Earlier this month, Secretary of Education Betsy DeVos declared that the Department of Education would no longer work with the federal Consumer Financial Protection Bureau to root out bad players in the student loan servicing arena. While the CFPB fired back, accusing DeVos of misunderstanding just what the Bureau does, a coalition of state attorneys general are now joining the choir, claiming the decision to end the agencies’ agreements undermine protections for student borrowers.
Today, a group of 21 state attorneys general sent a letter [PDF] to DeVos, demanding that she stop rolling back protections related to student loan borrowers and continue working with federal regulators to ensure students aren’t being taken advantage of by unscrupulous lenders and debt collectors.
Leading To This
In early Sept., DeVos sent a notice [PDF] to the CFPB notifying the agency that her department was ending years of formal cooperation combating student loan fraud.
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 CFPB fired back the following week, with director Richard Cordray noting in a letter [PDF] 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.
The AGs’ Take
The group of 21 attorneys general this week took issue with DeVos’ decision, declaring that they won’t let the Department victimize students.
“Secretary DeVos and the Trump administration have repeatedly rolled back vital protections for borrowers, putting deceptive lenders above the very students the Department of Education is supposed to serve,” New York Attorney General Eric Schneiderman said.
The AGs took issue with DeVos’ letter, noting that it was trouble for at least three reasons.
No Exclusive Role
First, the AGs claim that the Dept. of Education made false assertions that it has exclusive jurisdiction over companies that service student loans.
Rather, these companies are subject to oversight by the CFPB, Federal Trade Commission, Department of Justice, attorneys general, and other law enforcement agencies.
In fact, the AGs note that members of Congress made this clear just this month in their own letter, noting that the Deptartment’s authority is “not exclusive and has been intentionally constrained by law due to the Department’s historical negligence in carrying out many of its oversight responsibilities over federal student loan servicers.”
Hurting Everyone… Again
Second, the AGs claim that the termination of the memorandums between the Department and the CFPB will harm taxpayers and the tens of millions of families who struggle to repay student loans.
“The Department’s termination of the [memorandums] will hurt American families by making it more difficult for the CFPB to assist borrowers with complaints about loan servicers and to fulfill its consumer protection mission,” the AGs write, noting that it will also increase the likelihood of default by borrowers who can’t receive help from the CFPB because the Department withholds information.
Additionally, the AGs point out that this is just the latest in a line of actions the Dept. of Education has taken to “abandon its responsibility to product student loan borrowers.”
In April, DeVos rescinded a number of student loan servicing protections put in place by the previous administration intended to make the student loan repayment process more accurate and transparent.
In a memo sent to the Federal Student Aid office, DeVos withdrew two pieces of guidance from 2016 that required the Federal Student Aid office to consider servicers’ past behavior when awarding contracts, including whether the company had misled or provided wrong information to borrowers or engaged in abusive consumer service.
Speaking of contracts between the Dept. of Equation and student loan servicers, DeVos announced in May the intention to put all federal student loan servicing under the control of just one company starting in 2019.
There are currently nine student loan servicers handling these accounts for the federal government.
“Like those ill-considered actions, terminating the [memorandums] harms students, borrowers, and taxpayers because consumers have lost a key partner in standing up to loan servicer,” the AGs write. “The only beneficiaries of the Department’s sweeping rollbacks of consumer protections are the loan servicers and for-profit colleges, and their executives and investors.”
Eliminating “Critical Leadership”
By terminating its relationship with the CFPB, the AGs claim that the Dept. of Education will allow loan servicers and for-profit schools to continue engaging in allegedly predatory practices.
DeVos’ letter terminating the memorandums misrepresents and undermines the strong work done by the CFPB on behalf of students and families across the country, the AGs state.
“The CFPB has stood up for tens of millions of families trying to repay student loans and for victims of for-profit colleges that fail to deliver a worthwhile education,” the letter reads.
Over the past six years, the AGs note that the CFPB has processed complaints for more than 40,000 student borrowers; cracked down on allegedly abusive for-profit collects; halted illegal loan servicing practices, and worked with AGs to assist borrowers in choosing colleges and comparing financial needs.
Specifically, 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.
“We urge the Department to reconsider its termination of the MOUs,” the AGs write. “Instead of taking on the job of monitoring student loan servicers by itself, we ask that the Department welcome the assistance of the CFPB, AGs, FTC, DOJ, and other law enforcement agencies to ensure that students and families repaying student loans are protected from illegal acts by servicers and for-profit colleges.”
The letter was signed by the AGs from following states: Pennsylvania, Maryland, Washington State, Illinois, California, Connecticut, Delaware, Hawaii, Iowa, Kentucky, Maine, Massachusetts, Minnesota, New York, North Carolina, Oregon, Rhode Island, Vermont, Virginia, the District of Columbia, and the Executive Director of the Hawaii Office of Consumer Protection.