The period to respond to the CFPB's proposed Small Dollar Loan Rule and its Request for Information is now passed. So, we go into a “wait and see” mode to find out how the Bureau processes the incredible volume of responses that it received. To our knowledge, no other proposed rulemaking has received such a volume of comments. Ever!
Meanwhile, last week back at the CFPB, Director Cordray welcomed a meeting of the new Consumer Advisory Board (“CAB”). The CAB is a CFPB hand-picked group that serves as a sounding board for the Bureau. Its members include consumer activists, industry insiders, academicians and others. In his opening remarks, the Director spoke of the recent Bureau accomplishments and hinted at what the CFPB is up to next.
On the topic of “what's next,” Director Cordray focused on the debt collection and student loan servicing markets as the two areas in which the CFPB will turn its focus. The rationale for doing so is that these are two huge markets affecting consumers and driving complaints, and “both are markets where consumers cannot vote with their feet, and where incentives and practices are not always aligned with consumer interests.” The Director described the debt collection industry as a multi-billion dollar industry with more than 6,000 debt collection firms in the USA. The student loan servicing market is based on the approximate one-out-of-four loan defaults, with 44 million student loans outstanding. The Director takes the position that more than 200,000 student loan borrowers will collectively pay more than $125 million in unnecessary interest charges. In reviewing these two markets together, the Director observed that when students are past due or in default on a student loan “the damage that is done to their credit can disrupt their lives in unexpected and troubling ways. It can make it hard even to pass an employment background check, much less buy a home or a car.”
With respect to debt collection, the Proposal under consideration would require debt collectors to have more information about the debt before they can collect. It also adopts limitations on the number of attempts to make contact with third parties.
With respect to student loans, the CFPB has not yet put a Proposal on the table. But, the CFPB Student Loan Ombudsman has called for a complete overhaul of the process for student borrowers to get out of default and has offered recommendations to lawmakers and industry to address vulnerable borrowers. I think that 2017 will be the year that the CFPB seriously goes after the student loan servicing market.
At the meeting of the CAB, the Director reported that the Consumer Bankers Association, writing on behalf of the nation's largest private student lenders, informed the Bureau that banks have taken action to ensure that contracts will not accelerate upon the death or bankruptcy of a co-signer. The Bureau believes that this past practice was a serious concern because it caused surprise default for borrows who otherwise were not in default. Further, Director Cordray reported that the Department of Education has set forth more stringent requirements for companies that it hires to service student loans, something said the Director that “marks another important milestone in our joint effort to bring much-needed consistency and accountability to this market and we find the progress here to be encouraging.”
We can readily see where the CFPB is headed next in its regulatory quest by listening to what the Bureau and the Director say. It's not rocket science. They telegraph their intentions rather clearly.