CFPB in Action: A Roundup of Recent Activity

There was a lot of activity associated with the CFPB over the last two weeks as the march continues through the maze of companies that comprise the web of the U.S. consumer finance market.

The Bureau released its annual report on the FDCPA to Congress, complete with an accompanying letter from the FTC.

In her address to insideARM.com’s Regulatory Summit for large market participants late last month, Peggy Twohig spoke about the CFPB’s mission to look at the whole credit system, which – sometimes – ultimately ends in debt collection. This system starts with the initial issuance of credit, as well as the first party servicing that occurs prior to collections. This latest proposal is another step towards making good on the promise of that mission.

Student Loans

This month the CFPB began its quest to include student loan servicers who do not also make loans in the list of business categories under supervision. To that end, on March 14th the CFPB issued a Proposal and Request for Comment to Supervise Student Loan Servicers.

Ballard Spahr offers helpful explanation and context for the proposal.

The CFPB’s current authority to supervise nonbank private student lenders, however, does not allow it to supervise nonbank student loan servicers that do not offer or provide private student loans. The proposal would allow the CFPB to supervise servicing of private and federal student loans by such nonbank servicers. Nonbank student loan servicers that qualify as larger participants would be subject to examination for federal law compliance by the CFPB. In addition to examining their compliance with federal laws such as the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and the Electronic Fund Transfer Act, such companies should expect the CFPB to scrutinize their practices under “unfair, deceptive or abusive” standards.

On February 5 the CFPB posted an information request regarding financial products marketed to students enrolled in institutions of higher education. The request listed about 3,000 (okay, 42) questions. The comment period closed on March 18. The Bureau received 152 public comments. You can view them here.

On February 27, 2013 the CFPB posted a related request for information regarding an initiative to promote student loan affordability. The comment period for this request closes on April 8th, so there is still time to weigh in if you’d like. They are looking for input from a wide variety of sources, including debt collectors. Here are just a few of the questions they’ve posed:

What are the primary drivers of private student loan borrower distress?
How do borrowers in distress typically stay current with their private student loans? To what extent do borrowers reduce consumption or adjust living arrangements to meet obligations?
What options currently exist for borrowers to permanently or temporarily lower monthly payments on private student loan obligations? To what extent have these affordable repayment options cured delinquencies?
How do lenders typically evaluate whether or not a borrower qualifies for these affordable repayment options? If lenders make use of financial models, what are the key drivers of these models?
Do lenders work directly with co-signers to modify terms? If so, how?
What is the incidence or expectation of re-default rates among restructured private student loans?
Is the servicing infrastructure utilized by major lenders flexible enough to process loan modifications at scale? What are the limitations of these servicing platforms? Are those limitations capable of being overcome? What are the estimated costs of overcoming those limitations?
What are the key differences between servicing of student loans compared to servicing of residential mortgages that must be considered when crafting an affordability program?
How are payments plans for defaulted private and federal student loans currently reported to consumer reporting agencies? How are rehabilitated federal student loans reported by consumer reporting agencies, and how does that reporting affect credit scores?
What are the most effective communication mechanisms to reach borrowers in distress?
How do student loan payments impact access to mortgage credit? How does student debt impact a consumer’s ability to accumulate a down payment?
To what extent does student loan debt impact the market for automobiles? How does student loan debt impact a consumer’s ability to secure an auto loan?
What evidence exists about the impact of student loan debt on consumption, savings, homeownership, household formation, entrepreneurship, and other indicators of economic health?

Auto Loans

And in yet another consumer finance sector, the CFPB announced on March 21 that it plans to hold auto lenders accountable for illegal discriminatory markup activity.

This is another example of their efforts to go “upstream” to the point of origination in order to reduce the downstream debt burden of unsuspecting consumers. Lots of folks had something to say about this, including Bloomberg, and the National Association of Auto Dealers.

Cordray Nomination Moves Forward

Finally, the Senate Banking Committee voted to move forward with the process to confirm Richard Cordray’s nomination to head the CFPB. Most support Cordray as qualified. Many in the financial community support the nomination only with structural changes to the Bureau. Here are a few of the latest opinions of that sort from National Mortgage Professional and BankCreditNews.com.

What’s The Cost of Compliance?

Large market participants will be interested in this news – the CFPB wants to hear about the cost of complying with consumer finance regulations. The Research, Markets, and Regulations team is starting with banks. They say in a March 20 blog post that they hope to become better and smarter regulators.