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  • CFPB Releases 50-State Snapshots of Student Debt, Servicemember Complaints

    Consumer Finance

    On October 27, the CFPB published a blog post highlighting the Bureau’s October 20 “50-state snapshot of student debt,” which illustrates how the “more than $1.4 trillion in student loan debt” is spread across the country. The snapshot also provides data on the more than 50,000 student loan complaints and 10,000 debt collection complaints received by the CFPB through September 2017 (over the course of 5 years). Specifically, for each state, the snapshot provides (i) the “total outstanding student loan debt balance as of 2016”; (ii) the “total student loan complaints handled”; (iii) the “change in volume of student loan complaints handled”; (iv) the “total debt collection complaints handled related to student loans”; and (v) the “change in volume of debt collection complaints handled related to student loans.” The blog post also provides tips and tools intended to assist student loan borrowers navigate problems with their loans.

    On October 31, the CFPB published a blog post releasing the Bureau’s “50 state snapshot of servicemember complaints,” which provides state-specific data on the over 91,000 complaints received from servicemembers, veterans, and their families since 2011 (which the CFPB collectively defines as, “servicemember”). Specifically, for each state, the snapshot provides (i) the total number of servicemember complaints handled since 2011, (ii) distribution of complaints by product for both servicemembers and non-servicemembers; (iiI) distribution of complaints by branch of service; and (iv) a visual representation of complaints by zip code.

    Consumer Finance Lending Student Lending Debt Collection Consumer Complaints CFPB Servicemembers

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  • District of Columbia Adopts Student Loan Borrower Bill of Rights

    Lending

    On October 11, the District of Columbia (DC) released a student loan borrower bill of rights (Bill) pursuant to the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016. The Bill sets out basic principles and protections for student loan borrowers, covering:

    • Pricing and Terms. Lenders to comply with TILA; specifically, to focus on clear and plain-English disclosures of the APR and other key pricing terms.
    • Loan Products. Lenders should avoid extending abusive loan products to borrowers; including, not extending new credit to borrowers who are unable to repay existing loans.
    • Underwriting. Lenders should exercise fair and responsible underwriting; including offering loans that are affordable and meet the borrower’s needs. It also encourages lenders to engage in responsible credit reporting.
    • Collection Activities. Lenders and servicers to abide by the spirit of the Fair Debt Collection Practices Act, as well as, maintain accurate and complete information about borrowers’ loans.
    • Customer Service. Servicers should have responsible complaint management, be easily accessible, and avoid discrimination of any protected borrower classification.

    The Bill became effective on September 8.

    Lending Student Lending TILA Regulation Z FDCPA

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  • Freddie Mac Announces Guide Bulletin 2017-23 Concerning Debt Payment-to-Income Calculations and Appraisals

    Lending

    On October 18, Freddie Mac announced the issuance of Guide Bulletin 2017-23 (Bulletin), which changes selling requirements related to, among other things, student loan monthly debt payment-to-income (DTI) ratio calculations and appraisals. Specifically, for student loans in repayment, sellers must use the greater of the following in calculating DTI ratios, as listed on a borrower’s credit report: (i) the monthly payment amount, or (ii) 0.5 percent of the original loan balance or outstanding balance (one percent for loans in deferment or forbearance). The revisions also remove the requirement that a seller must “obtain documentation if a monthly payment amount is not reported on the credit report.” Further, the Bulletin stipulates certain DTI ratio exclusions, which include specific contingent liabilities.

    Revisions to appraisal requirements include: (i) no longer requiring a “new appraisal when the settlement date is more than 120 days after the note date,” and (ii) accepting appraisal updates “performed by an unlicensed or trainee (or similar classification) appraiser if a supervisory appraiser signs the appraisal update.” While the revisions are applicable for mortgages with settlement dates on or after January 18, 2018, Freddie Mac also permits immediate implementation.

    Lending Freddie Mac Appraisal Student Lending

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  • CFPB Issues Report: Student Loan Complaints Initiated Actions Bringing Relief to Borrowers

    Lending

    On October 16, the CFPB published its annual report analyzing consumer complaints submitted between September 1, 2016 and August 31, 2017. The report, titled “Annual Report of the CFPB Student Loan Ombudsman,” is based on more than 22,000 complaints, which related to federal student loan servicing, debt collection, private student loans servicing, and debt relief services. The press release announcing the report noted that this represented a 120 percent increase in student loan complaints compared to last year, but also that this can partly be attributed to the fact that the Bureau updated its student loan complaint form in late February 2016 to accept complaints about federal student loan servicing issues. The report also noted that student loan complaints from July 2011 through August 2017 have led to actions resulting in more than $750 million in relief to student loan borrowers and improved the loan repayment process for millions of additional borrowers.

    The CFPB estimates that federal and private student loan debt combined has reached $1.4 trillion, mostly from federal loans, with more than 8 million student loan borrowers in default due to not making a required monthly payment for at least nine months. The report makes additional observations, including the following:

    • Military student loan borrowers continue to complain about difficulties in accessing protections guaranteed under federal law, such as interest rate caps under the Servicemembers Civil Relief Act, automatic recertification of income-driven repayment (IDR) plans, zero percent interest rate reductions while serving in areas of hostility, and discharging loans for veterans due to Total and Permanently Disability (TPD).
    • Consumers continue to report challenges concerning repayment roadblocks, such as difficulty in applying for or recertifying IDR plans, obtaining TPD discharge, and accessing advertised loan benefits for private loans.
    • Harassing and aggressive debt collection tactics, including the possibility for suspension or revocation of professional licenses in some states following a default, reportedly are creating additional challenges for consumers.

    Lending Student Lending CFPB Servicemembers SCRA Debt Collection

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  • FTC, State AGs Announce Nationwide Crackdown Against Student Loan Debt Relief Scams

    Lending

    On October 13, in partnership with 11 states and the District of Columbia, the FTC announced a federal-state law enforcement initiative to combat deceptive student loan debt relief scams. According to the FTC, “Operation Game of Loans” targets companies that engage in practices that harm student loan borrowers, such as allegedly (i) charging illegal upfront fees; (ii) making false or misleading statements promising, among other things, debt relief, loan forgiveness, reduced interest rates, and credit repair services; (iii) pretending to be affiliated with the government or loan servicers; (iv) engaging in deceptive marketing practices; (v) pocketing consumer fees rather than applying the money towards student loan balances; and (vi) charging consumers for document preparation services that are readily available to consumers for free. According to a press release issued by the FTC, the initiative “encompasses 36 actions by the FTC and state attorneys general against scammers alleged to have used deception and false promises of relief to take more than $95 million in illegal upfront fees from American consumers over a number of years.”

    That same day, as part of “Operation Game of Loans,” Attorney General Lisa Madigan announced a lawsuit against a pair of entities (defendants) accused of allegedly violating Illinois law by charging upfront fees for services guaranteed to “lower monthly student loan payments, improve credit scores, get students out of default, and negotiate tax and student loan debt adjustments.” The complaint further alleges that not only do the defendants lack the ability to provide the advertised services, they also allegedly impersonate students to gain access to students’ Federal Student Aid IDs (the federal government prohibits entities from accessing federal student aid websites even if authorized by the borrower), and fail to refund consumers—as promised—if they fail to provide debt relief. The complaint seeks injunctive relief, restitution, and civil penalties.

    Lending Agency Rule-Making & Guidance FTC State AG Student Lending Debt Settlement Enforcement Debt Relief

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  • AG Coalition Urges Department of Education to Reconsider Termination of MOUs With CFPB

    Lending

    On September 26, Pennsylvania Attorney General Josh Shapiro, along with 18 other state attorneys general (state AGs) and the Executive Director of the Hawaii Office of Consumer Protection, issued a letter to U.S. Department of Education (Department) Secretary Betsy DeVos in reaction to the Department’s August 31 letter to the CFPB, which terminated two Memoranda of Understanding (MOUs) that previously permitted the sharing of information in connection with the oversight of federal student loans. (See previous InfoBytes coverage regarding the MOUs here.) The letter to Secretary DeVos urges the Department to reconsider the termination of the MOUs and offers support for the work the CFPB has done—often in partnership with the Department and state AGs—to protect the millions of students and families that are repaying student loans. The State AGs contend the Department “falsely asserted it has exclusive jurisdiction over companies that service federal student loans when, in fact, student loan servicers are under the jurisdiction of the CFPB, [FTC], [DOJ], [state AGs] and other law enforcement agencies.” The state AGs further claim that the termination of the MOUs removes “critical protections” that were in place to “streamline the supervision of student loan servicers” and assist borrowers trying to resolve complaints related to their student loans. The letter cites several actions initiated by state AGs against the Department for allegedly abandoning its responsibility to protect student loan borrowers over the past seven months, including the Department’s decision to delay the Borrower Defense Rule and roll back the Borrower Defense and Gainful Employment Rules.

    Lending Student Lending State AG Department of Education CFPB

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  • CFPB Takes Action Against Delaware Trusts, Debt Collector for Allegedly Filing Illegal Student Loan Debt Collection Lawsuits

    Consumer Finance

    On September 18, the CFPB announced it had filed a complaint in the U.S. District Court for the District of Delaware against a collection of 15 Delaware statutory trusts and their debt collector for, among other things, allegedly filing lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. According to the CFPB, between 2001 and 2007, the trusts bought and securitized more than 800,000 private student loans, while the trusts contracted with the debt collector to collect on delinquent and defaulted loans. The complaint alleges that the trusts and debt collector engaged in deceptive and unfair practices between November 2012 and the end of April 2016 by: (i) filing false and misleading affidavits, including more than 25,000 affidavits that were notarized by notaries who had not witnessed the documents being signed; (ii) filing at least 2,000 suits to collect loans without the necessary documentation to show that the trusts owned the loans or to prove that a debt was owed; (iii) filing at least 486 collection suits after the statute of limitations had expired; and (iv) in some instances, providing court testimony consistent with the false affidavit statements. As a result, the trusts and the debt collector allegedly obtained over $21.7 million in judgments against consumers and collected an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested.

    According to the proposed consent judgment, which must be approved by a judge in the district court, the trusts are required to pay at least $3.5 million in restitution to more than 2,000 consumers who made payments resulting from the improper collection suits, to pay $7.8 million in disgorgement to the Treasury Department, and to pay an additional $7.8 million civil money penalty to the CFPB. In addition, the trusts must: (i) hire an independent auditor, subject to the Bureau’s approval, to audit all 800,000 student loans in the portfolio to determine if collection efforts must be stopped on additional accounts; (ii) cease collection attempts on loans that lack proper documentation or that are time-barred; and (iii) ensure false or misleading documents are not filed and that documents requiring notarization are handled properly.

    A separate consent order issued against the debt collector orders the company to pay a $2.5 million civil money penalty to the CFPB.

    Consumer Finance CFPB Student Lending Debt Collection Enforcement

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  • CFPB’s Summer Edition of Supervisory Highlights Discloses Findings Across Many Financial Services Areas

    Consumer Finance

    On September 12, the CFPB released its summer 2017 Supervisory Highlights, which outlines its supervisory and oversight actions in areas such as auto loan servicing, credit card account management, debt collection, deposit account supervision, mortgage origination and servicing, remittances, service provider programs, short-term small-dollar lending, and fair lending. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in total restitution payments of approximately $14 million to more than 104,000 consumers during the review period” between January 2017 and June 2017.

    As examples, in the area of auto loan servicing, examiners discovered vehicles were being repossessed even though the repossession should have been cancelled. Coding errors, document mishandling, and failure to timely cancel the repossession order were cited causes. Regarding fair lending examination findings, the CFPB discovered, in general, “deficiencies in oversight by board and senior management, monitoring and corrective action processes, compliance audits, and oversight of third-party service providers.” Examiners also conducted ECOA Baseline Reviews on mortgage servicers and discovered weaknesses in servicers’ fair lending compliance management systems. Findings in other areas include the following:

    • consumers were provided inaccurate information about when bank checking account service fees would be waived, and banks misrepresented overdraft protection;
    • debt collectors engaged in improper debt collection practices related to short-term, small-dollar loans, including attempts to collect debts owed by a different person or contacting third parties about consumers’ debts;
    • companies overcharged mortgage closing fees or wrongly charged application fees that are prohibited by the Bureau’s Know Before You Owe mortgage disclosure rules; and
    • borrowers were denied the opportunity to take full advantage of the mortgage loss mitigation options, and mortgage servicers failed to “exercise reasonable diligence in collecting information needed to complete the borrower’s application.”

    The Bureau also set forth new examination procedures for HMDA data collection and reporting requirements as well as student loan servicers, in addition to providing guidance for covered persons and service providers regarding pay-by-phone fee assessments.

    Consumer Finance CFPB Enforcement Auto Finance Credit Cards Debt Collection Fair Lending ECOA Compliance Mortgage Origination Mortgage Servicing HMDA Student Lending

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  • Department of Education Terminates Student Loan Sharing Agreements with CFPB, Announces Expanded Focus on Enforcement and Consumer Protection

    Lending

    On August 31, the U.S. Department of Education submitted a letter notifying the CFPB that it intends to terminate two Memoranda of Understanding (MOUs) between the agencies regarding the sharing of information in connection with the oversight of federal student loans. The MOUs that will terminate on September 30, 2017, are the “Memorandum of Understanding Between the Bureau of Consumer Financial Protection and the U.S. Department of Education Concerning the Sharing of Information” (Sharing MOU), dated October 19, 2011, and the “Memorandum of Understanding Concerning Supervisory and Oversight Cooperation and Related Information Sharing Between the U.S. Department of Education and the Consumer Financial Protection Bureau,” dated January 9, 2014.

    The letter rebukes the CFPB for overreaching and undermining the Education Department’s mission to serve students and borrowers, and states that it “takes exception to the CFPB unilaterally expanding its oversight role to include the Department's contracted federal student loan servicers.” The letter also accuses the CFPB of failing to share all complaints related to Title IV federal student loans within 10 days of receipt as required by the MOUs, and that the Bureau’s intervention in these cases “adds confusion to borrowers and servicers who now hear conflicting guidance related to Title IV student loan services for which the Department is responsible.”

    In a press release issued by the House Committee on Education and the Workforce on September 1, Representative Virginia Foxx (R-N.C.) praised the Department’s decision stating, “[t]he Department of Education has made it clear that its partnership with the CFPB is doing more harm than good when it comes to how it can best serve students and borrowers.” However, advocacy groups such as Americans for Financial Reform and the National Consumer Law Center (NCLC) criticized the Department’s decision, with the NCLC calling it “outrageous and deeply troubling” and refuting the Department’s claims that the CFPB “’unilaterally’ expanded its oversight role over servicers and collectors of federal student loans.” Instead it argued that the Department’s “failures are what led Congress to give the CFPB authority to help students.”

    On the same day, the Education Department issued a press release announcing “a stronger approach to how Federal Student Aid (FSA) enforces compliance by institutions participating in the Federal student aid programs by creating stronger consumer protections for students, parents and borrowers against ‘bad actors.’” The strategy will focus on illegitimate debt relief organizations and schools that defraud students, and FSA will engage in “comprehensive communications and executive outreach to ensure parties and their leadership understand their responsibilities, the consequences of non-compliance and appropriate remedies.” The CFPB was notably absent, however, from the release’s reference to FSA’s continued stakeholder coordination, which listed the FTC and the DOJ.

    On September 7, the CFPB responded to the CFPB’s letter to request time to “engage in a constructive conversation” with the Department to determine a path for continued collaboration to best serve the needs of student loan borrowers. Director Richard Cordray noted that because the Department has access to the CFPB’s Government Portal as part of the agencies’ arrangement, the Department is able to view borrower complaints in “near real-time.” According to Director Cordray, the Department has accessed the portal 80 times over the past three months. Several examples of the Bureau’s supervisory examinations are also provided to highlight the CFPB’s position that its actions have not been “inconsistent with the Department’s directives or [in conflict with the] shared goal of protecting student loan borrowers.”

    Lending Student Lending Federal Issues Department of Education CFPB House Committee on Education MOUs NCLC FSA

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  • CFPB Files Amicus Brief Supporting Reversal of Preliminary Injunction Freezing Department of Education’s Student Debt Collection

    Courts

    On August 21, the CFPB filed an amicus brief in the Court of Appeals for the Federal Circuit, urging the court to reverse a trial court’s order and arguing that precluding the Department of Education (Department) from sending billions of dollars in defaulted student loans to debt collection companies is contrary to public interest. The Bureau, siding with the Department, claims the trial court’s preliminary injunction deprives “borrowers in default of access to basic information about key consumer protections and the opportunity to arrange repayment—functions performed by debt collection contractors under [the Department’s] current collections regime—[and] does not facilitate, but impedes, borrowers’ ability to enter into income-driven repayment plans, whether through rehabilitation or consolidation.” As previously reported in InfoBytes, on May 31, U.S. Court of Federal Claims Chief Judge Susan G. Braden ordered a continuation of her preliminary injunction, which prevents the Department from collecting on defaulted student loans—a process that was halted on March 29 when Judge Braden issued a temporary restraining order in this matter. The May order, Judge Braden stated, would stay in place “until the viability of the debt collection contracts at issue is resolved.”

    In its amicus brief, the Bureau contended that data presented in its 2016 Ombudsman Report (Report) providing recommendations for reforms to the current process for collection and restructuring federal student loan debt does not support the trial court’s position, a claim the court made when issuing its order. Rather, the Bureau’s position is that the Report provides several recommendations for improvements to the current system, which focus on which companies will be granted debt collection contracts and, additionally, suggests solutions such as moving rehabilitated borrowers into income-driven repayment plans. The Bureau also proposes ways policymakers can simplify and streamline the rehabilitation process. Thus, the Bureau countered, the preliminary injunction is “wholly divorced from these concerns and recommendations and is, in fact, inconsistent with them.”

    Two of the defendant-appellants also filed separate briefs August 14 and 15. The Department claimed in its August 15 brief that, as of May 31, the injunction has “deprived approximately 234,000 defaulted borrowers, holding accounts valued at $4.6 billion, of loans servicing services” and, furthermore, has resulted in approximately $2.4 million in uncollected funds.

    Notably, the appeals court issued an order on July 18 holding the defendant-appellants motions to stay in abeyance pending the trial court’s decision and denying the plaintiff-appellee’s motion to dismiss.

    Courts U.S. Court of Federal Claims Appellate Student Lending CFPB

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