The Consumer Financial Protection Bureau (CFPB), formed in the wake of the 2008 financial crisis, has played a large role in regulating malpractice with student loans. Recently, they announced a settlement with National Collegiate Trusts and the debt collector it contracted, Transworld Systems.
Though their role is not limited to student loans, as they state, “[w]e protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law,” under their About Us page on the CFPB website, they have been integral in protecting borrowers from lenders mistreating them. They are in the middle of a lawsuit with Navient, but it seems that the Department of Education is now cutting “enforcement collaboration” with the CFPB, according to NPR.
Currently, here are roughly 44 million student loan borrowers carrying 1.4 trillion in debt, with the average class graduating in 2016 with $37,172 in debt. With the Department of Education cutting collaborative ties with CFPB, this puts these borrowers at a greater risk since there will be less coordinatized oversight.
After the Dodd-Frank Act was passed in 2010, the CFPB came in to being to enforce the law and protect consumers. People who feel they are not being treated fairly in accordance with the law can file a complaint, which the CFPB can then use to investigate and determine if this complaint is part of a larger pattern. If so, the CFPB can start an investigation and, if it is deemed necessary, sue companies.
According to the NPR article, a spokesperson for Navient pointed to their own analysis of the complaints being investigated by CFPB. To them, more than 90 percent of the complaints relate to something other than servicer error. The CEO of Navient, John Remondi, stated that the real problem is the complex student loan system itself which needs to be reformed.
The CFPB lost their two memorandums with the Department of Education which allowed them to share information and coordinate their enforcement efforts. These were both terminated at the end of August, and was explained in a letter written by Department officials that stated the CFPB was “overreaching and unaccountable.”
Rep. Virginia Foxx (R-NC), chairwoman of the House Committee on Education and the Workforce, stated that “it was a mistake for the Obama administration to have the Department of Education let the CFPB abuse its privilege on these matters.”
While on the one hand the consolidation of the authority on the matters involving student loans and their servicing is being praised, Rohit Chopra, who previously worked for CFPB and is now a senior fellow at the consumer advocacy group Consumer Federation of America, is worried that the loss of these agreements will mean more red tape for future investigations. He stated that, “When companies have to respond to multiple agencies with similar information, this is bad for the market and for taxpayers.” Going forward, the CFPB will continue its “regulatory mission,” which Chopra believes is the most ably equipped to handle consumer protections, where the Education Department is limited to the enforcement of the Higher Education Act.
To read the original NPR article, follow the link here.