Preparing for the CFPB

1. Preparing for the CFPB Karen Reddick VP Business Development National Credit Management ISLA 2013

2. Consumer Financial Protection Bureau - CFPB • Created by Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 • Independent bureau within Federal Reserve System, run by Director who is Presidential Appointee, confirmed by Senate. • Authority to issue rules for all financial institutions, including rules under Truth in Lending Act, Fair Debt Collection Practices Act, Equal Credit Opportunity and Real Estate Settlement Procedures Act.

3. The CFPB and You • Consumer Financial Protection Bureau is very important to schools, servicers • Regulates institutional loans, other private loans, collection practices, contacts with students – and has great powers of enforcement • Ombudsman – Rohit Chopra – coordinating with ED ombudsman • COHEAO sent comments on institutional loans, financial literacy to CFPB • COHEAO met with Chopra, others

4. Section 1021 of Dodd Frank Act • CFPB is authorized to exercise its authorities for the purpose of ensuring that: • 1) Consumers are provided with timely and understandable information to make responsible decisions about transactions involving consumer financial products and services; • (2) Consumers are protected from unfair, deceptive, or abusive acts and practices and from discrimination;

5. (3) Outdated, unnecessary, or unduly burdensome regulations concerning consumer financial products and services are regularly identified and addressed in order to reduce unwarranted regulatory burdens; • (4) Federal consumer financial law is enforced consistently, without regard to status as a depository institution, in order to promote fair competition; and • (5) Markets for consumer financial products and services operate transparently and efficiently to facilitate access and innovation.

6. Scope Of CFPB’s Duties • The CFPB supervises banks with more than $10 billion of assets, credit unions, and other non-bank financial companies • Non-banks include payday lenders, mortgage brokers, student loan lenders • The CFPB enforces federal consumer laws such as the Truth in Lending Act

7. CFPB - Leadership • The President nominated Richard Cordray, former Ohio Attorney General, to run the CFPB • President made a recess appointment of Mr. Cordray on January 4th, 2012 • Senate confirmed after much debate .

8. Private Student Loan Ombudsman  FUNCTIONS OF OMBUDSMAN:(1) in accordance with regulations of the Director, receive, review, and attempt to resolve informally complaints from borrowers of loans described in subsection (a), including, as appropriate, attempts to resolve such complaints in collaboration with the Department of Education and with institutions of higher education, lenders, guaranty agencies, loan servicers, and other participants in private education loan programs;

9. Ombudsman (2) establish a memorandum of understanding with the (Ed Dept.) student loan ombudsman to ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or Federal student loans;(3) compile and analyze data on borrower complaints regarding private education loans; and(4) make appropriate recommendations to the Director, the Secretary, the Secretary of Education, (and Congressional Committees) See: http://www.dodd-frank-act.us/Dodd_Frank_Act_Text_Section_1035.html.

10. GOP Proposed Changes • Replace the position of CFPB director with a five-member commission • Give Congress authority over CFPB funding, and • Design ways to make it easier to overturn CFPB rules

11. CFPB - Budget • The CFPB receives up to 10% of the operating budget of the Federal Reserve ― as much as $500 million. • The CFPB will be somewhat a part of the Federal Reserve Board, but not subject to the Fed’s authority. • The CFPB will decide its own budget and will not be required to ask Congress for money. • The CFPB will have no governing board, only a director whose rulings can’t be vetoed.

12. Consumer Financial Protection Bureau • Bureau has huge authority • Rulemaking – Perhaps the most significant authority of the Bureau • Supervisory • Enforcement* • Student Loans are a top priority • CFPB has access to consumer complaints within the FTC Consumer Sentinel database (In the past only accessible through law enforcement agencies.)

13. What is “abusive”? • Any financial service or activity that takes advantage of a consumer’s inability to understand the risks, costs or conditions of loans, mortgages and credit cards. • The CFPB will not formally define what is “abusive”.

14. Unfair Or Deceptive Acts Or Practices • “Unfair or deceptive acts or practices” have long been illegal under federal law • Since 1938 the Federal Trade Commission has enforced the rule • Dodd-Frank added the word “abusive” and gave enforcement authority to CFPB • The CFPB did not formally define what is “abusive” in regulation • Practice, then case law therefore will effectively make that determination

15. What Is “Abusive” Act or Practice? CFPB Supervision and Examination Manual: • Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or • Takes unreasonable advantage of – • A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; • The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or • The reasonable reliance by the consumer on a covered person to act in the interests of the consumer. • Although abusive acts also may be unfair or deceptive, examiners should be aware that the legal standards for abusive, unfair, and deceptive each are separate.“

16. Schools: In or Out? • Schools are “financial institutions” under federal law (Gramm Leach Bliley) • Look at partnerships with banks, other servicer providers • Focus on high cost institutional loans expected initially, especially those with high default expectations • Support defining Health Professions Loans as federal loans • What to do about low-cost institutional loans?

17. CFPB and Student Loans • www.consumerfinance.org • CFPB Student Loan Ombudsman, Rohit Chopra • Coordinating with Ed Ombudsman • Student Loan Complaint System • Student Loan Debt Repayment Assistance • Financial Aid Comparison Shopper

18. CFPB and Student Loans • Report on private student loans • Required by Section 1077 of Dodd-Frank Act • Submitted to Congress July 2012 • Written with some involvement of ED, the Department of Justice, and the FTC. • Report included recommendations for “effective” disclosures and communications with borrowers, ways to relieve burden on borrowers • Suggested bankruptcy discharge

19. Bankruptcy Law Proposals • Current law: all education loans as defined by tax law are dischargeable in bankruptcy when there is undue hardship to debtor or dependents • Recent study: very few try to discharge, thinking it’s impossible, but it’s not! • Bills call for dropping undue hardship requirement for private loans only • Government loans would remain non-dischargeable including from any “government units”

20. CFPB Recommends…. • Make private loans dischargeable • Federal loans: Income based repayment will take care of any problems…. • Will It?

21. Office of Financial Education • Active on the Financial Literacy and Education Commission and the President’s Advisory Council on Financial Capability. • Created “Shopping Sheet” • Part of Office of Consumer Education & Engagement • Same CFPB silo as “Office of Students,” “Office of Seniors,” “Office of Servicemembers,” etc. • Office headed by Gail Hillebrand, formerly senior attorney with Consumers Union.

22. Service Providers • Supervision of Service Providers • Financial institutions under Bureau supervision may be held responsible for their contractors. • Bureau’s expects that supervised financial institutions have an effective process for managing the risks of service provider relationships.    • A service provider is defined in the Dodd-Frank Act as “any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” • Institutions must ensure that business arrangements with service providers do not present unwarranted risks to consumers.”

23. Collection Agency Focus By CFPB • Dodd-Frank Act requires supervision of certain non-bank covered persons: • All providers of private student loans • ‘‘larger participant[s] of a market for other consumer financial products or services, as the Bureau defines by rule.” • Complaint database also launched for public complaints – both on student loans and collections in general • Default problem is SL category

24. CFPB Examinations • Review of collection agencies with more than $10 million in annual revenues • About 175 agencies/law firms nationwide, with 60% of total collections • At least three examinations of larger agencies reported underway

25. Supervision • CFPB examination procedures for collectors published October 31, 2012: http://files.consumerfinance.gov/f/201210_cfpb_debt-collection-examination-procedures.pdf • Next Supervision Front: Student Loan servicers defined as large participants – over 1 million accounts. NPRM March 28, 2013 • CFPB will separately be on both ends of many business relationships

26. Complaint Portals • Bank account or service • Credit card • Credit reporting • Debt collection • Money transfer • Mortgage • Student loan • Vehicle orconsumer loan

27. Complaint Portal Process • Complaint submitted • Review and route • Company response • Consumer review •  Review and investigate •  Analyze and report

28. The CFPB received nearly 2,900 private student loan complaints in the first year. • This is a relatively small number given that there are more than $150 billion in outstanding private student loans. • The vast majority of the complaints were related to loan servicing and loan modification issues. • Active duty service members and their families reported that they sometimes experience difficulty exercising their rights under the Service Members’ Civil Relief Act. • Solution • Have a written policy to resolve complaints • Monitor and request your Service Providers written policy • Don’t let complaints escalate to the Attorney General or CFPB • Sign up to receive Debt Collection Complaints registered with CFPB at http://www.consumerfinance.gov/complaint/ Complaint Process

29. Dispute Process • Statement of Account (Showing Amount Due) • Copy of Registration (Time/Date) and E-signature • Financial Disclosure Form (Agree to Terms) • Copy of Invoice/Bill • Notes (Appeals, reason for loss of Financial Aid) • Proof of Grades received • Copy of Withdrawal Policy • Prom Note

30. 2013 Bulletins • September 12, 2013- Bulletin on Payroll Card Accounts (Regulation E) • September 4, 2013-Bulletin on the FCRA’s requirement to investigate disputes and review “all relevant” information provided by consumer reporting agencies about the dispute. • July 10, 2013-Bulletin on Prohibition of Unfair, Deceptive, or Abusive Acts or Practices in the Collection of Consumer Debts • July 10, 2013-Bulletin on Representations Regarding Effect of Debt Payments on Credit Reports and Scores • June 25, 2013- Bulletin about responsible business conduct: self-policing, self-reporting, remediation, and cooperation • April 10, 2013-Disclosure of Consumer Complaint Data as published in the Federal Register • May 20, 2013- Bulletin about the SAFE Act – uniform state test for state-licensed mortgage loan originators • March 21, 2013- Bulletin about indirect auto lending and compliance with the Equal Credit Opportunity Act • February 11, 2013 – Bulletin about mortgage servicing transfers

31. Financial Products For College Student CFPB to hold September 30 forum on financial products marketed to college students Posted: 30 Aug 2013 04:22 AM PDT On September 30, 2013, the CFPB will hold a forum in Washington, D.C. on financial products marketed to college students.  In January 2013, the CFPB issued a notice asking for input on a variety of issues with regard to these products, including the information shared between schools and financial institution providers, the way these products are marketed, the fee structures for these products, how these marketing arrangements are established, and student experiences with these products.  At the forum, the CFPB will present its findings based on the comments it received in response to the notice.

32. Latest Proposed Rule Making • Defining Larger Participants of the Student Loan Servicing MarketProposed rule with request for public commentClosed May 28, 2013 | Read comments • Request for Information Regarding an Initiative to Promote Student Loan AffordabilityNotice and request for information.Closed April 8, 2013 | Read comments • Request for Information Regarding Financial Products Marketed to Students Enrolled in Institutions of Higher EducationNotice and request for information.Closed March 18, 2013 | Read comments

33. Regulations to Comply With • Consumer Financial Protection Bureau • FCRA • FDCPA • Collection Cost • Time Barred Debt • Leaving Messages • Red Flag Rules • GLBA • TILA • Telephone Consumer Protection Act

34. TCPA, FCC and FTC • COHEAO in Meetings with FCC Staff with TCPA group • FCC seeking to harmonize Telephone Consumer Protection Act (TCPA) regs with FTC Telemarketing Sales Rule • Good idea, but proposal affects non-telemarketing calls • Use of auto-dialers, cell phones, and obtaining consent from consumer the key issues here • FCC proposal calls for “express written consent” not only from new consumers (students), but also EXISTING CUSTOMERS for use of pre-recorded calls to cell phones • Definition of “auto-dialer” vs. “predictive-dialer” is concern under review by FCC now – Petitions seek clarification from Commission

35. TCPA • Presidents Deficit Reduction Plan (aka Job’s Bill) • Plans to amend the Communications Act of 1934 • Allow the use of cell phones to contact debtors who owe money to the government • The provision is expected to provide substantial increase in collections • The Mobile Informational Call Act of 2011 (H.R. 3035) • Bipartisan coalition (Rep Terry, R-NE and Rep Town, D-NY) • Allows the use of predicative dialers in contact cell phones were “existing business relationship exists” • Modernizes the TCAP by exempting informational calls to wireless phone from auto-dialer restrictions • Clarifies the “prior express consent” requirement • (a) for the initiation of a call on behalf of entity with a person where an established business relationship exists • (b) that is provided when person purchases a good or service • States’ Attorney general killed the bill

36. TCPA • FCC Committee Hearing • Reviewing whether to adopt express written consent for all autodialed or prerecorded calls.  • Commission adopts prior express written consent for autodialed or prerecorded telemarketing calls only. • The final rules do not address informational calls, meaning nothing has changed for the calls made by colleges and their 3rd party companies

37. How To Prepare For CFPB • Strengthen the compliance function • Punitive loan provisions? Be conservative • Get a feel for the flow of regulatory direction • Know your appetite for risk • Stay in touch with colleagues and your trade associations

38. QUESTIONS ?????