CFPB Focuses on Student Loan Servicing
On December 3rd, the CFPB issued a rule that allows the Bureau to supervise certain non-bank student loan servicers for the first time.1 Currently, the CFPB supervises student loan servicing at the largest banks. Under the Dodd-Frank Act, the CFPB was also granted the authority to supervise certain larger non-bank participants upon issuing rules covering those entities and markets. The student loan servicing market is one such market. The rule subjects any non-bank student loan servicer that handles more than one million borrower accounts to CFPB supervisory authority. The Bureau estimates that it will have the authority to supervise the seven largest student loan servicers (representing more than 70% of the market).
Coinciding with the issuance of this rule, the CFPB also updated its Supervisory and Examination Manual.2 The update provides guidance on how the CFPB will supervise and examine both bank and non-bank servicers of private and federal student loans.
The CFPB’s supervision activities will generally include gathering reports from and conducting examinations of the supervised entities. Bureau staff will examine the entities to ensure compliance with all relevant federal consumer financial laws. The rule covers servicing of both federal and private student loans and allows the CFPB to supervise the entire life of a private student loan.
Based on complaints received by the Bureau and by the annual report recently issued by the Bureau’s Student Loan Ombudsman, the CFPB is focused on three main issues:
- Application of Prepayments. The CFPB has received complaints from consumers who found it difficult and confusing to pay off their loans early. For example, borrowers complained that servicers applied payments in excess of the amount due across all their loans and not to the highest-interest rate loan first.
- Application of Partial Payments. The CFPB also received complaints that when borrowers made partial payments, servicers would apply the partial payment evenly across all of the loans in their account instead of making full payments to individual loans. Borrowers complained that this maximized the late fees charged by servicers, and that it could negatively affect their credit.
- Servicing Transfers. The CFPB also received complaints about servicing transfer issues, with borrowers reporting that they experienced lost paperwork, processing errors that resulted in late fees, and interruptions of routine communication.
CFPB Holding Field Hearing on Arbitration
The CFPB will hold a field hearing on arbitration on December 12th in Dallas, Texas. The hearing will feature remarks from Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public. The CFPB has been conducting a study of arbitration agreements in consumer financial product contracts, but the results have yet to be released. Section 1028 of the Dodd-Frank Act required the CFPB to conduct this study of “the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.” After conducting the study, Section 1028 further provides the CFPB with the regulatory authority to prohibit or impose conditions or limitations on the use of arbitration agreements if the CFPB finds that such restrictions would be in the public interest and protect consumers.
CFPB Releases Fall 2013 Rulemaking Agenda
On December 3rd, the CFPB published a semi-annual update to its rulemaking agenda.3 Among other things, the Bureau will focus on the following issues:
- Begin work in 2014 on follow-up issues relating to the mortgage rules issued in 2013, such as how to apply certain exemptions under the Dodd-Frank Act that are designed to preserve credit in “rural or underserved” areas.
- Work on a proposed rule to implement Dodd-Frank Act changes to the Home Mortgage Disclosure Act, which the CFPB says will improve the mortgage data available to regulators to monitor the market and assess fair lending practices.
- Move forward on a proposed rule covering prepaid card products.
- Continuing to assess the need for regulations in other markets, especially in the areas of debt collection, payday loans and deposit advance products, and bank overdraft programs. In this regard, the Bureau intends to test consumer disclosures in connection with prepaid products and debt collection.
- Expect to issue a proposal regarding privacy and information sharing notices that consumers receive each year from their financial institutions.
CFPB Ombudsman Releases Second Annual Report
On December 3rd, the CFPB’s Ombudsman released its second annual report.4 In the report, the Ombudsman identifies three systemic issues and provides recommendations:
- The report identified concerns with how the CFPB shares information about its activities, events, and services. To improve in these areas, the Ombudsman recommended (1) adding a digest of all updates to the CFPB’s website, (2) providing one checklist of options for interested parties to subscribe to in order to receive information from the Bureau, (3) creating an option for stakeholders to sign-up and receive the Division of External Affairs’ newsletter, and (4) providing basic information about the speaker request process on the CFPB website.
- The report also identified the caller experience with the CFPB contact center as an issue. The Ombudsman recommended that the contact center alert consumers that by providing an email address, consumer complaint notifications will be received only by email.
- Finally, the report identified certain issues financial institutions have encountered during the supervisory examination process. To improve the process, the Ombudsman recommended that the CFPB provide information to entities about how they may elevate concerns about the examination process. The Ombudsman also recommended that the Bureau clarify what financial institutions should expect throughout the examination process.
OIG Releases Audit of CFPB’s Information Security Program
The CFPB’s Office of Inspector General last week released its audit report on the Bureau’s information security program.5 According to the audit’s findings, “the CFPB has taken multiple steps over the past year to develop, document, and implement an information security program that is consistent with [requirements under the Federal Information Security Management Act of 2002 (FISMA)]. The CFPB has also taken several actions to strengthen its information security program in the 11 areas outlined in [the Department of Homeland Security’s] 2013 FISMA reporting guidance.” The OIG also identified areas for the CFPB to improve its security program through further automation, centralization, and other enhancements such as training.