Spotlight on Student Lending (Part 2 of 2): Lessons Learned from CFPB Reports

In 2012 and 2013, the Consumer Financial Protection Bureau released several major reports and held field hearings focused on private student lending and servicing. In addition to recent CFPB activity, on June 25, 2013, the Senate Banking Committee held a hearing regarding private student loans at which, among other witnesses, the CFPB’s Student Loan Ombudsman Rohit Chopra testified.

The largest CFPB report, and the one most sweeping in scope, was the Bureau’s study of the private student loan market and characteristics of private student loans that was mandated by Dodd-Frank and issued in July 2012 (Private Student Loans Report). In addition, in October 2012, the Student Loan Ombudsman issued his Annual Report in which, among other things, he characterized the nature of the student loan complaints received through the CFPB’s student loan complaint portal up to that point (Annual Report of the Student Loan Ombudsman). Further, on May 8, 2013, the CFPB issued another report and held a field hearing focused on what it described as the “potential domino effect” of student loan debt on the broader economy and proposing several options to assist private student loan borrowers. Finally, testimony at the above-referenced Senate Banking Committee hearing focused largely on how to increase the low refinancing and modification activity in the private student loan (PSL) market.  Read more…

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Spotlight on Student Lending (Part 1 of 2): Facing Increased Regulatory Scrutiny, Student Loan Lenders Prepare for CFPB Examinations

Currently, total outstanding student debt (both federal loans and private loans) has risen to roughly $1.1 trillion dollars. That figure represents an over 50% increase since 2008 and makes student loans the largest source of unsecured consumer debt – surpassing credit cards. At the same time, at least with respect to federal student loans, delinquencies have risen sharply during the same time period and, with unemployment rates for recent graduates still high by historic standards, the risk of continued high delinquency rates remains significant. Complicating matters is that student loan servicers, and servicers of private student loans in particular, have limited ability vis-à-vis a mortgage lender to modify those loans for borrowers in default.

Not surprisingly, given this backdrop, borrowers have lodged complaints with the Consumer Financial Protection Bureau (CFPB or Bureau) focused on their inability to obtain loan modifications, concerns about improper payment processing, and concerns about servicers’ debt collection practices. All of these factors have prompted the Bureau to draw comparisons to the recent mortgage servicing crisis and to increase focus and attention on the student lending and servicing industry in an effort to stave off a problem of those proportions. Read more…

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Spotlight: Q&A with BuckleySandler’s Benjamin K. Olson, Former Senior CFPB Regulations Official

Consumer Finance Attorney Ben OlsonOn May 28, 2013, Benjamin K. Olson, former Deputy Assistant Director for the Office of Regulations at the Consumer Financial Protection Bureau (CFPB), joined BuckleySandler LLP as Counsel in the firm’s Washington, DC office. A recognized expert in the field of consumer financial protection regulation, Ben brings his valuable insights and broad experience on regulatory matters based on his experience at the CFPB, the Board of Governors of the Federal Reserve System (FRB), and the Federal Trade Commission (FTC). As he makes the transition to private practice, he’s excited about what lies ahead and has fond memories of his past eight years in government service. He shares some added professional and personal insights in this week’s InfoBytes Spotlight.

InfoBytes: Why did you decide to join BuckleySandler?

Benjamin K. Olson: For a number of reasons, BuckleySandler was a natural fit and, at the end of the day, an easy choice.  First, it’s a leading firm in the financial services field with a talented and experienced team already in place.  I know all too well from my experience in government that the range of issues financial institutions face are far too complex for any one person to handle alone.  For that reason, it was important to me to join a group whose expertise could compliment my own. Read more…

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Spotlight on the SCRA (Part 3 of 3): Federal vs. State

SCRA Attorney Kirk JensenThus far SCRA enforcement activity has focused on the federal act, leaving the states overlooked. “Most states have an SCRA equivalent,” explains Kirk Jensen, Partner in BuckleySandler’s Washington, DC office. “One of the biggest differences is the populations they protect.”

State SCRA equivalents are designed to protect state guard members acting on behalf of the state; for example, when the state guard is called upon in the situation of Katrina, the wildfires, or the flooding in the Midwest. In each of the situations, the state’s SCRA equivalent would provide protections to servicemembers. Read more…

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Spotlight on the SCRA (Part 2 of 3): Ensuring Compliance

SCRA Attorney Kirk JensenRecent enforcement activity has demonstrated the agencies have taken to viewing the SCRA as a strict liability statute. This shift in interpretation makes financial institutions legally responsible for compliance with the SCRA. According to Kirk Jensen, Partner in BuckleySandler’s Washington, DC office, “this is a big game changer in how financial institutions react to the SCRA.”

The Department of Justice has had some success in bringing litigation in these matters against the smaller, unsophisticated companies. However, it is important to note that the court is not hearing all the relevant arguments. There has been an uptick in private litigation and some of the issues raised in the enforcement matters may also be raised in court. It is our hope that the defendants will make the relevant arguments to resolve some of the outstanding issues. Read more…

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Spotlight on the SCRA (Part 1 of 3): Increased Enforcement Activity

SCRA Attorney Kirk JensenThe Servicemembers Civil Relief Act (SCRA) is designed to provide protection for military members as they enter active duty. The Act has origins dating back to the Civil War, but was first solidified in 1940 with the passage of the Soldiers and Sailors Civil Relief Act (SSCRA). In 2003, the SSCRA underwent modernizations, but the intent and language remained intact, to become what is known today as the SCRA.

Following the 2009 financial crisis and the rising number of foreclosures, reports began surfacing about banks and other financial institutions violating the SCRA. The Department of Justice began actively pursuing actions against institutions with the Office of the Comptroller of the Currency becoming involved later. Read more…

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Spotlight on Anti-Money Laundering (Part 3 of 3): SAR Reporting for RMLOs

AML Attorney Howard EisenhardtFor the first time, all non-bank residential mortgage lenders and originators (RMLOs) are required to file mandatory and voluntary Suspicious Activity Reports (SARs) with the government through the e-filing system established by FinCEN. Similar to the establishment of an AML program, compliance for this regulation is August 13, 2012.

A company may file a voluntary report with FinCEN to alert them of any suspicious transaction they have reason to believe is a possible violation of any law or regulation, without any de minimus amount. A company must file a SAR once they have become aware of a transaction that:

  • Is conducted or attempted by, at, or through a RMLO
  • Involves or aggregates funds or assets of at least $5,000
  • The RMLO knows, suspects, or has reason to suspect that the transaction or pattern of transactions:
    • Involves funds derived from illegal activity or conducted to hide funds or assets derived from illegal activity
    • Is designed to evade BSA requirements
    • Has no business or apparent lawful purpose, i.e., “doesn’t look right”
    • Involves the use of the company to facilitate criminal activity

Read more…

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Spotlight on Anti-Money Laundering (Part 2 of 3): Establishing an AML Compliance Program at a Non-Bank Residential Mortgage Lenders and Originators

Auto Finance Attorney John Redding

As reported in Part 1 of this series, all non-bank residential mortgage lenders and originators (RMLOs) have until August 13, 2012 to establish an Anti-Money Laundering (AML) program as part of the new rule.

Howard Eisenhardt, Counsel in BuckleySandler’s Washington, DC office, cautions against simply attempting to use a bank model AML template. “Bank models are focused on cash, account monitoring, and include many things that are not part of the business model of an RMLO. In addition, there are many things peculiar to an RMLO that would not be present in the traditional depository AML program.  While some parts may be the same, the RMLO AML Program is not a ‘one size fits all.’ The bank model is like the proverbial square peg, the RMLO model is more like a round hole, and the two just don’t fit together,” explains Eisenhardt.

Read more…

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Spotlight on Anti-Money Laundering (Part 1): New Regulatory Path Ahead for Non-Bank Residential Mortgage Lenders and Originators

Auto Finance Attorney John Redding

Ongoing concern among regulators, law enforcement, and Congress over abusive and fraudulent sales and financing practices in both the primary and secondary residential mortgage markets prompted the Financial Crimes Enforcement Network (FinCEN) to finalize a rulemaking process concerning regulation of non-bank residential mortgage lenders and originators (RMLOs) that started in 2003.

The Advance Notice of Proposed Rulemaking (ANPRM) issued by FinCEN in 2009 and the Notice of Proposed Rulemaking issued in 2010 were follow-ups to the 2003 APNR and resulted in the Final Rule being issued in 2012.  The Final Rule requires RMLOs – mostly non-bank mortgage lenders – to establish an Anti-Money Laundering (AML) program and to file Suspicious Activity Reports (SARs) as required by the Bank Secrecy Act (BSA).

Read more…

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Spotlight on Auto Finance (Part 3 of 3): Expanded Coverage for Vehicle and Consumer Loans

Auto Finance Attorney John ReddingConsumers have a larger platform to submit complaints against vehicle and consumer finance companies directly to regulators. The CFPB has set up an online database that allows the CFPB to receive consumers’ complaints against their lenders and take action or transfer those complaints to another, appropriate regulator.

“We are advising our clients to be aware of this increased focus on individual complaints,” says John Redding, Counsel in BuckleySandler‘s Southern California office. “Because of this new database, companies need to be aware of their customer service response times and make each customer complaint a top priority.”

He suggests:

  1. Provide prompt responses to consumer complaints
  2. Work with consumers to resolve issues before they become complaints to the CFPB or other regulatory agencies
  3. Monitor social media outlets, but don’t overreact to comments or complaints and use care when considering any type of response

“Companies need to recognize that consumers have been given a new outlet that they have not had before,” says Redding. “Consumers now have a greater voice with the regulatory agencies and, as a result, lenders have to be aware of all issues raised by their customers.”

Regulators have made it clear that  they are closely reviewing  consumer complaints and that they are likely to have a  strong impact on regulatory actions.

“The CFPB is likely to focus on standards, like fairness and risk to consumers, as well as specific rules” says Redding. “The regulators are looking to address practices that may cause harm to consumers.”

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Spotlight on Auto Finance (Part 2 of 3): New Database to Combat Fraud Against Military and Veterans

Auto Finance Attorney John ReddingThe federal government is increasing scrutiny of financial services companies’ practices affecting active military members, veterans and their families. Earlier this year, the CFPB along with the FTC, the Department of Defense and the New York Attorney General announced the launch of the Repeat Offenders Against Military (ROAM) database, which will track enforcement actions against companies and individuals who repeatedly scam military personnel, veterans and their families.

According to John Redding, Counsel in BuckleySandler’s Southern California office, this new effort is an important development that the financial services industry needs to be aware of. He says the firm has been advising clients on how to refine their policies and procedures for doing business with servicemembers and their families.

“We are suggesting they be aware of the increased focus on SCRA [Servicemembers Civil Relief Act] issues and, in part because of the new database and other efforts surrounding increased protections, need to review their practices to ensure continued compliance.”

According to the CFPB, law enforcement officials across the country, including state attorneys general, US attorneys, and judge advocates from all five branches of the armed forces, will be able to search the ROAM database for information about completed civil and criminal actions against businesses that have scammed military personnel, veterans, and their families.

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Spotlight on Auto Finance (Part One of Three): A New Road for Auto Finance Companies

Auto Finance Attorney John Redding

Traditionally, non-bank lenders looked to the states and the FTC for industry regulations. But, this has changed with the introduction of the CFPB. Recent reports show that the federal government is stepping up efforts to regulate and review auto finance companies, many of whom have never been subject to bank-style examinations.

“The CFPB has created a new layer of regulation,” according to John Redding, Counsel in the Southern California office of BuckleySandler. “Auto lenders have to be alert and aware of their fair and responsible lending risks.”

Redding says one of the ways to minimize these risks is to be proactive when reviewing a company’s policies, procedures, discretionary underwriting and pricing practices.  The CFPB is likely to conduct statistical reviews for loans that the company has made or purchased to ensure there is no unexplained or improper disparity between protected and non-protected classes , so companies should consider performing such analyses in advance of the regulator conducting such an analysis.

“This will help mitigate risks for the companies by identifying areas that may present risk and allowing them to proactively take steps to modify policies and practices. When the regulators are conducting an exam, companies will have to explain why the business is conducted as it is, including steps taken to ensure fair and responsible lending to all consumers, regardless of status, and address any issues that may arise,” says Redding.

The bottom line: Recognize that there are new regulators and more scrutiny on the industry and begin taking steps to perform these important reviews now.

Redding suggests the following steps auto finance companies can take to prepare for the CFPB:

  • Evaluate the institution’s risk profile and prepare an operations and compliance strategy
  • Update policies and procedures (review CFPB exam guidelines)
  • Monitor, address, and retain records regarding consumer complaints
  • Monitor third-party sources of complaints
  • Appoint an ombudsman
  • Conduct internal audits
  • Consider patterns and practices that emerge regarding operations
  • Focus on areas that may lead to consumer harm, as well as technical violations
  • Include the compliance team to monitor, analyze and advise on specific proposals
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