Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On August 16, the CFPB announced Robert G. Cameron as the Bureau’s private education loan ombudsman. Cameron, who served in the U.S. Army for 29 years and is a Colonel and Staff Judge Advocate for the Pennsylvania Army National Guard, joins the Bureau from the Pennsylvania Higher Education Assistance Agency—a national student loan servicing company. While there, Cameron was responsible for overseeing efforts related to litigation, risk mitigation, and compliance with federal and state laws, including Dodd-Frank. Cameron’s new responsibilities as ombudsman will include overseeing student loan borrower complaints and analyzing complaint data to make recommendations to the Secretary of the Treasury, the Secretary of Education, CFPB Director Kathy Kraninger, and Congress.
On July 18, Senators Patty Murray (D-WA) and Sherrod Brown (D-Ohio) sent a letter to CFPB Director Kathy Kraninger and U.S. Department of Education (Department) Secretary Betsy DeVos requesting an explanation as to why a statutorily required Memorandum of Understanding (MOU) terminated by the Department in 2017 has not been reestablished. As previously covered by InfoBytes, the terminated MOU allowed the sharing of information connected with the oversight of federal student loans. The Senators’ letter raises questions concerning the disagreement between the agencies over why the MOU was terminated, as well as “conflicting explanations” provided to Congress regarding the delay in reestablishing the MOU. According to the Senators, Kraninger previously commented in April that creating a new MOU with the Department was a priority for the Bureau (see InfoBytes coverage here). However, the Senators note that this statement conflicts with formal responses from the Department for a hearing record received three weeks after Kraninger’s comments, in which the Department claimed the Bureau “has not formally attempted to reestablish an MOU.” The Senators asked the agencies to provide a written explanation addressing (i) the basis for terminating the MOU; (ii) whether an attempt to reestablish the MOU has been made; (iii) any outstanding unresolved issues preventing reestablishment of the MOU; and (iv) an expected timeline for reestablishing the MOU. The Senators strongly encouraged the agencies “to reestablish the MOU immediately.”
On July 15, the Rhode Island governor signed HB 5936, which creates the “Student Loan Bill of Rights Act” to define responsibilities for student loan servicers and establish guidelines related to the issuance of postsecondary loans. Notably, federal or state chartered banks or credit unions, as well as their wholly owned subsidiaries, that originate student loans or act as servicers are exempt from the majority of the act’s requirements, including sections 19-33-4, 19-33-6 through 19-33-11, 19-33-12(9), and 19-33-14.
The act requires non-exempt student loan servicers that service at least six or more postsecondary student loans within a consecutive 12 month period to comply with certain requirements, including (i) registering with the Department of Business Regulation (Department) no later than September 30 “or within 30 days of conducting student loan servicing, whichever is earlier”; (ii) maintaining loan transaction records; (iii) filing annual reports with the Department; (iv) disclosing repayment program terms and refinance options to borrowers; and (v) responding to borrower inquiries within specified time frames concerning, among other things, credit reporting disputes, application of payments, and record transfers.
Additionally, the act prohibits student loan servicers from, among other things, (i) employing any scheme designed to defraud or mislead borrowers; (ii) engaging in unfair or deceptive practices; (iii) misapplying payments; (iv) failing to report payment histories to credit bureaus; (iv) failing to communicate with a borrower’s authorized representative; (v) making false statements or omitting material facts in connection with information filed with a government agency or provided in the course of an investigation; and (vi) failing to properly evaluate a borrower’s eligibility for public service loan forgiveness programs or income-driven repayment programs.
The act gives the Department authority to conduct investigations and examinations of registered servicers, as well as impose fines of not more than $2,000 per violation. Furthermore, the Rhode Island attorney general may enforce violations of prohibited conduct as unlawful acts or practices. The act is effective immediately.
The Department of Education has issued an interpretation that servicers that are servicing Direct Loans for the Department of Education would be exempt from state licensing and substantive requirements, but the act does not accommodate that interpretation.
On May 24, Attorneys General from 47 states, American territories, and Washington D.C., sent a letter to Secretary Betsy DeVos of the U.S. Department of Education (Department) to implement an automatic discharge process for the student loans of veterans who are totally and permanently disabled or otherwise unemployable (known as a “TPD discharge”). The letter asserts that while the Higher Education Opportunity Act of 2008 requires that the Department discharge the student loans of veterans who are totally and permanently disabled as a result of service, the Department requires eligible veterans to take “affirmative steps to secure the loan forgiveness,” which “may prove [to be] insurmountable obstacles to relief for many eligible veterans due to the severe nature of their disabilities.” According to the letter, the Department has identified over 42,000 veterans who are eligible for discharges and carry over $1 billion in dischargeable student loan debt, yet fewer than 9,000 of the eligible veterans had applied for the discharge as of April 2018. In response to the Department’s concerns about the veterans’ potential tax liability, the Attorneys General pointed out that federal tax law excludes loan discharges for disabled borrowers from taxable income. Even if the discharge increases their state tax bill, the Attorneys General argued that most borrowers would prefer to have their outstanding loans completely discharged, and those that do not could be given notice and an opportunity to opt out. Because there is no statutory requirement that eligible veterans apply for the TPD discharges, the Attorneys General urged the Department to implement a program to automatically discharge the outstanding loans as expeditiously as possible.
On May 16, Senator Warren (D-MA) released an April 23 letter from CFPB Director Kathy Kraninger outlining the Bureau’s efforts to oversee student loan servicers, which was sent in response to an inquiry by six democratic senators. As previously covered by InfoBytes, the senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF) and asking about the effect of the Department of Education’s (Department) December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies. In response, Kraninger noted that since December 2017, the Bureau has conducted “several exams” of student loan servicers, some that included questions regarding PSLF. However, and most notably, Kraninger stated that, “[s]ince December 2017, student loan servicers have declined to produce information requested by the Bureau for supervisory examinations related to Direct Loans and Federal Family Education Loan Program (FFELP)…based on the Department’s guidance.” The Bureau has pursued “options” to obtain the information necessary for these examinations, according to Kraninger. Additionally, Kraninger noted that creating a new Memorandum of Understanding with the Department is a priority for the Bureau, once a new Student Loan Ombudsman is hired.
Department of Defense updating data-sharing agreement with Department of Education to preserve servicemember benefit
On April 16, the Department of Defense (DoD) published a proposal in the Federal Register to amend its routine use policy to accommodate a new data-sharing agreement between DoD and the Department of Education (ED). The new agreement ensures that servicemembers with student loans under Part D, Title IV of the Higher Education Act of 1965 receive the “no interest accrual benefit” on eligible loans during the period in which they received imminent danger or hostile fire pay. Through the proposal and the new agreement, ED will be able to access information in the Defense Manpower Data Center Data Base to identify servicemembers eligible for “no interest accrual benefit.” The proposal will take effect after the comment period ends on May 16 “unless comments are received which result in a contrary determination.”
On April 3, six Democratic Senators wrote to the CFPB seeking additional information on the Bureau’s oversight of student loan companies and servicers involved in the administration of the federal Public Service Loan Forgiveness Program (PSLF). In the letter, the Senators expressed concern that the Bureau’s leadership “has abandoned its supervision and enforcement activities related to federal student loan servicers.” The Senators noted that consumers owe more than $1.5 trillion in student loan debt in the U.S. and that loan servicing companies under contract with the U.S. Department of Education (the “Department”) are “covered persons” under Title X of the Dodd Frank Act, which allows the Bureau “broad oversight authority over their actions.” The Senators cited to a number of lawsuits brought by private citizens and state authorities challenging student loan servicing companies’ actions with regard to PSLF, and requested the Bureau respond to a series of questions regarding its activities overseeing student loan servicers’ handling of PSLF since December 2017. Among other things, the Senators requested information regarding (i) the Bureau’s examinations of student loan servicers’ PSLF administration; (ii) the effect of the Department’s December 2017 guidance to loan servicing contractors not to produce documents directly to other government agencies; (iii) the status of the CFPB’s alleged investigation into a specific student loan servicer’s actions; and (iv) the status of information sharing with the Department since August 2017.
On March 6, the U.S. Court of Appeals for the 4th Circuit held that Congress did not waive sovereign immunity for lawsuits under the FCRA, affirming the lower court’s dismissal of a consumer action. According to the opinion, a consumer filed a lawsuit against the U.S. Department of Education (the Department), a student loan company, and the three major credit reporting agencies, alleging numerous claims, including violations of the FCRA for failing to properly investigate disputes that federal student loans were fraudulently opened in his name. The Department filed a motion to dismiss to the FCRA claims against it arguing the court lacked subject matter jurisdiction based upon a claim of sovereign immunity. The lower court agreed, holding Congress had not affirmatively waived sovereign immunity for suits under the FCRA.
On appeal, the 4th Circuit agreed with the lower court. The appellate court noted that, although the FCRA includes a “government or governmental subdivision or agency” as part of the definition of “person” in the statute, there is a “longstanding interpretive presumption that ‘person’ does not include the sovereign,” and that waivers of sovereign immunity need to be “unambiguous and unequivocal.” The appellate court noted that Congress waived immunity in other sections of the FCRA, which were not at issue in this case and, had Congress waived immunity for enforcement purposes under the FCRA, it would raise a new host of “befuddling” and “bizarre” issues, such as the prospect of the government bringing criminal charges against itself. Therefore, the appellate court concluded that the federal government may be a “person” under the substantive provisions, but that without a clear waiver from Congress, the federal government is still immune from lawsuits under the FCRA’s enforcement provisions.
On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.
Department of Education forgives roughly $150 million in student loans eligible for automatic closed school discharge
On December 13, the Department of Education announced it will automatically discharge approximately $150 million in student loans for roughly 15,000 eligible borrowers as part of implementing the Department’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”), which took effect in October following a decision by the U.S. District Court for the District of Columbia that the Department’s move to delay the regulations—finalized in 2016 and originally set to take effect July 1, 2017—was procedurally invalid (see InfoBytes coverage on the ruling here.) The Borrower Defense Regulations are designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. Of the $150 million, approximately $80 million of the amount is attributable to loans taken out by students who attended now bankrupt, for-profit Corinthian schools. (See InfoBytes coverage on matters related to Corinthian schools here.) The announcement also provides information for loan holders, guaranty agencies in the Federal Family Education Loan program, and schools concerning new closed school discharge requirements.
- Benjamin W. Hutten to discuss "BSA program reporting, management and board of directors responsibilities" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- H Joshua Kotin to discuss "Recent developments in fair lending and avoiding the pitfalls" at the Arkansas Community Bankers/Bankers Assurance 2019 Compliance Conference
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Valerie L. Hletko to discuss "Banking on guns ‘n drugs: Social policy meets financial services" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Katherine L. Halliday to discuss "UDAP, UDAAP & the Map rule compliance basics" at the Mortgage Bankers Association Regulatory Compliance Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Brandy A. Hood to discuss "How to ace your TRID exam" at the Mortgage Bankers Association Regulatory Compliance Conference
- Melissa Klimkiewicz to discuss "Navigating FHA rules and regs" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jeffrey P. Naimon to discuss "Washington regulatory overview" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Kathryn L. Ryan to discuss "The state’s role in fintech: Providing an industry framework for innovation" at Lend360
- Jeffrey P. Naimon to discuss "Truth in lending" at the American Bar Association National Institute on Consumer Financial Services Basics
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions" at the Institute of International Bankers Risk Management and Regulatory Examination/Compliance Seminar
- Jonice Gray Tucker to discuss "Fintech regulatory developments, crypto-assets, blockchain and digital banking, and consumer issues" at the Practising Law Institute Banking Law Institute
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference