CFPB Student Loan Ombudsman Abruptly Resigns in Protest

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In another move reflecting the Consumer Financial Protection Bureau’s (CFPB) shifting focus on student lending, the CFPB’s Student Loan Ombudsman announced his resignation on August 27, 2018. In his resignation letter, Seth Frotman, who served as the Student Loan Ombudsman for the past three years, criticized reforms implemented by the CFPB’s current leadership and charged the CFPB leadership with “abandoning” student lending consumers.

Frotman’s resignation comes three months after the CFPB announced organizational changes eliminating the Office of Students and Younger Consumers, which investigated student loan problems. The CFPB announced that the Office of Students and Younger Consumers was being folded into the CFPB’s financial education office, signaling a shift from investigation to education.

In his resignation letter, Frotman criticized the current CFPB leadership’s “sweeping changes” to the CFPB’s oversight of the student lending industry and identified areas of tension with the Department of Education. Frotman alleged that the current CFPB leadership “folded to political pressure” from the Department of Education to reduce its oversight and enforcement of the student lending industry. As an example of reduced oversight, Frotman alleged that the CFPB leadership suppressed publication of a report critical of “the nation’s largest banks.” Frotman also claimed that senior leadership at the CFPB silenced criticism of the Department of Education’s “attempts to preempt state consumer laws.”

Frotman has worked at the CFPB since its inception in 2011 and was designated as the Student Lending Ombudsman in 2016. Frotman previously served on the Senate Committee on Health, Education, Labor, and Pensions and was the Deputy Chief of Staff for U.S. Rep. Patrick Murphy, D-Pa.

The position of Student Lending Ombudsman was created by the Dodd-Frank Act to review and attempt to resolve borrower complaints and make recommendations to various executive branch officers and congressional committees. The Secretary of the Treasury, Stephen Mnuchin, has the power to designate the Student Lending Ombudsman.

Kathy Kraninger—the current nominee to head the CFPB—is awaiting a confirmation vote in the Senate to replace the CFPB’s Acting Director Mick Mulvaney. Kraninger currently serves under Mulvaney at Office of Management and Budget and is widely expected to continue with Mulvaney’s reforms to the CFPB, including as it relates to student lending oversight.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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