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Financial Services Law Insights and Observations


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


    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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  • Education Secretary Rolls Back Obama Administration Federal Student Loan Servicing Policies


    On April 11, Education Secretary Betsy DeVos rolled back Obama administration policies designed to reform how student loan servicers collect debt. In a memo sent to Federal Student Aid Chief Operating Officer James Runcie, DeVos formally withdrew several policy memos issued last year by former Education Secretary John B. King Jr. and former Education Undersecretary Ted Mitchell, citing the need to promptly address “shortcomings” and “inconsistenc[ies]” in the student loan servicing procurement process. DeVos further emphasized the need for change because of “a myriad of moving deadlines, changing requirements and a lack of consistent objectives” as well as a need to move forward “with precision, timeliness and transparency.” The withdrawn memos, dated June 30, 2016 and July 20, 2016 (as well as the corresponding October 17 addendum), were developed to guide the way in which the federal government contracts with outside servicers to ensure that borrowers get the service and protection they deserve. The guidance was intended to strengthen student loan servicing by increasing consistency, transparency, and accountability in the student lending marketplace (see previous InfoBytes post). By rescinding these memos, DeVos also removed the requirement that the FSA consider servicers’ past behavior when awarding contracts, including whether the company misled borrowers or engaged in abusive consumer service.

    Lending Student Lending Department of Education FSA

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  • OCC Announces Launch of New Central Application Tracking System (CATS)

    Federal Issues

    On January 17, the OCC launched the first phase of its Central Application Tracking System (CATS), a new web-based system for banks to file licensing and public welfare investment applications and notices. CATS provides a secure, electronic system through which authorized national banks, federal savings associations, federal branches, and banking agencies may draft, submit, and track their licensing and public welfare investment applications and notices. CATS will replace the existing e-Corp and CD-1 Invest application tools. As explained in OCC Bulletin 2016-37, the new program is being launched in three phases to help banks transition from the existing tools. The second and third phases of the CATS rollout are scheduled to begin in the spring of 2017. When ready, CATS will be accessible through BankNet, the secure portal for OCC-regulated banks.

    Federal Issues Banking OCC Fintech FSA

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