CFPB Update

– Enforcement Activities, Debt Collection, and the SCRA and the DOJ Settlement

June 4, 2014 NCHER Spring Convention John L. Culhane, Jr.

Ballard Spahr LLP Consumer Financial Services Higher Education (215) 864-8535 [email protected]

Stefanie Jackman

Ballard Spahr, LLP Consumer Financial Services Higher Education (678) 420-9490 [email protected]

Copyright 2014 Ballard Spahr LLP. All rights reserved.

CFPB Enforcement Activities

Copyright 2014 Ballard Spahr LLP. All rights reserved.

Themes in Enforcement

• Investigations generally go back 3-5 years • Touch all areas of consumer financial services industry, including collections and student loans • Technical compliance often not a focal point – focus more on UDAAP issues • Often apply “new” or “aspirational” standards • E.g., accept verbal disputes or DNC requests, no credit reporting after state SOL runs • One consent order states that any violation of state law can constitute a federal UDAAP violation 3

Themes in Enforcement

• Interest & fees (when charged, authority, how calculated) • Workout options for consumers Loan rehabilitation/settlement/forbearance options • Consumer disclosures • Collection efforts • Credit reporting • SCRA and other military benefits and protections 4

Themes in Enforcement

• Third party oversight • Report requests – data and numbers • Policies and procedures Written documentation • Tone at the top Internal controls and monitoring Executive reporting Follow up on initiative implementation 5

Future Themes for Student Loans?

• Imposition of mortgage servicing standards • Cosigner release and other benefit programs • Partial prepayments and payment allocation • Treatment of so-called “good faith” payments • Procedures related to cosigner death and bankruptcy • SCRA rate reductions and other military benefits • Delivery of federal student loan benefits • Refinance or consolidation and loss of federal benefits 6

Debt Collection Developments

Copyright 2014 Ballard Spahr LLP. All rights reserved.

ANPR

• Contained 162 questions, grouped into 8 substantive categories • Major themes –to address persist consumer protection problems, to provide definitive answers to questions raised by technological developments, to adopt national standards for first party collection, and to consider whether to implement a centralized document repository and a separate national debt collector registry • Comment period ended February 28, 2014 • CFPB Semiannual Regulatory Agenda seems to signal release of a proposed rule by year end 8

Likely Changes/Impact of Final Rule

• FDCPA protections apply to first party collections • Limits on time, manner, and method of communications (end of Foti, clarity on texts, etc.) • Additional information in validation notice • New disclosures (time-barred, servicemembers, debt transfers, convenience fees, non-debtor liability, etc.) • Increased documentation requirements (to collect, validate, resolve disputes, etc.) • Creation of national debt collector registry (but not a centralized document repository) 9

Supervisory Highlights

• • $70 million in consumer restitution; arising from payday lending, debt collection, and credit reporting agencies

First Party Collections (Payday Lending)

Compliance management issues Improper calls – call frequency and deceptive claims Overly aggressive collection tactics – workplace visits Third party collection calls – misrepresentations and unspecified conduct deemed to be harassing, oppressive or abusive Failure to oversee service providers 10

Supervisory Highlights

• • -

Third Party Collections (Debt Collectors)

Compliance management issues Intentionally and illegally misleading consumers about litigation – i.e., dismiss if consumer answers Excessive, illegal calls – time and frequency issues Failing to investigate credit disputes -

Credit Reporting Agencies

Improper handling of disputes – i.e., not forwarding information to furnisher, ignoring telephone/email disputes 11

SCRA & DOJ Consent Order

DOJ Complaint

• Alleged pattern or practice of SCRA violations: Failing to lower rates after receiving written notice and qualifying active duty orders Failing to make acceptable efforts to obtain qualifying active military duty documents from servicemembers who requested benefits but did not provide orders Failing to notify servicemembers that they might be eligible for rate reductions when they provided their military documents for other purposes 13

DOJ Consent Order

• • Accept as written notice (request): Military orders Request for military deferment or forbearance Submission through new online process Accept as military orders: Letter from commanding officer with specified information Results of search of DMDC database (required if notice and no orders; for positive result – send notice of right to dispute eligibility dates; for negative result – send notice requesting copy of documents establishing service) 14

Department of Education Statement

• • Accept as written notice (request) actual knowledge from: Communication through online portal Oral communication to call center representative Written communication to call center representative Search of DMDC data base Accept as military orders: Letter from commanding officer Certificate from DMDC data base 15

CFPB and SCRA

• 2012 CFPB servicemembers report: Servicemembers face serious hurdles in accessing their student loan benefits, including the 6% rate • 2014 CFPB servicemembers report: Servicemembers report that they are repeated asked to submit documentation not required by law Recurring requests for orders containing an end-date, particularly with officers (officer orders are often indefinite) Median amount of monetary relief from complaints through complaint portal - $2,038 (likely from rate reductions) 16

CFPB and SCRA

• CFPB reaction to DOJ consent order (from the statement by Holly Petraeus) : Servicemembers were “given the runaround” and were “denied ... the interest-rate reduction[s] required by law” and “[t]his behavior is unacceptable” The DOJ Consent Order “should serve as a warning not just to the student loan servicing industry,

but to all institutions that provide or service loans to the military

.” Federal regulators “will be vigilant about holding all financial institutions accountable for providing the protections that our servicemembers have earned” 17

Thank you for joining us!

John Culhane

(215) 864-8535 [email protected]

Stefanie Jackman

(678) 420-9490 [email protected]

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Resources

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