The Office of Students and Young Consumers (Office of Students) has been an important component of the Consumer Financial Protection Bureau (CFPB or the Bureau) since its creation in 2011. On May 9, 2018, the CFPB’s Acting Director announced plans to fold the Office of Students into the Office of Financial Education. The Student Loan Ombudsman, a position the Dodd-Frank Act created, will also reportedly be part of the Office of Financial Education. This move could signal a major shift in the CFPB’s approach to the student loan market.
As its name indicates, the Office of Financial Education focuses on consumer education. Specifically, its stated focus is “strengthen(ing) the delivery of financial education . . . and creat[ing] opportunities for people to obtain the skills to build their financial well being.” Given that mission, some have speculated that the recent movement of the Office of Students within the Bureau’s Office of Financial Education may lead to fewer examinations, investigations, and enforcement actions against participants in the private student loan market. Under former Director Cordray, the CFPB was active in regulating that market. For instance, as we have previously noted, the CFPB filed a complaint and proposed settlement against the purchaser of certain loans made to students at Corinthian Colleges, Inc., alleging that the purchaser’s participation in a loan purchase program constituted abusive conduct. However, according to the email Acting Director Mulvaney sent to CFPB staff on May 9, 2018, the Office of Students’ new focus will be advocacy, coordination, and education. To the extent the Office of Students was instrumental in the past in pushing for action within the Bureau, the restructuring could lead to a decrease in the number of education lending examinations, investigations, and enforcement actions.
Nevertheless, there could continue to be robust regulatory activity and litigation targeting the education lending market. The reorganization does not stop the CFPB’s Office of Enforcement from bringing actions against student loan lenders and servicers. In addition, states may become particularly active in regulating the student loan market, as state attorneys general and regulators have indicated a general desire to take the lead in enforcing consumer protection laws. Along those lines, many states have recently adopted student loan bills of rights and licensing schemes for student loan servicers.
For example, the CFPB’s announcement led to critical comments from Maria Vullo, the Superintendent of the New York State Department of Financial Services (DFS). In the statement, Ms. Vullo expresses DFS’ concern “with the CFPB’s troubling decision to minimize the role of the Office of Students and Young Consumers.” She also noted that “DFS’s Student Protection Unit will continue…safeguarding students from fraud and misrepresentation in the market, monitoring student-related financial practices in New York and educating student consumers and their families regarding available financial products and services to empower them to make informed choices. And violators of the law will be met with swift DFS response.” Other states could adopt similarly aggressive approaches to the student loan market in light of the CFPB’s reorganization.
Consumer advocacy groups also may increasingly use other avenues, such as class action litigation, to pursue education lending relief. Finally, the student loan market has been subject to relatively high levels of media scrutiny given the large portfolio of outstanding education debt and default rate trends. This may pressure state regulators to bring actions against particularly egregious actors.
Although the CFPB student loan reorganization may dampen supervisory activity, it could arguably increase the effectiveness of the Student Loan Ombudsman (which, as mentioned above, will move to the Office of Financial Education). The Ombudsman is largely tasked with data collection and analysis responsibilities, which may be easier to accomplish within an office focused on consumer education. Among other things, Section 1035 of the Dodd-Frank Act tasks the Ombudsman with:
- Receiving, reviewing, and attempting to informally resolve complaints from borrowers. This includes collaborating with the Department of Education, educational institutions, lenders, guaranty agencies, loan services, and other private education loan program participants.
- Coordinating with the student loan ombudsman established under the Higher Education Act to provide assistance to borrowers seeking to resolve complaints related to private education loans or federal student loans.
- Compiling and analyzing data on borrower complaints regarding private education loans.
- Making recommendations to various stakeholders.
- Preparing and publishing an annual report that describes the activities and effectiveness of the ombudsman during the preceding year.
The Ombudsman’s data collection, analysis, and recommendation responsibilities have previously led to changes in the CFPB’s education loan examination procedures. Specifically, the CFPB updated these procedures in June 2017 to focus on education loan servicers’ performance with regard to the Public Sector Loan Forgiveness program. It will be interesting to see whether the Bureau continues to pursue such changes on the basis of recommendations made by the Ombudsman after this most recent reorganization.