The CFPB’s Student Loan Ombudsman has released an update setting forth the CFPB’s “preliminary observations” based on the data it received in response to a voluntary request for information sent to several of the largest student loan servicers in October 2016.  The request, which was sent contemporaneously with the release of the Ombudsman’s 2016 annual report (2016 report), asked servicers to provide information about their policies and procedures related to servicing loans of previously defaulted borrowers.  The update indicates that the CFPB received information from servicers collectively handling accounts for more than 20 million student loan borrowers.

On June 8, 2017, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr will hold a webinar, “CFPB Criticism of Student Loan Servicers – What’s Coming Next?”  Click here to register.

In the update, the CFPB makes the following “preliminary observations” regarding the borrowers about whom servicers provided loan performance information:

  • More than 90 percent of borrowers who rehabilitated one or more defaulted loans were not enrolled and making payments under an income-driven repayment (IDR) plan within the first nine months after curing a default.  According to the CFPB, this data reinforces its observations in the 2016 report that “a series of administrative, policy, and procedural hurdles may limit access to or enrollment in IDR for borrowers with previously defaulted federal student loans.”
  • Borrowers who did not enroll in an IDR plan were five times more likely to default a second time.
  • Nearly one in three borrowers who completed rehabilitation and for whom a servicer provided information about two years of payment history redefaulted within 24 months.
  • Over 75 percent of borrowers who default for a second time after completing rehabilitation did not successfully satisfy a single bill, including those who used forbearance or deferment for a period of time before redefaulting.  The CFPB states that it estimates that “as many as four out of five borrowers who rehabilitate a student loan could be eligible for a zero dollar payment under an IDR plan, which suggests that many of these defaults were preventable.
  • Borrowers using consolidation to cure defaulted loans are more likely to have better outcomes.

The CFPB states that the data described in the update provides support for its policy recommendations in the 2106 report. Those recommendations included a reassessment by policymakers of the treatment of borrowers with severely delinquent or defaulted loans and consideration of steps to streamline, simplify or enhance the current consumer protections in place for such borrowers.  The CFPB also urged policymakers and industry to consider various actions, including enhancing servicer communications to borrowers transitioning out of default, such as using personalized communications related to IDR enrollment, and using incentive compensation for debt collectors and servicers that is linked to a borrower’s enrollment in an IDR plan and successful recertification of income after the first year of enrollment.

In the update, the CFPB asks policymakers to “examine whether an extended period of income-driven rehabilitation payments and a complicated collector-to-servicer transition are necessary and whether current financial incentives for [servicers] are in the best interests of taxpayers and consumers.”  It also suggests that policymakers and market participants should “in the near-term” implement the CFPB’s recommendations for improving borrower communication throughout the default-to-IDR transition and streamlining IDR application and enrollment.

Although not mentioned in the update, the CFPB’s press release suggests that the CFPB plans to use the information discussed in the update to support its efforts to establish industrywide servicing standards.  The press release states that such information “will help the Bureau assess how current practices intended to assist the highest-risk borrowers may differ among companies. The Bureau previously highlighted how inconsistent practices across servicers can cause significant problems for borrowers, calling for industrywide servicing standards in this market.”

 

The CFPB’s Ombudsman’s Office has issued its fifth annual report covering the Office’s activities during fiscal year 2016 (October 1, 2015 through September 30, 2016).  The role of the Ombudsman’s Office is to assist in the resolution of individual and systemic issues that a depository entity, non-depository entity, or consumer has with the CFPB.

The report’s “Demonstrating the Ombudsman in Practice” section provides examples of the Ombudsman’s role in assisting in the resolution of CFPB “process issues.”  Noteworthy examples included:

  • Engaging in “shuttle diplomacy” to resolve an inquiry received from a company in the midst of an ongoing CFPB examination concerning the company’s ability to share the examination’s existence with its state regulator.  (The report notes that CFPB regulations require a company to obtain the CFPB’s permission to share confidential supervisory information.)  The Ombudsman also reviewed the process for such requests, specifically how a company would initiate a request to share information and the CFPB’s process for approval of such requests.
    In August 2016, the CFPB proposed amendments to its rule on the disclosure of records and information. The proposal included a provision that would prohibit the recipient of a civil investigative demand (CID) or letter from the CFPB providing notice and opportunity to respond and advise (NORA) from disclosing the CID or NORA to third parties without prior consent of a high ranking CFPB official.  In a blog post for the Washington Legal Foundation, Ballard Spahr attorneys Burt M. Rublin and Daniel L. Delnero explain why the proposal is not only ill-advised as a matter of public policy but is also unconstitutional both as a prior restraint on speech and a content-based restriction.  Although there is clearly a distinction between disclosing an enforcement investigation and disclosing a supervisory examination (with the CFPB having a stronger case for secrecy as to the latter), the matter described by the Ombudsman appeared to deal with a state agency that had clear jurisdiction over the entity the CFPB was examining.  At the same time it is attempting to keep its examinees on a tight leash with respect to disclosures of this sort, the CFPB, in the proposed amendents to its rule on the disclosure of records and information, is also seeking to expand its discretion to share confidential supervisory information with state attorneys general and other agencies that do not have supervisory authority over companies.
  • Sharing with the CFPB a company’s comment that the CFPB Daily Digest (a digital publication that companies can elect to receive that contains notifications on consumer complaints) did not show that the company had complaints requiring a response.  Consumer Response advised the Ombudsman that the Daily Digest is provided as a service and companies should log into the Company Portal to monitor complaints rather than rely only on the Daily Digest.
  • Sharing with the Office of Enforcement feedback and suggestions regarding a pilot enforcement warning letter project being developed by the CFPB.

The report includes a summary of feedback and recommendations the Ombudsman received from consumer-focused organizations that participated in a June 2016 forum on various topics that included the consumer complaint process and database.  Among the comments received was that the database is not “mobile friendly” and that the CFPB should add the actual company name provided by consumers rather than the parent company name.

In the section of the report dealing with the Ombudsman’s review of systemic issues, the Ombudsman discusses the two systemic issues it reviewed in FY 2016 and updates two issues raised in previous reviews.  The systemic issues reviewed in FY 2016 were the following:

  • In response to comments about the CFPB’s documentation of ex parte communications, the Ombudsman reviewed ex parte communications regarding rulemakings posted by the CFPB on regulations.gov.  (The Ombudsman notes that the CFPB’s ex parte policy is set forth in Bulletin 11-3.)  In reviewing such documentation, the Ombudsman found that no consistent format was used even though a template is available to CFPB staff.  The Ombudsman also found that there was no consistency in the timing of when documents were posted after a communication and found examples of communications posted as ex parte communications although not required by CFPB policy.  The Ombudsman has recommended that the CFPB standardize its process for memorializing ex parte communications regarding proposed rules and understands that the CFPB plans to issue a revised ex parte policy.
  • In response to comments about the specificity of options available to consumers to identify the issue with a company when submitting complaints, the Ombudsman provided feedback to Consumer Response regarding the need for additional sub-issues for some products and shared concerns about the varying number and specificity of issue/sub-issue categorization options provided to consumers depending on the product involved in the complaint.  The Ombudsman understands that, in the next iteration of the consumer complaint form, Consumer Response plans to add issues and sub-issues, as relevant, for all products other than mortgages.  Consumer Response plans to further consider the impact of additional options for mortgages.

The issues reviewed in prior reports for which the Ombudsman provided updates were the following:

  • In response to feedback provided by the Ombudsman that the CFPB does not provide sufficient lead time when announcing public events such as field hearings, the CFPB indicated that it “generally follows the accepted federal agency best practice of a 14-day advance notice for field hearings and public events” and that “various logistical issues, including city selection and the time required to procure event space, present challenges to providing lead time greater than the 14 day window.”
  • In response to industry concerns about the consumer complaint process, the Ombudsman provided recommendations to the CFPB on various issues such as when a company should be able to treat multiple consumer complaints involving the same company, transaction, and issue as duplicate complaints and the need for clarification regarding the distinction between administrative and substantive complaint responses and how the selection of a response determines if a complaint is published.  The Ombudsman states that these recommendations were implemented in the updated Company Portal Manual issued by Consumer Response in March 2016.

In the report, the Ombudsman discusses plans to pilot a new initiative, “Ombudsman Interactives,” which will consist of facilitated discussion sessions held onsite for attendees at consumer, trade and other groups’ conferences.  These sessions would be available by request on a first-come first-served basis, subject to the Ombudsman’s budget and availability.

The CFPB has released its fifth Annual report of the CFPB Student Loan Ombudsman discussing complaints received by the CFPB about private and federal student loans and the lessons drawn by the Ombudsman from those complaints.  The report states that it is based on the CFPB Student Loan Ombudsman’s analysis of approximately 5,500 private student loan complaints and 2,300 debt collection complaints related to private and federal student loans handled by the CFPB between September 1, 2015 and August 31, 2016.  (We note that this time period overlaps with the October 1, 2014 through September 30, 2015 period covered by the Ombudsman’s 2015 annual report.  In addition, it is inconsistent with the CFPB’s press release which stated that the new report “was informed by consumer complaints submitted to the CFPB between Oct. 1, 2015 and May 31, 2016.”)

The report also analyzes approximately 3,900 federal student loan complaints submitted between March 1, 2016 and August 31, 2016.  The CFPB began taking complaints about federal student loans on February 25, 2016.  (The number of complaints handled by the CFPB continues to represent an exceedingly low complaint rate given the millions of federal and private student loans outstanding.)

In his 2015 annual report, the Student Loan Ombudsman focused on servicers’ alleged failure to help distressed private and federal student loan borrowers enroll or stay enrolled in affordable or income-driven repayment plans.  In this year’s report, the Ombudsman focuses on complaints about the transition from default to an income-driven repayment (IDR) plan.  The new report indicates that, contemporaneously with its publication, the CFPB sent a data request to several of the largest student loan servicers calling for new information about their policies and procedures related to service provided to previously defaulted borrowers.  A copy of the data request is attached as Appendix C to the report.

The report describes various problems allegedly experienced by borrowers when making rehabilitation payments to debt collectors, such as retroactive invalidation of payments, and when a loan is transferred from a debt collector to a servicer, such as a lack of clear communication.  It also describes various problems allegedly experienced by borrowers after curing a default through an income-driven rehabilitation and then seeking full enrollment in an IDR plan, such as poor customer service.

The report reviews data related to rehabilitated loans, including projections that approximately 45 percent of FFELP borrowers rehabilitating their loans will default again (three-quarter of whom will default in the first two years following rehabilitation).  It discusses the outdated nature of the rehabilitation program, observing that it has not been revised in more than two decades and does not reflect two major changes to the federal student loan program in the intervening years – the termination of bank-based guaranteed lending and the establishment of a near-universal right for borrowers to make payments under an IDR plan.  The report suggests that use of a direct consolidated loan  rather than rehabilitation to cure a default can provide a faster track  to an IDR plan for some borrowers, and contains a diagram that compares the rehabilitation process to income-driven consolidation.

The report makes several recommendations for how policymakers and industry can address the problems discussed in the report, including the following:

  • In light of the rehabilitation program’s outdated nature, the Ombudsman urges policymakers to reassess the treatment of borrowers with severely delinquent or defaulted loans and to consider streamlining, simplifying or enhancing the current consumer protections in place for such borrowers.
  • To address problems discussed in the report, the Ombudsman urges policymakers and industry to consider various actions, including requiring collectors to initiate and assist borrowers seeking to complete applications for IDR plans and to hand-off these documents to servicers for processing, enhancing servicer communications to borrowers transitioning out of default, such as using personalized communications related to IDR enrollment, and using incentive compensation for debt collectors and servicers that is linked to a borrower’s enrollment in an IDR plan and successful recertification of income after the first year of enrollment.
  • The Ombudsman contends that borrowers, industry, and regulators would benefit from periodic publication of identifiable, servicer-level data related to the performance of previously-defaulted borrowers.  (The Department of Education directed the publication of servicer level data in the memorandum it released in July 2016 to provide policy direction for the new federal student loan “state-of-the-art loan servicing ecosystem” that the ED is currently procuring.)

 

The CFPB’s Student Loan Ombudsman has released a new “Mid-year update on student loan complaints” that highlights issues related to income-driven repayment plan (IDR) application issues.

The update covers complaints submitted from October 1, 2015 through May 31, 2016.  During that period, the CFPB handled approximately 3,500 private student loan complaints and approximately 1,500 debt collection complaints related to private and federal student loans.  The CFPB began handling complaints related to federal student loan servicing in February 2016 and handled more than 2,400 such complaints during the period covered by the update.  (Previously, such complaints were directed to the Department of Education (ED).)

Although the CFPB has repeatedly said that it does not verify the accuracy of complaints, the update appears to treat all complaints as valid.  The update discusses borrower complaints involving delays in the processing of IDR applications (which includes recertifications) allegedly caused by servicers.  It then goes on to describe various adverse consequences that can result from such delays, including capitalization of interest, delayed access to interest subsidies, and decreased potential loan forgiveness.  The update also discusses problems reported by consumers related to IDR application rejections, such as the rejection of incomplete applications from “otherwise eligible borrowers” without providing an opportunity to remedy deficiencies and the rejection of applications due to the use of forbearance.

The “Ombudsman’s discussion” section of the update includes several recommendations (but carries the standard caveat that the discussion “represents the Ombudsman’s independent judgment and does not necessarily represent the views of the [CFPB].”)  The Ombudsman suggests “market participants may wish to consider immediate action to address the specific problems identified in this report.”  According to the Ombudsman, specific elements of the policy direction issued last month by the ED to Financial Student Aid related to student loan servicing practices “offer an approach that market participants may wish to consider to better serve their most vulnerable customers and to strengthen IDR processing.”  The Ombudsman describes the “specific, limited circumstances” set forth in the policy direction for denying enrollment in IDR plans and observes that “[a]ll other deficiencies that would otherwise cause an application to be denied should instead render the application incomplete, and the policy directive indicates the servicer should actively engage with the borrower to complete the application.”

The Ombudsman also suggests that “servicers seeking to strengthen communications related to certain types of incomplete applications may wish to provide borrowers with clear and actionable instructions to complete IDR applications.”  To that end, the CFPB has issued a prototype “Fix It Form” that “may be particularly helpful for borrowers seeking to enroll in an IDR plan who must submit Alternative Documentation of Income (ADOI) or provide a written attestation that they have no income.”  According to the Ombudsman, the form “offers one approach for servicers seeking to take immediate action to improve the level of service they provide to their customers applying for IDR.”  The form “documents any deficiencies with borrowers’ IDR applications and communicates to borrowers about how to address the deficiencies and get their applications back on track.”  The CFPB also published a blog post that informs consumers how they can use the Fix It Form when submitting an IDR application and includes a link for consumers to download the form.

The Ombudsman also calls for immediate action by policymakers to publish identifiable, servicer-level performance data related to the handling of IDR applications, such as recertification rates, processing time, approval and denial rates, and delinquencies and default following IDR plan enrollment and recertification denial.  As the Ombudsman notes, the ED, in its policy direction, called for the publication of servicer-level performance data covering a wide range of practices, including enrollment in IDR and other repayment plans.

Given its past practices, servicers need to be aware that the CFPB may well be signaling its firm intention to use its UDAAP authority in both examinations and enforcement actions to accelerate the timetable for changes in IDR servicing, changes that the ED has conceded require amendments to its existing contracts.  In that regard, footnote 4 in the update is particularly telling.  Footnote 4 provides an abbreviated history of the CFPB’s involvement with what it refers to as “auto-default” provisions, provisions under which a student loan would be in default if either the borrower or the cosigner filed for bankruptcy.  In its June 2015 mid-year update, the Ombudsman expressed concerns about alleged “auto-default” provisions in loan agreements.  Subsequently, as reported in the CFPB’s Winter 2016 Supervisory Highlights, which covered examinations completed between September 2015 and December 2015, examiners determined that one or more student loan servicers engaged in unfair practices in enforcing such provisions.

 

 

The CFPB’s Ombudsman’s Office has issued its fourth annual report covering the Office’s activities during fiscal year 2015 (October 1, 2014 through September 30, 2015).  The role of the Ombudsman’s Office is to assist in the resolution of individual and systemic issues that a depository entity, non-depository entity or consumer has with the CFPB.

The report’s “The Ombudsman in Practice” section provides examples of CFPB “process issues” that the Ombudsman shared with the CFPB in FY 2015.  Such issues included:

  • Concerns arising from complaints submitted online by third parties on behalf of multiple consumers
  • Need for normalization of data in the public consumer complaint data base (with the Ombudsman noting that the CFPB issued an RFI in June 2015 seeking “best practices” for normalization)
  • Difficulties experienced by companies in understanding language in the examination report template “regarding where the supervision and enforcement process intersect” (which the Ombudsman understands the CFPB is addressing in updated template language)
  • Concerns regarding the clarity of communications companies receive to join the CFPB’s company portal

The report includes a summary of feedback and recommendations the Ombudsman received from industry participants at a September 2015 forum, which were shared with the CFPB “without attribution,” and an analysis of individual inquiries, which included inquiries from industry on such topics as concerns about the options available for responding to consumer complaints.

In the section of the report dealing with the Ombudsman’s review of systemic issues, the Ombudsman discusses the three systemic issues it reviewed in FY 2015 and updates several issues raised in previous reviews.  The systemic issues reviewed in FY 2015 were the following:

  • In response to concerns shared by industry about perceived differences in language between consent orders and corresponding CFPB press releases, the Ombudsman reviewed consent orders and the corresponding press releases for the last quarter of FY 2014 and the first quarter of FY 2015.  While concluding that the press releases generally did reflect the language in the consent orders, the Ombudsman identified three issues that it shared with the CFPB.  Those issues were: press releases not reflecting that a company had ended a practice as indicated in the consent order or not reflecting other company information that was in the consent order; use of legal terminology in press releases that was not in the consent orders; and use of phrasing in consent orders that “resulted in certain factual elements seeming more important than they otherwise might, even if factually correct.”  The Ombudsman states that the CFPB has considered these issues in developing new press releases and that, upon reviewing more recent consent orders and corresponding press releases, it has found “a noticeable improvement from what we observed in the earlier time period.”
  • In response to feedback received over time from industry groups about the field hearing process, the Ombudsman reviewed the process and met with consumer and industry groups.  The CFPB shared feedback from these meetings with the CFPB which included the reluctance of some industry groups to have their members serve as panelists because the current format does not allow for constructive exchange.
  • In response to industry concerns about the consumer complaint process, the Ombudsman provided recommendations to the CFPB on various issues such as when a company should be able to treat multiple consumer complaints involving the same company, transaction and issue as duplicate complaints and the need for clarification regarding the distinction between administrative and substantive complaint responses and how the selection of a response determines if a complaint is published.  (Duplicative complaints was among the issues cited by a recent American Banker article for its claim that the CFPB’s consumer complaint database is widely held to be inaccurate and untrustworthy.)

The issues reviewed in prior reports for which the Ombudsman provides an update include how the CFPB shares information about its activities, events and services.  The report indicates that the CFPB is working towards or considering implementation of various recommendations made by the Ombudsman, such as creating the following: a single location for users to subscribe to all available CFPB online “sign-ups,” a digest of all updates to the CFPB’s website sortable by topic and date, an events calendar, a sign-up to receive CFPB event updates, an archive of old event announcements, and a webpage that provides information on how to request a CFPB speaker.

 

The CFPB released its fourth Annual Report of the Student Loan Ombudsman discussing complaints received by the CFPB about private and federal student loans and the lessons drawn by the Ombudsman from those complaints.  (The report was issued by Seth Frotman, who is currently serving as Acting Student Loan Ombudsman after the departure of Rohit Chopra this past June.)  The report is based on the CFPB Student Loan Ombudsman’s analysis of approximately 6,400 private student loan related complaints and 2,700 debt collection complaints related to private and federal student loans submitted to the CFPB from October 1, 2014 to September 30, 2015.  (This continues to represent an exceedingly low complaint rate given the millions of private student loans outstanding.)

The Student Loan Ombudsman’s report comes on the heels of the report on student loan servicing issued by the CFPB  at the end of last month which discussed comments submitted in response to a Request for Information Regarding Student Loan Servicing published by the CFPB in May 2015.  That report was accompanied by a Joint Statement of Principles on Student Loan Servicing issued by the CFPB, U.S. Department of the Treasury, and the U.S. Department of Education, which recommended that industrywide standards be created for the entire servicing market.  In the new report, the Student Loan Ombudsman cites the report’s findings as additional support for that recommendation.

Like last month’s report, the new report is heavily focused  on servicers’ alleged failure to help distressed private and federal student loan borrowers enroll or stay enrolled in affordable or income-driven repayment plans.  The CFPB discusses complaints from borrowers about various problems experienced in obtaining information about such plans, including information about how to recertify for income-driven plans and difficulties that result from untimely recertifications.  Despite the limited number of complaints received by the CFPB, the Student Loan Ombudsman contends in the report that data from the GAO “suggest[s] the servicing problems [cited in the complaints] may be experienced by a broad segment of student loan borrowers.”

The Ombudsman also contends in the report that economic incentives for student loan servicers may contribute to limited utilization of income-driven repayment plans.  The report states that “it is not clear whether third-party student loan servicers have adequate economic incentives to enroll borrowers” in such plans.  In particular, the report faults compensation models under which servicers are paid a flat monthly fee per account serviced regardless of the level of service a particular borrower requires in a given month.

A substantial portion of the report is devoted to the utilization of income-driven repayment plans by borrowers with privately-held, federally-guaranteed student loans made by private lenders (FFELP loans).  Although FFELP loans were discontinued in 2010, the report indicates that they comprise more than $370 billion of outstanding student loans.  The CFPB’s findings on such loans are based on its analysis of a sample that included portfolio-level summary information of more than $150 billion in such loans owed by more than 7.5 million borrowers as of December 30, 2014.  The CFPB notes that “[t]his is not a statistically-valid, random sample and these results should not be interpreted to suggest significance.” Nevertheless, it states that because the sample includes information about approximately 60 percent of all privately-held FFELP loans outstanding, it “may offer readers insight into common experiences for borrowers with privately-held FFELP loans serviced by large, nonbank specialty student loan servicers.”

The CFPB states that FFELP loan borrowers show “a higher level of distress than the [student loan] market as a whole.”  Based on its analysis, the CFPB found that at least 30 percent of FFELP borrowers are either in default or more than 30 days past due.  The CFPB contrasts this with market-wide levels indicating that 25 percent of student loan borrowers are either in default or more than 30 days past due.  The CFPB found that FFELP  borrowers use income-driven repayment plans at nearly one third of the rate of borrowers in the federal direct loan program.  (The CFPB acknowledges that certain characteristics of FFELP loans, such as the higher portion of FFELP loans that are consolidation loans and the unavailability of the most generous income-driven repayment plan for FFELP loans, may partially explain the lower utilization rate.)

In addition to citing the report as additional support for industry-wide servicing standards, the Student Loan Ombudsman recommends that policymakers “consider additional steps to expand public access to data on student loan performance and the utilization of alternative repayment plans, including income-driven repayment plans.”  He suggests that policymakers consider the establishment of  a uniform set of metrics on student loan servicing performance for all types of student loans and compile and publish data reflecting such metrics to “better position policymakers and market participants to target resources to assist at-risk borrowers” and “inform future initiatives to establish industrywide [servicing] standards.”  He also suggests that policymakers consider the establishment of a uniform set of industrywide metrics on alternative repayment plan utilization and performance and consider aggregating and publishing such data on a periodic basis “to facilitate comparison in performance among student loan servicers.”  According to the Ombudsman, the compilation of such metrics could “provide incentive for servicers to improve performance and proactively resolve servicing issues.”

Based on its past practice, we expect the CFPB to pursue the issues raised in the report through a combination of use of its bully pulpit, lobbying efforts, industry guidance, heightened scrutiny in examinations, and enforcement actions.

We previously covered the first, second and third Annual Reports.

Last week, the CFPB’s Ombudsman’s Office issued its third annual report covering the Office’s activities during fiscal year 2014 (October 1, 2013 through September 30, 2014).  The role of the Ombudsman’s Office is to assist in the resolution of individual and systemic issues that a depository entity, non-depository entity or consumer has with the CFPB.

A new section of the annual report entitled “The Ombudsman in Practice” lists issues the Ombudsman heard in FY 2014 from consumer and trade groups and individual inquiries and raised with the CFPB as part of its regular internal meetings with various CFPB offices and divisions.  Those issues included:

  • A need for more clarity on CFPB points of contact for industry and an understanding of how CFPB staff learns of industry developments
  •  A desire for more clarity on regulatory compliance for business planning and operations
  • Concern about broad examination information requests
  • Differences in language between consent orders and corresponding CFPB press releases (which the Ombudsman undertakes to independently review in FY 2015).  This is something we have questioned in the past.

Among the issues raised with the Ombudsman by industry in individual inquiries were:

  • A need for understanding the intersection between the supervision and enforcement processes, such as how the two work together and what to expect or not to expect
  • Not knowing where to obtain regulatory interpretations
  • Unanticipated outcomes from regulations

The report includes a section entitled “Perspectives on Industry: How the CFPB Learns about Developments in Industry” that focuses on the steps taken by the Ombudsman to address industry’s concerns about this issue noted above.  The report discusses the Ombudsman’s review of how information is shared with and within the CFPB and CFPB initiatives “that may address some of the issues highlighted to the Ombudsman by industry.”  One such initiative noted by the Ombudsman is that the CFPB “has routine cross-Bureau product meetings and coordinates meetings with industry that bring in representatives from offices across the agency.”  In an attempt to provide “helpful” information to companies and trade groups “who do not always know who to contact” at the CFPB, the report contains a list of “CFPB connection points.” (Except for discussing the issue addressed in this section and stating that the Ombudsman intends to review differences in consent order and press release language, the report does not indicate how the Ombudsman plans to address the other issues noted in the bullet points above.)

In the section of the report dealing with the Ombudsman’s review of systemic issues, the Ombudsman updates several issues raised in previous annual reports.  Among such issues were how the CFPB shares information about its activities, events and services, and financial entities’ experiences with the examination process.

With regard to information sharing, the report indicates that the CFPB is engaged in a project to “refresh” its website that will include the addition of a digest to all website updates, creation of a single location  for users to subscribe to all available CFPB online “sign-ups,” creation of an aggregated place on the CFPB’s website for CFPB events, and the addition of instructions on how to request a CFPB speaker.

With regard to the examination process, the Ombudsman claims that the CFPB’s Division of Supervision, Enforcement, and Fair Lending (SEFL) adopted all of the recommendations made in the Ombudsman’s FY 2013 annual report to address concerns involving how a financial entity can elevate concerns about an examination and what can be expected during the examination lifecycle.  As a result, “the Ombudsman now views the FY 2013 recommendations on this topic as closed.”

The report sets forth the Ombudsman’s understanding that “the cover letter accompanying the initial information request now includes: the contact information for the examination team through the Regional Director; information about contacting the EIC to address questions or concerns about data format, data scope, or follow-up information requests; a link to the examination manual; and information on what to expect at the end of the examination.”  The report also indicates that the SEFL “shared a new policy for examiners to contact the financial entity no less than once each month after the onsite portion of the examination” and “to ensure that the appeals bulletin is readily accessible, the Ombudsman understands that the appeals bulletin will be co-located with the examination manual” on the CFPB’ website.

Among the Ombudsman’s FY 2015 plans is the launch of a new focus group program “to provide another forum for consumer, trade, and other groups to share feedback.”

On December 3, the CFPB’s Ombudsman Office issued its second annual report covering the Office’s activities during fiscal year 2013 (October 1, 2012 through September 30, 2013).  The role of the Ombudsman’s Office is to assist in the resolution of individual and systemic issues that a depository entity, non-depository entity or consumer has with the CFPB.  

One section of the report is devoted to the Ombudsman’s examination of  individual inquiries, which dealt primarily with issues concerning the consumer complaint process.

Of primary significance to industry is the section of the report dealing with the Ombudsman’s review of systemic issues.  In the portion that updates FY 2012 systemic issues, the report  discusses the change in the CFPB’s policy regarding the participation of enforcement attorneys in examinations.  It notes that enforcement attorneys ” will no longer participate in the on-site part of the examination.  At the same time, we understand that [they] will continue to be integrated on examinations through regular meetings with examination staff convened by Supervision headquarters staff. ”

The report indicates that the Ombudsman reviewed three systemic issues in FY 2013: the caller experience with the CFPB contact center, how the CFPB shares information and financial entities’ experiences with the examination process.  These issues involved the following:

  • Caller experience issues involved difficulties experienced by consumers when contacting the CFPB and in corresponding with and obtaining information from the CFPB.
  • CFPB information sharing issues, which were based on feedback from consumers, trade groups and financial entities, involved how the CFPB shares information about its activities, events and services.  The Ombudsman heard “that it is challenging to keep up-to-date with CFPB activities across [the CFPB website.]”  (This comment is consistent with our own experiences with the CFPB’s website.)  Among the Ombudsman’s recommendations is for the CFPB to add a digest of all website updates and a checklist opportunity for users to subscribe to each available CFPB “sign-up” rather than having to search for separate “sign-ups” on different webpages.  To address feedback that it would be helpful for the CFPB to provide more consistent and advanced notice of public events, the Ombudsman has recommended that the CFPB announce events with consistent minimal lead time even if only the city and state are known, provide an events calendar on its website, and add a “sign up” to receive calendar updates.
  • Examination process issues involved how a financial institution can elevate concerns about an examination and what can be expected during the examination lifecycle.  The Ombudsman has recommended that the CFPB share how a financial entity can elevate examination concerns by (1) providing specific information on who composes the examination team through the Regional Director, and (2) supplementing the Information Request template to designate the Examiner–In-Charge as the point of contact to address any concern during the examination lifecycle.  To clarify what may be expected during the exam lifecycle, the Ombudsman has recommended that that the CFPB (1) include citations to the examination manual in written communications to the financial entity, where relevant, (2) in the opening letter, describe the document an entity can expect to receive at the end of the examination process, (3) after the on-site part of an examination ends, provide information to the entity at regular intervals, and (4) locate the appeals bulletin with the examination manual on the CFPB’s website.  The Ombudsman states in the report that it “understands that the CFPB is implementing all of these recent recommendations.”

 

Yesterday, Rohit Chopra, the CFPB’s Student Loan Ombudsman, released his Second Annual Report which analyzes approximately 3,800 complaints received by the CFPB from private student loan borrowers between October 1, 2012 and September 30, 2013. (To put this in perspective, last year the Federal Reserve Bank of New York reported that there are approximately 37 million borrowers with outstanding student loans.) The CFPB also issued a consumer advisory that assumes that borrowers with multiple loans may instruct servicers on how to allocate payments greater than the minimum amount due and then advises them as to how to do so. 

The report observes that many of the complaints were similar to those discussed in the Ombudsman’s First Annual Report and like the First Annual Report, broadly characterizes the issues involved in consumers’ complaints as “servicing issues.” In addition to complaints, the report also draws on other sources of data, such as comments received by the CFPB on its request for information regarding student loan affordability.

The report notes that while complaints continue regarding improper treatment of military borrowers, there have been improvements in this area. In addition, the report describes various alleged payment processing problems such as confusion about payment application policies and difficulties relating to the application of excess payments and underpayments, timing of payment processing, access to payment histories, lost payments, obtaining payoff information and servicing transfers. 

The report also includes commentary from the Ombudsman and, as required by Dodd-Frank, recommendations for legislative and regulatory action. In his commentary, the Ombudsman suggests how student loan servicers might do something that we believe they by and large are already doing–adapt the new mortgage servicing requirements created by Dodd-Frank and the CARD Act’s requirements for credit card servicing and payment processing to the servicing of student loans. In his recommendations, the Ombudsman states that it may also be useful for policymakers to assess whether “certain reforms to the servicing of credit cards and mortgages” might apply to student loans and then continues to lobby for the notion that student loans are somehow responsible for current financial conditions, cautioning that “[i]f industry fails to correct deficiencies in the student loan servicing market, policymakers may need to act to avoid further negative consequences for the economy.” 

Currently, the CFPB has authority to supervise student loan servicing by large banks and their service providers. In March 2013 , the CFPB issued a proposal to supervise nonbank servicers of private and federal student loans who qualify as “larger participants” in the student loan servicing market. (Although the CFPB had indicated in its Spring 2013 Regulatory Agenda that it expected to issue the final larger participant rule in September, it now seems likely that the final rule will not be issued until the end of this month or at the beginning of November.) Nonbank servicers should expect the issues highlighted in the Ombudsman’s report to be a major focus of CFPB examiners once that rule is finalized and CFPB examinations begin.

As my colleague Barbara Mishkin indicated in her post earlier today, the 2012 CFPB Ombudsman’s Report, released last week, contains a section that indicates that the CFPB has heard, and is considering, the industry’s discomfort with the participation of enforcement attorneys in the examination process. 

From the start, this issue has worried supervised entities, who were concerned that the participation of enforcement attorneys in examinations would inhibit free and open communication, and that the attorneys’ presence was a signal that the examination process was intended to be a development ground for enforcement actions.  Those fears have been heightened by the fact that the Bureau’s three enforcement actions against credit card issuers all arose from examinations, and this connection was highlighted in remarks by Director Cordray. 

There was no indication that the Bureau had any second thoughts about this issue until the Ombusdman’s Report came out.  Near the end of the report, there is a section on enforcement lawyers’ participation in examinations, and it concludes with the following passage: 

To reflect on the success and challenges of the new policy, achieve consistency in its implementation, and improve transparency with CFPB staff and supervised entities, the Ombudsman recently recommended that the CFPB review implementation of the policy to have enforcement attorneys present at supervisory examinations. Until that review is complete, the Ombudsman recommended that the CFPB establish ways to clarify the Enforcement Attorney role in practice at the supervisory examination. The Ombudsman understands that the CFPB now is considering these recent recommendations. 

We are not sure what it would mean for the Bureau to “review implementation” of the enforcement attorneys’ role in examinations, or what ways there are to “clarify” that role, but we find it encouraging that the Bureau is at least “considering” the recommendations made by the Ombudsman’s Office.  We’ll have to see what results emerge from this consideration, and whether the Bureau’s enforcement actions continue to emanate from the examination process.  But there is at least some indication that the Bureau is listening to the industry’s well-founded concerns about this issue.  If the Bureau did this, it would find that a more cooperative and less enforcement-oriented examination process could enable it to achieve its consumer protection goals more quickly and with less cost to the industry and, ultimately, to consumers.