A week after Secretary of Education Betsy DeVos essentially broke up with the Consumer Financial Protection Bureau, ending the agencies’ agreements to work together to root out bad players in the student loans servicing arena, the CFPB is firing back, accusing DeVos of misunderstanding just what the Bureau does.
In a letter [PDF] sent to DeVos on Thursday, CFPB director Richard Cordray called for the agencies to “engage in constructive conversation” about how they can work to better serve and protect student loan borrowers from bad actors.
“There is plenty of work for each of us to do, but I believe we can generally do it better by working together,” Cordray wrote.
Late last week, DeVos accused the CFPB of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.
According to the memorandums, the two agencies are to “collaborate to ensure coordination in providing assistance to and seeing borrowers seeking to resolve complaints” related to their student loans.
The Secretary claimed the Bureau overstepped its authority by taking enforcement actions against student loan servicers and collectors, rather than simply passing those matters on to the Education Dept. to handle.
Additionally, the notice accused the CFPB of failing to abide by its agreement to provide the Department with all complaints related to federal student loans within 10 days of receiving the grievance.
The Bureau’s Job
Cordray notes in the letter that he believes the Department’s decision to end years of formal cooperation combating student loan fraud is based on DeVos’ misunderstanding about the Bureau’s responsibilities and the actions it has taken related to student loans.
Under Title X of the Dodd-Frank Act, which created the CFPB, the agency has the power to “implement, and where applicable, enforce federal consumer financial law.”
“Just as the Department administers and interprets the Higher Education Act, the Bureau does the same for federal consumer financial law,” Cordray writes.
To that end, the CFPB has an obligation to create rules, and take action when it comes to the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act, and the Dodd-Frank Act’s prohibition on unfair, deceptive, and abusive acts or practices.
And you know which companies and their actions are covered by each of these regulations? That’s right, student loan servicers.
Cordray says that the Bureau has followed its mandate to ensure compliance with federal laws, and that means taking action against shoddy student loan servicers.
For instance, in January, the CFPB sued the largest student loan servicer in the country, Navient. The Bureau claimed the company cheated borrowers out of repayment rights. The company responded to the complaint two months later, noting in a filing to dismiss the lawsuit that it was under no obligation to help student loan borrowers.
Prior to that action, the CFPB has opened investigations into other servicers, including Wells Fargo, Citigroup, and Discover Bank.
In Aug. 2016 — a month before the whole fake account fiasco broke — Wells Fargo was ordered to pay $4 million in refunds and penalties over allegedly illegal loan servicing practices that increased costs and unfairly penalized certain borrowers.
In Citigroup’s case, the Bureau was looking into the company’s payment processing and servicing policies related to borrowers who have a difficult time making payments. Citigroup stopped servicing loans in 2011.
In July 2015, the agency ordered Discover Bank and its affiliates to pay nearly $18.5 million in refunds and fines for, among other things, overstating amounts due on student loans and failing to notify borrowers of their rights.
None of these enforcement actions — and many others — are “inconsistent with the Dept. of Education’s directives, or conflicts with our shared goal of protecting student loan borrowers,” Cordray said.
According to DeVos, the CFBP — which is by definition an agency of the United States government responsible for consumer protection in the financial sector, including student loans — failed to pass along borrower complaints against servicers, and instead addressed the issues itself.
This, DeVos claims, confuses borrowers, as the Dept. of Education is supposed to work with “federal student loan borrowers to ensure that their issues are addressed within the rules applicable to its program.”
Cordray writes that DeVos’ accusations were a shock to the Bureau, as the Dept. had never “expressed any concerns” about the memorandums or handling of federal student loan complaints.
“The Bureau’s complaint handling plays a key role in furthering our joint mission of serving students and borrowers by providing an efficient means for consumers to voice their concerns and hear from their servicer,” the letter states.
And, as we’ve previously reported, borrowers are doing just that. The Bureau has released a number of reports highlighting a steep increase in the number of consumer complaints related to student loan servicing.
For instance, the Bureau released a report in April that found student loan servicing complaints had increased in every state.
According to the report, the Bureau received 3,284 complaints during the first three months of 2017, a 325% increase over the 773 complaints received during same time period only a year earlier.
As of April 1, the Bureau says it has handled approximately 44,400 student loan complaints from consumers since it opened this complaint portal in Feb. 2016.
All of these complaints and the servicer’s response, Cordray writes, are shared with the Dept. of Education in “near real-time.” In fact, Department staff has accessed the CFPB’s complaint database nearly 80 times in the last three months.
“In short, I do not understand the claim that we have violated the [memorandum] by not forwarding complaints, when we make them available to Department staff in near real-time,” the letter states.
As a result, the Bureau is confident that it has followed the memorandums and not exceeded its authority.
“When all of us act together as partners, using our different authorities, and bringing different sets of expertise to the table, we are generally more effective,” Cordray wrote.