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Financial Services Law Insights and Observations


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  • Education Dept. rolls out new plan for IDRs

    Agency Rule-Making & Guidance

    On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:

    • To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
    • Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
    • FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
    • Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
    • FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.

    In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”

    Agency Rule-Making & Guidance Department of Education CFPB Student Lending Consumer Finance Debt Cancellation Forbearance Student Loan Servicer Income-Driven Repayment

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  • CFPB reports on rural banking deserts

    Federal Issues

    On April 19, the CFPB released a report regarding the challenges faced by Americans in rural communities. According to the report, in 2012, over 600 counties “had no other physical banking offices except those operated by community banks.” The report also noted that bank consolidation has contributed to the expansion of “rural banking deserts,” which the Federal Reserve Bank of St. Louis defines as “census tracts in which there are no branches within a 10-mile radius from the tracts’ centers.” The CFPB report identified lack of broadband access and lower access to smartphones as limiting factors to banking access. It also provided a snapshot of economic challenges facing rural people and communities, including: (i) rural communities have lower incomes and higher poverty rates than the rest of the country; (ii) lower likelihood of having a credit record; and (iii) nearly 1-in-5 U.S. households have past-due medical bills.

    Federal Issues CFPB Consumer Finance Rural Communities

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  • Senators warn CFPB of student loan servicers’ mismanagement of IDR programs

    Federal Issues

    On April 14, Senators Sherrod Brown (D-OH), Elizabeth Warren (D-MA), and Richard J. Durbin (D-IL) sent a letter to CFPB Director Rohit Chopra urging the Bureau to investigate recent reports of student loan servicers mismanaging income-driven repayment (IDR) programs. The letter alleged that servicers have failed to properly count qualifying payments or accurately track borrowers’ progress towards cancellation. Specifically, the senators noted that servicers’ mismanagement is affecting the lowest-income borrowers the most, citing report findings that 48 percent of IDR borrowers are eligible for $0 monthly payments that can be counted towards loan forgiveness, but are not being tracked. In addition, IDR cancellation requires servicers to “proactively notify borrowers when they are within six months of qualifying for loan cancellation”—a process that requires servicers to accurately count payments and properly track borrowers’ progress. According to the senators, “out of 4.4 million eligible borrowers, recent reports indicate that only 32 borrowers have ever had their student loans canceled through IDR.”

    Federal Issues CFPB U.S. Senate Student Lending Student Loan Servicer Consumer Finance

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  • CFPB questions transcript withholding as a debt collection practice

    Federal Issues

    On April 18, the CFPB announced it is examining the practice of transcript withholding as a debt collection practice. According to a Bureau blog post, many post-secondary institutions choose to withhold official transcripts from borrowers as an attempt to collect education-related debts ranging from student loans to library fines. “Withholding transcripts as a debt collection tactic is particularly perplexing, as it can undermine rather than enhance a student’s likelihood of repaying,” the Bureau said, noting that this practice can cause students to become stuck in a cycle of collections. As previously covered by InfoBytes, the Bureau announced in January that it plans to examine the operations of post-secondary schools that extend private loans directly to students and that are not subject to the same servicing oversight as other lenders and servicers. The Bureau noted that it is “concerned about the borrower experience with institutional loans because of past abuses at schools,” high interest rates, and debt collection practices.

    Federal Issues CFPB Department of Education Consumer Finance Debt Collection Student Lending

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  • CFPB updates list of institutions under its authority

    Federal Issues

    Recently, the CFPB updated its list of Depository institutions (DIs) and depository affiliates of DIs under its supervisory authority. The CFPB has supervisory authority over banks, thrifts, and credit unions with assets over $10 billion, as well as their affiliates. The list is based on total assets as of December 31, 2021.

    Federal Issues CFPB Supervision

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  • CFPB and FTC release 2021 FDCPA report

    Federal Issues

    On April 15, the CFPB and the FTC released their annual report to Congress on the administration of the FDCPA (see announcements here and here). The agencies are delegated joint FDCPA enforcement responsibility and, pursuant to a 2019 memorandum of understanding, may share supervisory and consumer complaint information, as well as collaborate on education efforts (covered by InfoBytes here). Among other things, the annual report provided a broad overview of the debt collection industry during the Covid-19 pandemic and highlighted enforcement actions taken by, and education and outreach efforts, policy initiatives, and supervisory findings of, the CFPB and FTC. With respect to enforcement, the report noted that: (i) the FTC resolved three FDCPA cases against 17 defendants and banned all 17 companies and individuals who engaged in serious and repeated violations of law from engaging in debt collection; (ii) there was one new public enforcement action brought in 2021 related to unlawful debt collection conduct; (iii) the Bureau resolved two pending lawsuits with FDCPA claims and also filed an action to recover a fraudulent transfer to enforce a prior judgment that penalized a defendant’s FDCPA violations, which resulted in judgments for $2.26 million in consumer redress; and (iv) by the end of 2021, the Bureau had three FDCPA enforcement actions pending in federal court. The report also noted that the CFPB handled roughly 121,700 debt collection complaints in 2021, of which the Bureau sent approximately 73,600 (or 60 percent) to companies for their review and response. Finally, the report also noted that the U.S. Supreme Court’s decision in AMG Capital Management v. FTC “made it much more difficult for the FTC to obtain monetary relief for unfair or deceptive debt collection practices that fall outside the scope of the FDCPA.” As previously covered by InfoBytes, in that decision the Court unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”

    Federal Issues CFPB FTC Enforcement FDCPA Debt Collection FTC Act Covid-19 Consumer Complaints

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  • CFPB addresses risks facing student loan borrowers when payment suspension ends

    Federal Issues

    On April 14, the CFPB’s Office of Research released a special issue brief addressing risks facing student loan borrowers once federal Covid-19 payment suspensions end later this year. The report documented the status of millions of student loan borrowers during the pandemic and found that borrowers most at risk include those who are 30 to 49 years of age and who live in low-income, high-minority census tracts.

    The report examined data from its Consumer Credit Panel (a sample of nearly 34 million student loan borrowers, including those with private loans and loans which had not yet entered repayment as of February 2020) to identify the types of borrowers who may struggle to resume scheduled loan payments once the payment suspension ends. Analysis identified five potential risk factors: (i) pre-pandemic delinquencies on student loans; (ii) pre-pandemic payment assistance on student loans; (iii) multiple student loan servicers; (iv) delinquencies on other credit products since the start of the pandemic; and (v) new third-party collections during the pandemic. Researchers found that over five million borrowers had at least two of the five potential risk factors considered in the report, and that borrowers with multiple risk factors were more likely to live in low-income or high-minority census tracts. For instance, the report found that approximately 17 percent of student loan borrowers in the sample had multiple servicers for their loans before the pandemic. While having multiple servicers does not necessarily result in greater repayment difficulties, the report noted that some of these borrowers could face “increased risk of confusion or payment difficulties while coordinating communication and payments with multiple entities,” and cited previous findings which pointed to some student loan servicers denying or failing to approve qualified borrowers for income-driven repayment plans. Researchers also concluded that there are other borrowers outside the scope of the report who may not struggle immediately after the payment suspension ends but may face difficulties later.

    Federal Issues CFPB Consumer Finance Student Lending Covid-19 Income-Driven Repayment

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  • States urge CFPB to prohibit mortgage servicers from charging convenience fees

    State Issues

    On April 11, a coalition of state attorneys general, led by Illinois Attorney General Kwame Raoul, announced that they are urging the CFPB to prohibit mortgage servicers from charging convenience fees, which the AGs also referred to as “junk fees” or “pay-to-pay” fees. As previously covered by InfoBytes, the CFPB announced an initiative to reduce “exploitative” fees charged by banks and financial companies and requested comments from the public on fees that are associated with consumers’ bank accounts, prepaid or credit card accounts, mortgages, loans, payment transfers, and other financial products that are allegedly not subject to competitive processes that ensure fair pricing. In the letter, the AGs expressed their support for the Bureau’s request for information on the various fees imposed on consumers generally, but called attention to a specific type of fees imposed by mortgage servicers – the “pay-to-pay fees” – which, notwithstanding that consumers can pay using numerous free mechanisms, the AGs find to be “unfair and abusive” to consumers. The AGs called the fees “particularly insidious in the mortgage industry” because, unlike other markets in which such fees are imposed, “homeowners have no choice in their mortgage servicer.” Because of the nature of the secondary mortgage market, homeowners’ expectations of entering into a long-term relationship with their originating institution are misplaced and they cannot know in advance or determine which company will service their loans – even if they choose to refinance. The AGs also warned that the choice to make payments by an alternative method with no fee (such as online or by check instead of over the phone) may be illusory in the face of pending payment posting deadlines and threatened late fees. In such scenarios, the AGs asserted that the convenience fee operates as an alternative late fee “cheaper, but with a shorter grace period, and in contravention to the contractual terms in most mortgages that outline the specific amount and timing” of late fees. The AGs also took umbrage to mortgage servicers charging fees for the very service they are expected to perform, stating that “[t]he most basic function of a mortgage servicer is to accept payments. The concept that a servicer ought to be able to impose an additional charge for performing its core function is fundamentally flawed.”

    Ultimately, the AGs suggested that the Bureau prohibit mortgage servicers from imposing convenience fees on consumers, but, alternatively, the AGs encouraged the Bureau to prohibit servicers from charging convenience fees that exceed the actual cost of processing a borrower’s payment. Furthermore, the AGs requested that the Bureau require servicers to fully document their costs supporting the imposition of convenience fees.

    The same day, a group of AGs from 16 Republican-led states released a letter, arguing that more federal oversight would be “duplicative or unwarranted,” given that states already regulate many fees for consumer financial products and services. According to the letter, the AGs noted that “state legislatures and regulators have carefully weighed consumer protection interests and the open and transparent operation of markets in a manner intended to deliver the maximum benefit to the interests of their states,” and argued that they “are much better positioned to understand and assess the diverse interests of their states.” In addition, the letter argued that the Bureau has “limited authority to regulate” fees in consumer financial services markets. The AGs mentioned that the Bureau “may seek to use its authority to prohibit unfair, deceptive or abusive acts or practices to regulate fees,” but considered it “unclear” “that fees disclosed in accordance with state or federal law, in some cases authorized by state law, and agreed to by a consumer in writing constitute ‘unfair, deceptive or abusive’ fees, notwithstanding the CFPB’s characterization of some fees as ‘not meaningfully avoidable or negotiable” at the time they are assessed.’” The letter further characterized the Bureau’s approach as “uncooperative,” “top-down,” and “an unfounded expansion of its authority” that may infringe upon state law.

    State Issues State Attorney General CFPB Mortgages Mortgage Servicing Fees Consumer Finance

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  • CFPB sues credit reporter and one of its executives

    Federal Issues

    On April 12, the CFPB sued a credit reporting agency (CRA), two of its subsidiaries (collectively, “corporate defendants"), and a former senior executive for allegedly violating a 2017 enforcement order in connection with alleged deceptive practices related to their marketing and sale of credit scores, credit reports, and credit-monitoring products to consumers. The 2017 consent order required the corporate defendants to pay a $3 million civil penalty and more than $13.9 million in restitution to affected consumers as well as abide by certain conduct provisions (covered by InfoBytes here). The Bureau’s announcement called the corporate defendants “repeat offender[s]” who continued to engage in “digital dark patterns” that caused consumers seeking free credit scores to unknowingly sign up for a credit monitoring service with recurring monthly charges. According to the Bureau’s complaint, the corporate defendants, under the individual defendant’s direction, allegedly violated the 2017 consent order from the day it went into effect instead of implementing agreed-upon policy changes intended to stop consumers from unknowingly signing up for credit monitoring services that charge monthly payments. The Bureau claimed that the corporate defendants’ practices continued even after examiners raised concerns several times. With respect to the individual defendant, the Bureau contended that he had both the “authority and obligation” to ensure compliance with the 2017 consent order but did not do so. Instead, he allowed the corporate defendants to “defy the law and continue engaging in misleading marketing, even in the face of thousands of consumer complaints and refund requests.” The complaint alleges violations of the CFPA, EFTA/ Regulation E, and the FCRA/Regulation V, and seeks a permanent injunction, damages, civil penalties, consumer refunds, restitution, disgorgement and the CFPB’s costs.

    CFPB Director Rohit Chopra issued a statement the same day warning the Bureau will continue to bring cases against repeat offenders. Dedicated units within the Bureau’s enforcement and supervision teams will focus on repeat offenders, Chopra stated, adding that the Bureau will also work with other federal and state law enforcement agencies when repeat violations occur. “Agency and court orders are not suggestions, and we are taking steps to ensure that firms under our jurisdiction do not engage in repeat offenses,” Chopra stressed. He also explained that the charges against the individual defendant are appropriate, as he allegedly, among other things, impeded measures to prevent unintended subscription enrollments and failed to comply with the 2017 consent order, which bound company executives and board members to its terms.

    The CRA issued a press release following the announcement, stating that it considers the Bureau’s claims to be “meritless” and that as required by the consent order, the CRA “submitted to the CFPB for approval a plan detailing how it would comply with the order. The CFPB ignored the compliance plan, despite being obligated to respond and trigger deadlines for implementation. In the absence of any sort of guidance from the CFPB, [the CRA] took affirmative actions to implement the consent order.” Moreover, the CRA noted that “[r]ather than providing any supervisory guidance on this matter and advising [the CRA] of its concerns – like a responsible regulator would – the CFPB stayed silent and saved their claims for inclusion in a lawsuit, including naming a former executive in the complaint,” and that “CFPB’s current leadership refused to meet with us and were determined to litigate and seek headlines through press releases and tweets.” 

    Federal Issues CFPB Enforcement Credit Reporting Agency Deceptive UDAAP Regulation E CFPA FCRA Regulation V Consumer Finance Repeat Offender

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  • Chopra offers warning on core service providers

    Federal Issues

    On April 7, CFPB Director Rohit Chopra expressed concerns that “contracts written by the major core services providers are making it harder for local financial institutions to switch providers or use add-ons from outside technology providers.” In remarks to the CFPB’s Community Bank and Credit Union Advisory Councils, Chopra discussed downstream effects created by the heavily consolidated core services provider market on relationship banking and consumers. Chopra explained that these contracts “come with costly and unnecessary extra non-core banking services, longer contract periods, and stiff penalties and fees for ending contracts early or making other contract changes,” discourage smaller financial institutions from quickly adapting their own products and services to fit within the ever-evolving banking tech landscape, and overall make it more difficult for smaller financial institutions to compete with larger companies. Chopra announced that Bureau staff will work with core service providers and other federal agencies to examine the concentrated core platform marketplace’s impact on consumers and banks, and respond to questions related to banks’ collective bargaining on core services’ contracts. The Bureau also plans to collaborate with other agencies to examine third-party service providers and the potential referral of complaints.

    Federal Issues CFPB Community Banks Credit Union Third-Party Service Providers Consumer Finance

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