the letter reads.

Previous student loan emergency suspensions during natural disasters resulted in an increased number of borrowers who defaulted or defaulted on their loans. Prior to the pandemic, almost one in five federal student loans was insolvent, although performance data is hard to come by, experts said.

“Ten million people have disabled their student loans. Turning them back on in one fell swoop without a clear plan is a recipe for disaster, ”said Seth Frotman, executive director of the Student Borrower Protection Center and former CFPB student loan ombudsman. “Resuming payments without fixing bugs across the student loan system would be a huge mistake. The process also requires coordination between the Department of Education and regulators. Even before the pandemic, there was widespread mismanagement and abuse in this market. Now there is.” will have to have significant oversight as they roll back payments. “

Many expect the CFPB and the Department of Education to work together to provide more oversight and accountability. There is a push to demand more uniform standards, disclosure requirements and improved contact with borrowers, similar to the requirements that were enacted for mortgage service providers after the financial crisis.

The CFPB has currently loaned two regulatory auditors to the department to help them set up exam programs for government student loan administrators, sources said. The office made no comment when asked about such efforts.

When Cordray led the CFPB, he opened a public investigation into student loan practices and released a 2015 report on “widespread service outages” that agencies could use as a blueprint for future reforms, some experts said.

In light of the larger debate over federal student loan debt, banks are advocating changes to federal student loan applications such as: B. Streamlined disclosures that would explain federal student loan costs and terms more clearly. A major problem with federal loans is that borrowers are borrowing too much money compared to what they earn, some experts said.

The CFPB currently oversees student loan servicing at non-bank service providers who manage more than 1 million borrower accounts, regardless of whether they are servicing government or private loans, and at the largest banks.

Personal student loans totaled $ 138.6 billion in the third quarter of 2020 – or just 8% of all outstanding student loan balances, according to estimates by education data provider MeasureOne. Still, the market for private student loans is larger than both payday loans and medical debt collections, with private student loans incurring about $ 10 billion in fees annually, the equivalent of bank overdraft fees, Frotman said. The CFPB is also expected to take a closer look at fintechs that offer student loans and other refinancing options.

Banking groups are campaigning for federal loan service providers to have the same disclosure requirements in plain language as private loans under the Truth in Lending Act.

“Obviously, every student loan crisis that exists is directly related to the federal government’s egregious over-indebtedness practices, which would be viewed as predatory in any other context,” said Richard Hunt, President and CEO of the Consumer Bankers Association, in a letter on Thursday prior to a legislative hearing Education Minister Miguel Cardona.

Private student lenders are far more successful than the federal government at subscribing and repaying, Hunt said, largely because the government doesn’t have any subscription requirements or a repayable rating of student borrowers.

“There are many loans that people take out to finance education that don’t fall into the student loan bucket, from credit cards to home credit lines to specialty lenders offering lousy products or high-risk, expensive products,” said Frotmann.

Service providers and fintechs are concerned about increased oversight and enforcement by the CFPB.

Experts are also watching the ongoing litigation against Navient., The Wilkes-Barre, Pennsylvania-based servicer that has been the target of the CFPB and numerous state lawsuits alleging various consumer abuses. Although a court date has not yet been set, a recent report from Fitch Ratings found that the CFPB litigation “may come about” even though “the exact timing of a decision and the potential financial impact of an adverse judgment cannot be foreseen. ”

“The enforcement actions against Navient create an additional layer of uncertainty, including not only the potential for borrower refunds and fines, but also the potential reputational risk that a negative judgment could have on current and future customer relationships, particularly government contracts,” said Fitch.

Last year, according to the CFPB ombudsman’s annual report, Navient had the most complaints to the CFPB of all private student loan providers, with 646 of a total of 1,936 complaints for the year ended August 2020. Of the 6,950 complaints received, more than 5,014 concerned government student loan administrators.

While Chopra is still an agent with the FTC, other changes to student loans are imminent. The CFPB can increase the role of Student Loans Ombudsman, a position appointed by the Minister of Finance. Many pundits have speculated that Robert G. Cameron, a former student loan manager appointed as the ombudsman for private education by former CFPB director Kathy Kraninger, will be replaced once Chopra is confirmed as head of the agency.

During the Trump administration, former Education Secretary Betsy DeVos withdrew state regulatory and disclosure requirements for student loan service providers, claiming they were anticipated by federal law. Frotman said he expected a concerted effort to overturn the right of first refusal.

Complaints from student loan borrowers were not referred to the Department of Education for three years. In 2017, DeVos instructed student loan intermediaries not to submit data or documents related to investigations or oversight directly to anyone other than their department. The exchange of data between the department and the CFPB was resumed last year.

Another area Cordray is focusing on is the Department of Education’s public loan relief program, which gives public servants the ability to have their debt settled after 10 years of on-time payments. Reports from the Department of Education and the Government Accountability Office have found that up to 98% of applicants for the plans have been turned down.

“Cleaning up these existing programs is part of the critical work,” said Frotman.

source https://collegeeducationnewsllc.com/student-loan-servicers-fear-1-2-punch-from-cfpb-education-dept/