What’s Next for Student Loans at the CFPB?

Bradley Arant Boult Cummings LLP

The Consumer Financial Protection Bureau (CFPB) will not be flexing its rulemaking muscles in the student loan arena for some time to come, according to the CFPB’s spring 2016 rulemaking agenda. The fall 2015 rulemaking agenda released in November indicated that student loan rulemaking may be on the horizon, but the spring update directs readers back to the fall agenda for more information. Instead, the CFPB’s rulemaking focus in the short-term will be arbitration, payday and title lending, and prepaid accounts, along with a few other areas, including a continued focus on mortgage loan servicing.

What, then, can student loan servicers expect from the CFPB in the near-term? The CFPB continues to examine student loan servicers, and multiple investigations are ongoing. In March 2016, the CFPB devoted five pages of its Winter 2016 Supervisory Highlights to student loans. The Supervisory Highlights indicate that examinations of student loan servicers have focused primarily on compliance with Dodd Frank’s prohibition of unfair, deceptive, or abusive acts or practices and the Fair Credit Reporting Act (“FCRA”) and Regulation V requirements for providing consumer information to credit reporting agencies. The CFPB specifically noted the following issues that have been identified in examinations: (1) practices related to payment allocation among multiple student loans in a borrower’s account; (2) practices relating to auto-default based on a co-debtor’s bankruptcy and failure to notify co-debtors that a loan was placed in default; (3) failure to disclose the potential effect of forbearance on cosigner release eligibility; (4) servicer errors in converting an account when the owner of the loan changes; (5) and failure to establish adequate policies and procedures under FCRA and Regulation V requirements.

According to disclosures from multiple companies, the CFPB has pursued investigations of at least four companies since fall 2015, including most recently a May 2016 Notice and Opportunity to Respond and Advise (NORA) letter to First Marblehead Corporation. Although such investigations are generally not public information, the CFPB’s Supervisory Highlights and disclosures from multiple entities suggest that more investigations and one or more related consent orders or enforcement actions can be expected in 2016.

Long term, the CFPB is still considering rulemaking, and it has signaled that disclosures are a priority. In April, the CFPB released the “Payback Playbook”, a set of “prototype” disclosures related to borrowers’ repayment options. The CFPB envisions these disclosures providing personalized information for each borrower in monthly billing statements, regular e-mails, or when logging into the borrower’s online account. The comment period for the Payback Playbook closed June 12, 2016.

These developments show that student loans remain a priority for the CFPB and suggest this is an area that will see increasing investigations, guidance, oversight, and potential rulemaking. Servicers would do well to review the CFPB’s Supervisory Highlights and the Payback Playbook. There is more to come for student loans at the CFPB.

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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