A new Memorandum of Understanding (MOU) between the Consumer Financial Protection Bureau (CFPB) and the US Department of Education (ED) appears to signal an end to the turf war between these two agencies regarding the handling of complaints related to federal student loans. It also ends a period during which the CFPB and ED failed to maintain an MOU, as required by the Dodd-Frank Act. Pursuant to the new MOU released on February 3, 2020, the CFPB and ED will:
- Share complaints from student loan borrowers or their authorized representatives with each other.
- Reroute consumer complaints to the appropriate agency. For instance:
- Borrowers attempting to submit complaints to the CFPB regarding the origination of federal student loans will be directed to contact ED and the CFPB will forward associated complaints to ED.
- Alternatively, borrowers attempting to submit complaints to ED related to private student loans will be directed to contact the CFPB and ED will forward associated complaints to the CFPB.
- Establish clear guidelines on which agency is responsible for complaints related to specific subjects. For instance:
- Complaints related to program issues with federal loans will be handled by ED.
- ED will collaborate with the CFPB to informally resolve complaints involving federal loans that implicate consumer financial law issues and the CFPB will provide expertise, analysis, and recommendations regarding the resolution of those legal issues.
- Utilize the CFPB's complaint analysis tools.
- Meet at least quarterly to discuss (1) the nature of complaints received and complaint resolution, (2) borrower characteristics, and (3) analysis and recommendations.
- Provide complaint data in a secure, digital format that complies with a variety of guidelines laid out in the MOU.
- Comply with various requirements related to the safeguarding and sharing of non-public information.
In establishing the CFPB and the CFPB's Private Education Loan Ombudsman, Section 1035 of the Dodd-Frank Act requires that the CFPB's Ombudsman enter into a memorandum of understanding with ED's Federal Student Aid Ombudsman to "ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or [f]ederal student loans." ED and the CFPB entered into two separate and related MOUs in October 2011 and January 2014. ED terminated those MOUs in September 2017. In terminating the previous MOUs, ED alleged that the CFPB had failed to forward complaints related to federal student loans to ED and had instead handled those complaints itself. ED noted that this caused borrower confusion, as borrowers sometimes received conflicting advice from ED and the CFPB regarding federal student loans.
The termination of this statutorily-required MOU drew the ire of some in Congress and increased tensions between the two agencies. Subsequently, the CFPB alleged that guidance issued by ED in December 2017 has resulted in servicers of federal student loans declining to produce information requested by the CFPB during examinations. CFPB Director Kathy Kraninger wrote a letter to Senator Elizabeth Warren in April of last year (in response to her requests for information) stating that entering into a new MOU with ED was a priority for the CFPB and describing existing mechanisms designed to help the CFPB and ED coordinate with regard to consumer complaints concerning student loans.
The new MOU resolves the issue of the lack of a statutorily-required MOU. Beyond that, enhanced coordination between the CFPB and ED seems to indicate a renewed focus by both agencies on student loan market participants, with a particular emphasis on student loan servicers. Some have feared that recent changes at the CFPB would leave the student loan market largely unregulated. To help fill this perceived void, over the past few years, the Federal Trade Commission (FTC) has shown an increased focus on those operating in the student loan market and has brought enforcement actions against student lenders, student loan debt relief companies, student loan refinancing review websites, and for-profit educational institutions. This activity is likely to continue – at least for the remainder of FTC Commissioner Rohit Chopra's tenure. Commissioner Chopra previously was an effective advocate for the CFPB's efforts to monitor and regulate the student loan market when he served as the CFPB's Private Education Loan Ombudsman and helped build the CFPB's Office of Students and Young Consumers (which the CFPB recently reorganized under the Office of Financial Education).
States have also shown an increased focus on regulating the student loan market, and more than ten states have passed regulatory regimes applicable to student loan servicers in recent years. Numerous other state legislatures are considering legislation that would increase regulation of student loan servicers.
Regardless of where regulatory attention comes from, one thing is for sure: the $1.6 trillion student loan market will continue to be a focus for both federal and state regulators.
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