Earlier this week, Rohit Chopra, CFPB Assistant Director and Student Loan Ombudsman, spoke to the Federal Reserve Bank of St. Louis about student loan debt. As he has on other occasions, Mr. Chopra referred to $1.2 trillion in student loan debt without pointing out that over $1 trillion of that debt comes from federal student loans. Most of Mr. Chopra’s prepared remarks then consisted of familiar themes: the increase in overall student loan debt since 2007, the purported impact of student loan debt on the housing market, purported similarities between the mortgage and student loan market, and the potential application of mortgage-related reforms to student loan debt, such as ability to repay and securitization “skin in the game” requirements.
Among the purported similarities between the mortgage and student loan market described by
Mr. Chopra were alleged servicing-related problems experienced by students. While Mr. Chopra has previously attempted to draw such parallels, we detected a potential new direction in his latest remarks. In particular, his comment that “several major market participants in the FFEL program do not appear to be succeeding in enrolling struggling student loan borrowers in income-contingent plans” could portend an attempt by the CFPB to increase enrollment in repayment programs by characterizing federal student loan servicers as having a duty to sign up borrowers.
At a minimum, Mr. Chopra’s remarks indicate that borrower enrollment in repayment programs by servicers will be a likely focus of CFPB examinations and investigations once the CFPB’s student loan servicer “larger participant” rule is finalized. They may also indicate that the CFPB will seek to use all of its various authorities, including its authority to prohibit unfair, deceptive or abusive acts and practices, to address this issue. In that regard, student loan servicers that do not expect to qualify as “larger participants” should be aware that the CFPB has used its authority to issue civil investigative demands (CIDs) to conduct quasi-examinations of institutions that are not subject to its supervisory authority to assess their compliance with applicable consumer financial laws.