The Consumer Financial Protection Bureau (CFPB) is moving forward with new enforcement initiatives even as it concedes its structure is unconstitutional. We discuss the latest developments.
In other CFPB student lending-related news, the agency released a report from the private education loan ombudsman. And, on an unrelated topic, the CFPB held the third session of its symposia series, taking a closer look at Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a provision that requires financial institutions to collect and report on credit applications made by small or women- or minority-owned businesses.
What happened
As we have previously reported, CFPB Director Kathy Kraninger announced September 17 that the agency would no longer defend its own constitutionality, and the issue is now teed up for the Supreme Court. But that uncertainty has not noticeably slowed activity at the CFPB, which continues to engage in enforcement and other activity, including:
Enforcement action. In California, the CFPB, joined by the Los Angeles City Attorney, the Minnesota Attorney General’s Office and the North Carolina Department of Justice, filed a federal suit against a student loan debt relief operation involving three related corporate entities and three individuals.
According to the complaint, the defendants violated the Consumer Financial Protection Act (CFPA), the Telemarketing Sales Rule (TSR) and various state laws by misleading thousands of federal student loan borrowers and charging more than $71 million in unlawful advance fees since 2015.
The defendants allegedly made false promises about their student loan debt relief and modification services, the regulators said, misrepresenting the purpose and application of fees they charged, their ability to obtain loan forgiveness, and their power to lower consumers’ monthly payments. In addition, the defendants allegedly neglected to inform consumers that they would automatically request that consumers’ loans be placed in forbearance (making it easier for consumers to afford the defendants’ fees).
Unlawful advance fees and the submission of false information to student loan servicers in loan adjustment applications (in order to qualify consumers for lower monthly payments) rounded out the regulators’ assertions.
A district court judge has already granted plaintiffs’ request for a temporary restraining order. The complaint seeks a permanent injunction as well as monetary damages, consumer redress, disgorgement and civil money penalties.
Student lending: 2019 ombudsman report. In other student lending-related developments, the CFPB released a report from the Private Education Loan Ombudsman documenting the two-year period from September 1, 2017 through August 31, 2019. During the relevant time period, the CFPB handled roughly 20,600 complaints related to private or federal student loans (6,700 related to private loans and 13,900 federal student loan complaints), a decrease from the number of complaints filed in previous years.
The report documents a 50 percent drop in complaints about private student loan companies from 2017 to 2018, with another 25 percent decrease from 2018 to 2019. Federal student loan complaints also decreased, albeit at a slightly lower rate, dropping 44 percent from 2017 to 2018 and then another 8 percent from 2018 to 2019.
The CFPB also handled approximately 4,600 debt collection complaints related to private or federal student loans over the two-year period, about 18 percent of student loan complaints and debt collection complaints about student loans.
Enforcement efforts were detailed in the report, including the Federal Trade Commission’s Operation Game of Loans, which resulted in settlements and judgments totaling more than $131 million, with CFPB actions (some taken in conjunction with state regulators) yielding over $17 million.
In addition to statistics, the report offered a series of recommendations. As well as the sharing of information contemplated in the Memorandum of Understanding with the Department of Education (that has yet to be signed), the ombudsman suggested that the CFPB assess and consider “the sharing of information, analytical tools, education outreach and expertise” to proactively prevent borrower harm before the harm occurs and a complaint is filed.
Policymakers, federal and state law enforcement agencies, and market participants should consider formalizing such information-sharing, the report advised, as it will send “a strong message of deterrence to unscrupulous actors in the market place, encourage consumer confidence and further work to prevent harm to borrowers while also working to stop fraudulent acts against the Department of Education and market participants.”
The report also recommended extending enforcement actions against student loan debt relief scams to criminal enforcement actions.
Symposia series. On November 6, the CFPB held the third gathering in its symposia series, focusing on Section 1071 of the Dodd-Frank Act.
That provision amended the Equal Credit Opportunity Act (ECOA) to require financial institutions to collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses.
Director Kathleen Kraninger shared opening remarks at the meeting and was followed by two panel discussions: one on the current state and future outlook of the small-business lending marketplace and a second surrounding the implementation of Section 1071, with an exploration of practical solutions. In her remarks, Director Kraninger stated that the CFPB was seeking input regarding “how to efficiently collect appropriate data without imposing unnecessary or undue costs that could limit access to credit from existing market participants or discourage new entrants into the market for small business credit.”
The first two symposia considered Dodd-Frank’s prohibition on abusive acts or practices and behavioral economics.
To read the CFPB’s complaint, click here.
To read the ombudsman’s report, click here.
For more information about the symposium, click here.
Why it matters
While it was a relatively quiet stretch for the CFPB, the new enforcement action, the release of the ombudsman report and the most recent event in its symposia series signify that the agency has no intention of slowing down even while the Supreme Court considers the CFPB’s constitutionality.