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Senators question CFPB on student loan servicer examinations
On May 20, several senators, including Senators Elizabeth Warren (D-MA) and Sherrod Brown (D-OH), sent a letter to CFPB Director Kathy Kraninger requesting information regarding the Bureau’s examination of companies that service student loans guaranteed by the federal government. The senators noted that they are “encouraged to learn that the CFPB recently began its first examination of a servicer of federally-held student loans since 2017,” but they stated that, given the Department’s “record [of] obstructing CFPB oversight and enforcement, [they] are skeptical of the Department’s role in this joint examination and would strongly oppose limitations, restrictions, or other interference with the CFPB’s ability to conduct complete and thorough examinations.” Among other things, the senators also expressed concerns that the Bureau and the Department have not yet finalized the Supervisory Memorandum of Understanding (MOU), which would allow the Bureau to access student borrower loan data that the senators claim is necessary for the Bureau to conduct future examinations. As previously covered by InfoBytes, the agencies signed an MOU to share student loan complaint data last February. The senators requested clarification on measures the Bureau is taking to carry out its statutory mandate to oversee the federal student loan market, including (i) how many examinations the Bureau has planned for 2020; (ii) what progress, if any, has been made on reestablishing the supervisory MOU; (iii) how the Bureau is monitoring student loan servicers’ compliance with the CARES Act, including pausing payments, interest, and collection; and (iv) whether the Bureau has identified any trends in borrower complaints since the Covid-19 pandemic began. The senators asked that the Bureau respond to the questions by June 3.
State AGs, U.S. senators urge CRAs to protect credit scores during Covid-19 crisis
On April 28, New York Attorney General Letitia James and Pennsylvania Attorney General Josh Shapiro, along with the attorneys general of 19 other states and the District of Columbia sent letters to the three credit reporting agencies (CRAs) stating their intention to protect consumer credit and ensure fair and accurate reporting on consumer credit reports during the Covid-19 crisis. The letter calls attention to the obligations of the CRAs under the FCRA and state credit-reporting laws and further states that the attorneys general intend to enforce compliance of all related requirements. Notwithstanding the CFPB’s announcement that it will ease the FCRA’s 30 or 45-day time restrictions for CRAs to investigate consumer complaints, the letter insists that the attorneys general will enforce the FCRA deadlines. Pursuant to the CARES Act amendment of the FCRA—which requires that consumer accounts be reported by furnishers as current if the consumer was current prior to the grant of a CARES Act accommodation—the letter asserts that its signors will actively monitor for compliance to this amendment. Finally, the letter expresses appreciation for the CRAs’ compliance and cooperation.
On April 27, Senator Elizabeth Warren (D-MA) and Senator Brian Schatz (D-HI) sent letters to the same CRAs also urging the agencies to protect consumer credit reports by complying with the CARES Act amendment to the FCRA. In addition, the Senators request that the CRAs reply to six questions included in the letters to assist the Senators in understanding all efforts the CRAs are taking to protect consumer credit scores during the Covid-19 crisis.
OCC to move ahead with CRA modernization proposal; Senate Democrats request new proposal
On April 9, OCC Comptroller Joseph M. Otting issued a statement thanking stakeholders for commenting on the joint notice of proposed rulemaking (NPR) to modernize the Community Reinvestment Act (CRA) issued by the OCC and FDIC last December. (See Buckley Special Alert discussing the NPR.) Otting emphasized that the OCC anticipates releasing a final rule during the first half of the year, explaining that the Covid-19 pandemic has highlighted communities’ need for even greater access to lending, capital, and services. “It is our intention to craft a final rule that will encourage banks to lend and invest more in the communities they serve, including low- and moderate-income neighborhoods,” Otting stated. “Further delay would only prevent these valuable resources from reaching those who need them most in this time of national emergency.”
However, 42 Senate Democrats, led by Senator Sherrod Brown (D-OH), sent a letter the same day asking the agencies to rescind the NPR, which, according to the lawmakers, currently “threatens to undermine more than 40 years of access to sustainable mortgage credit, small business loans, community development, and partnerships between financial institutions and the communities they serve.” According to the Senators, the NPR’s proposal to give banks a presumptive CRA grade based mainly on the ratio of the dollar value of all CRA activity to deposits is “inconsistent with the clear Congressional intent of the CRA,” in that it would force “dollar values onto activities that are not easily measured in monthly balance sheet totals,” and would also, among other things, encourage “banks to meet their CRA obligations with activities that produce the maximum dollar figure with the least effort.” Additionally, the Senators stressed that the NPR fails to address the lack of investment in rural areas, Indian Country, and currently underserved CRA markets, despite Otting noting in his statement that the OCC seeks “to increase support to small businesses, small and family-owned farms, Indian country, and distressed areas.” The Senators urged the agencies “to develop a new proposal that reflects evidence, community input, and Congressional intent.”
As previously covered by InfoBytes, on April 8, NYDFS Superintendent Linda Lacewell also sent a letter to the OCC expressing “strong opposition” to the NPR. A coalition of state attorneys general submitted a comment letter urging the agencies to withdraw the NPR as well.
Senators seek protection against predatory lending practices during Covid-19 pandemic
On April 6, Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH) sent a letter to the federal financial regulators (Federal Reserve Board, FDIC, OCC, CFPB, and NCUA), asking them to issue guidance and lending principles to help protect small businesses and consumers affected by Covid-19 from predatory lending practices. As previously covered by InfoBytes, last month, the agencies issued a joint statement recognizing that small-dollar lending can play an important role in meeting credit needs, and recommending that financial institutions offer loans “through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.” The Senators expressed concerns, however, that without clear guidance banning predatory lending practices, consumers “are at risk of being exploited because of a financial hardship created through no fault of their own.” The Senators propose several measures intended to ensure that loan products include strong consumer protections. These include: (i) capping interest rates—preferably at a maximum rate of 36 percent—for small dollar short-term loan products; (ii) ensuring that borrowers are able to meet clear ability-to-repay standards; (iii) “prohibit[ing] loan products with unpaid principal from automatically enrolling the borrower in a new loan product without their knowledge and consent”; and (iv) “eliminat[ing] the potential for one-time lump sum payments or balloon payments.”
Senators urge HUD to withdraw new version of AFFH rule
On March 16, thirty-seven Senators led by Senator Sherrod Brown (D-OH) sent a letter to HUD in response to the agency’s proposed replacement for the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule (proposed rule). As previously covered by InfoBytes, in January, HUD announced that the proposed rule would provide state and local government participants with more straightforward advice “to help them improve affordable housing choices in their community.” The Senators contend, however, that the proposed rule will reverse efforts to make access to housing fair and equitable and “relies on the faulty premise that simply increasing housing supply can address the problems of housing discrimination and segregation.” Among other things, the Senators argue that the proposed rule undermines the following “three core elements of any approach to fair housing”: (i) “detailed, comprehensive analysis of fair housing issues”; (ii) “judicious enforcement”; and (iii) “the public input necessary to ensure that our communities can provide inclusive pathways of opportunity for all Americans.” The Senators request that HUD withdraw the proposed rule and re-implement the 2015 AFFH final rule.
Bill overturning Department of Education’s 2019 Borrower Defense Rule sent to president
On March 11, the U.S. Senate, in a 53-42 vote, joined the House in passing H.J. Res. 76, which provides for congressional disapproval of the Department of Education’s 2019 Borrower Defense Rule (the Rule). As previously covered by InfoBytes, the Rule, published last September and set to take effect July 1, revises protections for student borrowers that were significantly misled or defrauded by their higher education institution and establishes standards for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.” If signed by the president, H.J. Res. 76 would undo changes made by the Rule that, among other things, would have required individuals to apply to the Department for a defense to repayment (under the 2016 Rule, applications could be submitted on behalf of an entire group). H.J. Res. 76 would also undo the Rule’s elimination of automatic closed-school discharges and its ban on pre-dispute arbitration and class action waivers that were previously contained within the 2016 Rule.
State AGs support congressional disapproval of 2019 Borrower Defense Rule
On January 14, a coalition of attorneys general from 19 states and the District of Columbia sent a letter to Congress in support of H.J. Res. 76, which was passed by the House of Representatives on January 16, and provides for congressional disapproval of the Department of Education’s 2019 Borrower Defense Rule (covered by InfoBytes here). The Department’s 2019 Borrower Defense Rule, published last September and set to take effect July 1, revises protections for student borrowers that were significantly misled or defrauded by their higher education institution and establishes standards for loan forgiveness applicable for “adjudicating borrower defenses to repayment claims for Federal student loans first disbursed on or after July 1, 2020.”
The AGs claim, however, that the 2019 Borrower Defense Rule “provides no realistic prospect for borrowers to discharge their loans when they have been defrauded by predatory for-profit schools, and . . . eliminates financial responsibility requirements for those same institutions.” The AGs further argue that the new provisions require “student borrowers to prove intentional or reckless misconduct on the part of their schools,” which they claim is “an extraordinarily demanding standard not consistent with state laws governing liability for unfair and deceptive conduct.” Other standards, such as requiring student borrowers to “prove financial harm beyond the intrinsic harm caused by incurring federal student loan debt as a result of fraud” and establishing a three-year time bar on borrower defense claims, would further reduce protections for student borrowers. Citing to several state enforcement actions taken against for-profit schools for alleged deceptive and unlawful tactics, the AGs stress the need for a “robust and fair borrower defense rule.”
Senate Democrats ask IG to investigate CFPB restitution penalties
On January 13, fifteen Democratic Senators, led by Senators Catherine Cortez Masto (D-NV) and Sherrod Brown (D-OH) sent a letter to the Inspector General of the Federal Reserve Board calling for an investigation into the CFPB’s restitution penalties levied against companies accused of wrongdoing. The Senators claim that the Bureau’s restitution approach “creates a perverse incentive for companies to violate the law by allowing them to retain all or nearly all of the funds they illegally obtain from consumers.” The letter asks the Inspector General to investigate four recent settlements to examine how the Bureau determines restitution awards and whether the applied standard for restitution differs from the standard applied by courts and in prior CFPB settlements.
Included among the examples of actions for which consumers were provided limited to zero restitution is a recent settlement with a debt collector accused of engaging in improper debt collection tactics. As previously covered by InfoBytes, the company agreed to pay $36,878 in redress to harmed consumers, limiting the restitution to “only those consumers who affirmatively ‘complained about a false threat or misrepresentation’” by the company, the Senators wrote. Specifically, the Senators seek to determine the number of consumers who may have been excluded from the settlement because they did not affirmatively complain about the company’s behavior. A second example highlights an action taken against a group of payday lenders that allegedly, among other things, misrepresented to consumers an obligation to repay loan amounts that were voided because the loan violated state licensing or usury laws. (Previously covered by InfoBytes here.) According to the Senators, the settlement “dropped the requests for restitution and other relief for victimized consumers.” The letter also references a report released last October by the House Financial Services Committee (covered by InfoBytes here) following an investigation into these particular settlements, in which the Bureau responded “that it did not seek restitution in these cases because it could not determine ‘with certainty’ which consumers had been harmed or the amount of the harm.”
Democratic Senators question Kraninger on student loan servicer oversight
On December 17, eight Senate Democrats wrote to CFPB Director Kathy Kraninger urging the Bureau to fulfill its statutory obligations related to the oversight of student loan servicers who collect loans guaranteed by the federal government. In the letter, the Senators express concern over what they consider the Bureau’s “unacceptable” abandonment of its supervision and enforcement activities related to federal student loan servicers, and discuss the Department of Education’s termination of two Memoranda of Understanding (MOUs) in 2017 that previously permitted the sharing of information in connection with the oversight of federal student loans. (Previously covered by InfoBytes here.) According to the Senators, Kraninger’s testimony before the Senate Banking Committee in October (covered by InfoBytes here) reaffirmed the Bureau’s responsibility and ability to examine entities engaged in federal and private student loans. In addition, the Senators claim that Kraninger testified that the Bureau and the Department were “discussing how to move forward in an effective way” to ensure they were overseeing student loan servicers. However, the Senators note that “nearly two months later, the Bureau and Department still have not reestablished MOUs, and the Bureau still has not resumed examinations of federal student loan servicers.” In addition to calling on Kraninger to “take immediate steps, including seeking a court order” requiring the Department to provide access to borrower information so the Bureau can resume examinations of student loan servicers, the Senators request information concerning the MOUs as well as a timeline from the Bureau on when it will resume its examinations.
Warren and Brown question CFPB advisory opinion plans
On December 5, Senators Elizabeth Warren and Sherrod Brown wrote a letter to CFPB Director Kathy Kraninger seeking information regarding the Bureau’s plans for a program to issue formal advisory opinions. As previously covered by InfoBytes, the CFPB in September announced three new policies to “improve how the Bureau exercises its authority to facilitate innovation and reduce regulatory uncertainty,” including the mention of an “advisory opinion program” in the final policy announcement for one of the new policies. According to the letter, the Senators have concerns that CFPB guidance issued through advisory opinions has the potential to “exempt companies from complying with consumer protection laws” and “allow political employees to unduly influence and restrict the application of the consumer laws.” The letter lays out a number of questions for Director Kraninger regarding the CFPB’s use of advisory opinions, including whether all opinions will be made public, whether the facts and circumstances leading to a request for an opinion will be investigated, whether all opinions will be in writing, and who will draft them. Specifically, the letter questions the role of political appointees “at each stage of the advisory opinion process.” The letter requests that the Bureau respond to the questions by December 19.