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CFPB Continues Scrutiny on Student Loan Servicing

May 26, 2015

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In a recent press release, the CFPB announced a public inquiry into student loan servicing.  The CFPB is seeking information about: “industry practices that create repayment challenges, hurdles for distressed borrowers and economic incentives that may affect the quality of service.”  According to the CFPB, student loans account for the nation’s second largest consumer debt market.  The agency states there are more than 40 million federal and private student loan borrowers and those consumers owe more than $1.2 trillion.  About $240 billion in such loans are either in default or forebearance.

The CFPB is acting because of numerous borrower complaints about their loan servicers.  Complaints include billing problems associated with payment posting, prepayments and partial payments.  Borrowers have stated that payments have been processed in ways that make their borrowing more expensive.  Servicers are also accused of losing records and slow response times to fix errors.  The CFPB thinks student loan servicers fail to provide adequate customer service because they are typically paid a flat fee for each loan so they have no incentive to maintain high standards of serving.

Unlike credit card and mortgage servicers, no comprehensive system for overseeing the student loan servicing industry currently exists, according to the CFPB.  Given the CFPB’s penchant for promulgating more and more regulations, we believe this heightened scrutiny by the CFPB will lead to numerous new regulations affecting the student loan servicing industry.

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Implications of CFPB’s Reminder regarding Confidentiality of Examination Materials

April 1, 2015

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On January 27, 2015, the Consumer Financial Protection Bureau (“CFPB”) issued Compliance Bulletin 2015-01 as a “reminder” of certain confidentiality and disclosure requirements related to CFPB examinations and investigations.  Though the CFPB’s Bulletin did not cite examples of historic violations, those subject to the CFPB’s authority should assess their practices, particularly in litigation, with respect to the disclosure of information and be sensitive to the Bulletin’s message in doing so.

The Bulletin provides warnings of two types of potential violations.  One type arises out of a financial institution’s obligations with respect to “confidential supervisory information (CSI).” Examples of CSI include but are not limited to:

  • CFPB examination reports and supervisory letters;
  • All information contained in, derived from, or related to those documents, including an institution’s supervisory Compliance rating;
  • Communications between the CFPB and the supervised financial institution related to the CFPB’s examination of the institution or other supervisory activities; and
  • Other information created by the CFPB in the exercise of its supervisory authority.

Specifically, according to the Bulletin, a supervised entity may commit a violation if it discloses CSI or other “confidential information”  to a third party without CFPB consent.  This is true even if the supervised entity enters into a non-disclosure agreement with a third party.

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