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FTC to Host Military Consumer Financial Workshop
On July 19, the FTC will host a free public workshop in San Antonio, entitled 2017 Military Consumer Financial Workshop: Protecting Those Who Protect Our Nation, to educate military consumers on financial issues and scams that they may face.
The workshop with consist of five panel discussions led by FTC personnel as well as military consumer advocates, attorneys, legal services clinics, industry representatives, and government agencies. The panels will include the following topics:
- auto purchase, financing, and leasing;
- lending including student loans and installment loans;
- debt collection;
- legal rights and remedies; and
- financial literacy and capability.
Additionally, the workshop will include presentations on online promotions and protecting sensitive information, as well as encouraging financial readiness along with financial resources for military consumers.
The FTC will hold the workshop at Trinity University in the Chapman Auditorium beginning at 8:30 am and preregistration is not required.
Department of Education Releases Phase II Amending the Federal Student Loan Servicing Solicitation
On May 19, the U.S. Department of Education (Department) announced the formal amendment of Phase II of the federal student loan servicing solicitation. According to a fact sheet issued by the Department, the amendment outlines plans to select a single student loan servicer that all borrowers will interact with on a unified platform. This is a departure from the current system in which nine servicing companies handle borrowers’ payments of their federal student loans. The amendment further clarifies and lists the Department's expectations of the eventual servicer. U.S. Secretary of Education Betsy DeVos commented on the announcement, “[w]ith changes in the new amendment, we have simplified the process to ensure meaningful borrower protections while saving taxpayers more than $130 million over the next five years. Savings are expected to increase significantly over the life of the contract. Borrowers can expect to see a more user-friendly loan servicing interface, shorter email and call response times and an improved payment application method that will maximize the benefit of each payment the borrower makes. Our amendment makes no changes to repayment plan requirements.”
As previously covered in InfoBytes, DeVos also rolled back Obama administration policies developed to guide the way in which the federal government contracts with outside servicers.
President Trump Releases 2018 Budget Proposal; Key Areas of Reform Target Financial Regulators, Cybersecurity, and Student Loans
On May 23, the White House released its fiscal 2018 budget request, A New Foundation for American Greatness, along with Major Savings and Reforms, which set forth the President’s funding proposals and priorities. The mission of the President’s budget is to bring spending under control by proposing savings of $57.3 billion in discretionary programs, including $26.7 billion in program eliminations and $30.6 billion in reductions.
Financial Regulators. The budget stresses the importance of reducing the cost of complying with “burdensome financial regulations” adopted by independent agencies under the Dodd-Frank Act. However, the proposal provides few details about how the reform applies to federal financial services regulators. Identifying the CFPB specifically, the budget states that restructuring the Bureau is necessary in order to “ensure appropriate congressional oversight and to refocus [the] CFPB’s efforts on enforcing the law rather than impeding free commerce.” Major Savings and Reforms assert that subjecting the Bureau to the congressional appropriations process would “impose financial discipline and prevent future overreach of the Agency into consumer advocacy and activism.” The budget projects further savings of $35 billion through the end of 2027, resulting from legal, regulatory, and policy changes to be recommended by the Treasury once it completes its effectiveness review of existing laws and regulations in collaboration with the Financial Stability Oversight Council. The Treasury review is being performed as a result of the Executive Order on Core Principals.
Dept. of Housing and Urban Development. As previously reported in InfoBytes, the budget proposes that funding be eliminated for the following: (i) small grant programs such as the Self-Help Homeownership Opportunity Program, which includes, among others, the Capacity Building for Community Development and Affordable Housing Program (a savings of $56 million); (ii) the CHOICE Neighborhoods program (a savings of $125 million), stating state and local governments should fund strategies for neighborhood revitalization; (iii) the Community Development Block Grant (a savings of $2.9 billion), over claims that it “has not demonstrated results”; and (iv) the HOME Investment Partnerships Programs (a savings of $948 million). The budget also proposes reductions to the Native American Housing Block Grant and plans to reduce costs across HUD’s rental assistance programs through legislative reforms. Rental assistance programs generally comprise about 80 percent of HUD’s total funding.
Cybersecurity. The budget states that it “supports the President’s focus on cybersecurity to ensure strong programs and technology to defend the Federal networks that serve the American people, and continues efforts to share information, standards, and best practices with critical infrastructure and American businesses to keep them secure.” Law enforcement and cybersecurity personnel across the Department of Homeland Security (DHS), Department of Defense, and the FBI will see budget increases to execute efforts to counter cybercrime. Furthermore, the National Cybersecurity and Communications Integration Center—which DHS uses to respond to infrastructure cyberattacks—will receive an increase under the budget.
Student Loan Reform. Under the proposed budget, a single income driven repayment plan (IDR) would be created that caps monthly payments at 12.5 percent of discretionary income—an increase from the 10 percent cap some current payment plans offer. Furthermore, balances would be forgiven after a specific number of repayment years—15 for undergraduate debt, 30 for graduate. In doing so, the Public Service Loan Forgiveness program and subsidized loans will be eliminated, and reforms will be established to “guarantee that borrowers in IDR pay an equitable share of their income.” These proposals will only apply to loans originated on or after July 1, 2018, with the exception of loans provided to borrowers in order to finish their “current course of study.”
Dept. of the Treasury. The budget proposes to, among other things: (i) eliminate funding for new Community Development Financial Institutions Fund grants (a savings of $220 million); and (ii) reduce funding for the Troubled Asset Relief Program by 50 percent, “commensurate with the wind-down of TARP programs” (a savings of $21 million).
Response from Treasury. In a statement released by the Treasury, Secretary Steven T. Mnuchin said the budget “prioritizes investments in cybersecurity, and maintains critical funding to implement sanctions, combat terrorist financing, and protect financial institutions from threats.” Furthermore, it also would “achieve savings through reforms that prevent taxpayer bailouts and reverse burdensome regulations that have been harmful to small businesses and American workers.”
CFPB Issues Report Finding That 90 Percent of Student Borrowers Are Not Enrolled in Income Driven Repayment Plans
On May 16, the CFPB published analysis of a student loan industry data sample, which indicates that nine out of ten of the highest-risk borrowers are not enrolled in federal affordable repayment plans. The report, entitled Update from the CFPB Student Loan Ombudsman, is based on data the Bureau received in response to a voluntary request (Appendix C) for information it sent to several student loan servicers seeking information regarding practices used on borrowers transitioning from default to income-driven repayment plans (IDR). As previously reported in InfoBytes, the 2016 report highlighted the fact that “the majority of borrowers who cure a default and seek to enroll in IDR do so by first rehabilitating their defaulted debt. However, these borrowers describe a range of communication, paperwork processing, and customer service breakdowns at every stage of the default-to-IDR transition.” The Bureau found that data provided in response to its request support the following preliminary observations:
- More than 90 percent of borrowers who rehabilitated one or more defaulted loans were not enrolled and making IDR payments within the first nine months after “curing” a default.
- Borrowers were five times more likely to default for a second time if they did not enroll in an IDR.
- As previously projected in 2016, nearly 30 percent of borrowers who exited default through rehabilitation defaulted for a second time within 24 months and more than 40 percent of borrowers re-defaulted within three years.
- More than 75 percent of borrowers who default for a second time did not successfully pay a single bill to their student loan servicers. The CFPB estimates that “as many as four out of every five borrowers who rehabilitate a student loan could be eligible for a zero dollar ‘payment’ under an IDR plan, suggesting many of these defaults were preventable, even for the most economically vulnerable consumers.”
- Borrowers who used the consolidation option, which requires borrowers to enroll in an IDR plan (except in rare circumstances) to resolve their student loan defaults, are more likely to immediately begin to repay their debts successfully.
According to the CFPB, the data reinforce the Bureau’s concern that “hundreds of thousands of borrowers who recently cured their default through rehabilitation are unable to successfully access a stable and affordable repayment plan and soon end up back in default.” Further, the Bureau found support for its position that “borrowers who cure default through consolidation appear to fare much better, particularly in the first months after exiting default.”
Massachusetts AG Announces Settlement with Student Loan Debt Relief Company
On April 28, Massachusetts Attorney General Maura Healey announced a settlement with a student loan debt relief company to resolve allegations that the company charged consumers illegal upfront fees to receive debt relief assistance and falsely led customers to believe it was affiliated with the federal government. According to the Attorney General’s office, this is the fourth in a series of enforcement actions brought against student loan debt relief companies in the state. Under the terms of the April settlement, the company is required to refund $6,500 to 18 affected borrowers, must agree to discontinue providing student loan services, and is prohibited from selling or disseminating Massachusetts customer information collected. Previously in 2015 and 2016, Healey announced settlements with three debt relief companies, bringing the overall recovery total to-date to more than $260,000. In November 2015, the state launched the Student Loan Assistance Unit to assist borrowers unable to repay their loans (see previous InfoBytes summary).
Fannie Mae to Allow Home Owners to Swap Student Loan Debt for Mortgage Debt
On April 25, Fannie Mae issued updates to its Selling Guide allowing home owners to refinance their mortgages to pay off their student loan debt. The new policies will present opportunities for homeowners to (i) pay down student debt by refinancing their mortgage; (ii) no longer be required to include non-mortgage debt (credit cards, auto loans, and student loans) paid by others on loan applications; and (iii) increase the likelihood of qualifying for a mortgage loan while carrying student debt “by allowing lenders to accept student debt payments included on credit reports.” The updates also allow for debt to be excluded from the debt-to-income ratio if a lender can obtain documents showing that a non-mortgage debt has been paid by another party for at least 12 months. “These new policies provide . . . flexible payment solutions to future and current homeowners and, in turn, allow lenders to serve more borrowers,” stated Jonathan Lawless, Fannie Mae’s Vice President of Customer Solutions. The policy changes are effective immediately.
CFPB Releases Supervisory Highlights Focused on Student Lending and Mortgage Servicing
On April 26, the CFPB released its Supervisory Highlights for spring 2017, which outlines its supervisory and oversight actions in areas such as mortgage servicing and student loan servicing. According to the Supervisory Highlights, recent supervisory resolutions have “resulted in approximately $6.1 million in restitution to more than 16,000 consumers.”
Student loan servicing. Bureau examiners reported that student loan servicers (i) routinely acted on incorrect information about whether the borrower was enrolled in school, and (ii) failed to reverse certain charges, including improper late fees and capitalization of unpaid interest, even after they knew they had wrongly ended a deferment.
Mortgage servicing. According to the report, the Bureau continued to see “serious issues for consumers seeking alternatives to foreclosure, or loss mitigation, at certain servicers.” CFPB examiners found problems with premature foreclosure filings, mishandling of escrow accounts, and incomplete periodic statements. Furthermore, examiners found that one or more mortgage servicers:
- failed to identify the additional documents and information borrowers needed to submit to complete a loss mitigation application and then denied the applications for not including those documents;
- launched the foreclosure process prematurely after receiving loss mitigation applications from borrowers, thereby failing to give required foreclosure protections to qualified consumers;
- mishandled escrow accounts by using funds to pay insurance premiums on unrelated loans, creating shortages in the escrow accounts and higher monthly payments for consumers; and
- issued incomplete periodic statements that used vague language such as “Misc. Expenses” and “Charge for Service” when describing transaction activity.
The report also outlined the Bureau’s position on employee production incentives and presented guidance and examples of where “incentives contributed to substantial harm.”
CFPB Draws Mixed Reactions in Response to Request for Comments on Proposed Student Lending Information Collection
Back in February, the CFPB proposed information collection on the student loan servicing market, since then two trade associations have submitted comment letters, one in support of the information collection and one believing that the information collection would be unduly burdensome. According to the Bureau, the proposed information collection was intended to provide the Bureau “with a broader and deeper look into the student loan market.” The comment period for its request closed earlier this month.
Americans for Financial Reform (AFR). On April 24, the AFR and 31 other organizations sent a sign-on letter to the CFPB expressing support for the CFPB’s proposed student loan servicing data collection initiative. The letter argues, among other things, that “compiling such metrics and borrower outcomes would benefit market participants, federal and state agencies, policymakers, and borrowers,” by allowing each to “[o]btain[] a clearer view of the student loan market overall” while also “inform[ing] all market participants on how best to serve student loan borrowers.” The AFR letter also offers several suggests as to how the Bureau can best ensure the “quality and transparency of the data.” The letter emphasized, among other things, that “transparency is critical to having a servicing system that works for borrowers,” especially given the large number of student loan defaults.
Consumer Bankers Association (CBA). In an April 24 comment letter, the CBA expressed agreement with the CFPB’s ultimate goal of creating a private student loan market that is both transparent and fair, but argues that its consumer bank members already “effectively tailor[]” their loan products “to meet their customer’s needs” and strive to make loans only “to customers who are judged highly likely to repay them.” Specifically, the CBA believes, among other things, that the CFPB information collection would require unnecessarily duplication of existing publicly reported private loan data. CBA also raised additional concerns, including: (i) whether the CFPB could collect the same data effectively, and with greater protection afforded to loan holders and servicers, through the supervisory process; (ii) whether the CFPB has “grossly underestimate[d]” the burden on servicers to collect the requested data, and (iii) whether the CFPB’s stated market monitoring objectives could be met through less burdensome methods.
CFPB Monthly Complaint Snapshot Highlights Issues Related to Student Loans
On April 25, the CFPB released its monthly complaint report highlighting consumer complaints year-to-date April 1. The Bureau has handled approximately 1,163,200 consumer complaints across all categories since it began collecting complaints. Of the roughly 28,000 received in March, 2,033 focused on private and federal student loans. Common problems raised by student borrowers included:
- lost documentation, extended application processing time, and unclear guidance when enrolling in income-driven repayment plans;
- misapplied payments, such as overpayments being applied to all accounts instead of being applied to a specific account;
- confusion over Public Student Loan Forgiveness programs and other loan forgiveness programs, specifically regarding enrollment issues, payment problems, and issues due to inaccurately reported employment data; and
- credit reporting companies receiving incorrect data, resulting in negative scores or collection companies contacting consumers about accounts that were paid in full or for debts that were not owed.
Similar to past CFPB-issued complaint snapshots, the report identifies the top 10 most common complaint categories with respect to all financial products, as well as the top 10 companies for which they received the most student loan complaints. The report spotlighted Nevada, noting that (i) Nevada consumers have submitted 14,600 of the 1,163,200 complaints received; (ii) debt collection complaints accounted for 29 percent of complaints received from Nevada, exceeding the national average by 2 percent; and (iii) mortgage-related complaints accounted for 23 percent of all complaints submitted by Nevada consumers, a rate equal to the national rate of mortgage complaints.
NY AG Schneiderman Releases Guidance on Student Loan Cancellation
On April 21, New York Attorney General Eric T. Schneiderman released guidance for eligible individuals who attended certain programs operated by a group of for-profit post-secondary education California-based colleges. The colleges—which ceased operations in 2015—allegedly made misrepresentations about the employment success of graduates of certain programs and used “false promises of career success to lure students, leaving many with enormous debt and few job prospects.” As a result, students who enrolled in those programs during specified time periods are eligible for the discharge of their federal student loans. It is estimated that up to 3,000 students in New York are eligible for federal loan cancellations based on the findings of an investigation conducted by the U.S. Department of Education (DOE). New York joins 43 other states and the District of Columbia in an outreach effort to assist students in submitting loan cancellation applications. If a student’s application is approved by the DOE, the loan(s) will be cancelled and payments previously made will be refunded.