Chopra student loan remarks could signal new CFPB proposals or actions

by Ballard Spahr LLP
Contact

[author: ]

Recent remarks by Rohit Chopra, the CFPB’s Student Loan Ombudsman, to the Congressional Forum on Student Loans and in an interview with Bloomberg Radio could presage new CFPB student loan recommendations to Congress or even CFPB examinations, investigations, and/or rulemaking proceedings. 

In his remarks to the Congressional Forum, Mr. Chopra analogized student loan borrowers who did not receive the value they expected for their loans to “underwater” homeowners. After describing the plight of “underwater student loan borrowers making high monthly payments [who] are often unable to modify or refinance their loans,” Mr. Chopra discussed “lessons from the mortgage market” that might be applied to student loans.

One of those lessons, according to Mr. Chopra, is the need to align incentives “among schools, students, lenders, and taxpayers.” After describing efforts in the mortgage market to create incentives for originators to exercise due care by retaining a portion of the credit risk, Mr. Chopra observed that “policy makers might consider this principle” to realign incentives in the student loan market. This observation suggests the CFPB could be considering a “skin in the game” proposal for private student loans that would require originators to retain some percentage interest in every private student loan they originate. 

Another mortgage market lesson noted by Mr. Chopra was the importance of mortgage borrowers being able to refinance at the current low interest rates. Mr. Chopra observed that “many borrowers who took out a federally-guaranteed PLUS loan in 2007 are paying a rate of 8.5 percent — which appears to be rather high given today’s interest rate environment.” His suggestion that “[i]t would be helpful to determine impediments to vigorous competition in the student loan refinance market” could presage a CFPB proposal to require private student loan originators to refinance their loans, and/or CFPB investigations and/or examinations of institutions to determine why they are not currently doing so. (Mr. Chopra’s example seemed to be an implicit criticism of the rate structure for Department of Education consolidation loans, which are used to refinance federally-guaranteed PLUS loans, since he seemed to be encouraging private lenders to refinance those loans.)

The last mortgage market lesson discussed by Mr. Chopra was the negative impact of inadequate servicing on mortgage borrowers seeking to take advantage of modification or refinancing opportunities. Given the concerns expressed by Mr. Chopra about the inability of student loan borrowers to modify or refinance their loans, which seemed to differ somewhat from the concerns about servicing expressed in the Private Student Loan Report, his servicing comments could presage CFPB examinations or investigations of servicers of federal and private student loans, either as larger participants (through a separate rulemaking proceeding or as part of the existing debt collection rulemaking, depending on how debt collection is defined), as service providers to covered persons, or as entities engaging in conduct that poses risk to consumers, or, in the case of private student loans, as persons that “offer or provide” private education loans. It could also presage CFPB rulemaking to establish billing error procedures for private student loans. 

While Mr. Chopra alluded to interest rate concerns in his comments to the Congressional Forum, he addressed those concerns more directly in his Bloomberg Radio interview. In particular, he commented that federal regulators could have a role in making sure that the loans are priced appropriately for risk and he specifically observed that “[c]ertain low-risk borrowers probably don’t need to be paying such high rates and paying those high rates is leading them to delay a lot of economic milestones, which have really large consequences and ripple effects for the entire economy, including the housing market.”   

Those comments suggest the CFPB may be planning to take a closer look at the interest rates charged on private student loans. Given the comprehensive disclosures for private education loans, it’s hard for us to believe that the rates could possibly be deemed unfair or deceptive. Does that mean that the CFPB is signaling that it might consider them abusive? Moreover, Dodd-Frank bars the CFPB from directly setting usury limits. Does this mean that the CFPB might somehow seek to use its authority to impose disclosure requirements as a way of indirectly limiting high interest rates? For example, might the CFPB seek to create a  category of “high cost” private student loans subject to onerous disclosure requirements as a way of discouraging lenders from originating them?

Perhaps Mr. Chopra was simply engaging in a form of regulatory jawboning. But if not, the implications for the student loan industry are very troublesome. Further clarification from the CFPB would be welcome.

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!