As the Coronavirus Rages, Americans Deserve More than a CFPB that Chooses to Bury its Head in the Sand
By Seth Frotman | April 6, 2020
For three years, the Consumer Financial Protection Bureau (CFPB) has failed to execute its job of protecting hundreds of millions of American consumers. The repercussions of this failure are vast, and they are painfully visible in the ongoing crisis in the student loan market and its effects on the most vulnerable consumers.
The Bureau has ceased the critical supervision of companies that manage more than a trillion dollars in student loan debt, shuttered the only office in the federal government dedicated to protecting student loan borrowers from predatory players, and walked away from an effort to ensure that all student loan borrowers have similar protections to borrowers with a mortgage or credit card.
Now, with almost 10 million Americans newly out of work and even more economic disruption on the horizon, all Americans are suddenly exposed to the risk of an unexpected financial shock. Within the $1.6 trillion dollar student loan market, millions of private student loan borrowers find themselves particularly at risk, and many are already likely on the brink of financial ruin.
Just last week, Time Magazine documented the precarious position millions of borrowers in the private student loan market faced even before this crisis arrived. Now, after the most recent stimulus bill wholly overlooked these borrowers, their situation has become even more dire. Borrowers have been left with little more than promises from companies that have a troubling track record of ripping off those very same borrowers.
Indeed, for nearly a decade, regulators and advocates have documented the failures of the private student loan industry to provide appropriate relief to student loan borrowers in need. For example, the CFPB recently reported that 90 percent of complaints from private student loan borrowers concerned struggles to afford their payments or poor customer service from lenders and servicers. But if that was a problem then, it could now become a calamity.
While Congress and state legislatures must do more to help private student loan borrowers, there are steps that the Bureau can and must take right now to ensure these borrowers can access promised relief.
In 2017, the CFPB was on the cusp of finalizing the nation’s first market monitoring exercise to track the private student loan market. This effort would have allowed the Bureau and the public to better understand how borrowers were fairing in repayment, how many were falling behind, and — perhaps most importantly given the current crisis — whether borrowers in financial distress were actually getting help when they sought it.
But after pushback from industry, the Trump Administration blocked this effort and the Administration’s chosen CFPB Director, Kathleen Kraninger, walked away without a fight. In light of the ongoing coronavirus, this is unacceptable. Instead, it is time for the Bureau to wake up to its role as the nation’s top consumer watchdog.
Today, the Student Borrower Protection Center published Private Student Loan Oversight amid the Coronavirus Pandemic — Critical Data and the Nation’s Top Consumer Watchdog are Missing, an issue brief outlining the gaps in knowledge of the private student loan market, the harms those gaps induce, and the specific steps that the CFPB needs to take to address them.
This builds on work from former CFPB Director Richard Cordray, who published a white paper this morning setting forth a broad slate of actions for the CFPB to take in response to the coronavirus crisis.
As the brief outlines, the Bureau should quickly revise the 2017 data request to include fields related to companies’ success in implementing promised payment relief programs, immediately finalize an actionable data collection plan, and commit to monthly public updates to the information it receives. New, coronavirus-specific data fields should include:
- Call times for borrowers trying to contact their student loan company;
- Processing times for borrowers waiting for an approval or denial after applying to a relief program;
- The number of applicants who are approved or denied for short-term relief programs; and;
- The number of applicants who are approved or denied for a permanent loan modification.
This data will finally allow policymakers, law enforcement, and regulators to have the tools they need to protect borrowers — ensuring recent promises of relief are implemented in a manner consistent with federal consumer financial law and not simply a PR stunt.
Millions of consumers also currently face economic challenges stemming from the pandemic that extend far beyond the student loan market. The Bureau must broadly deploy its market monitoring authority as it responds to the pandemic, using this tool to oversee the fallout from the pandemic across the marketplace for consumer financial products and services. For example, it should also be actively tracking and publishing data on mortgage foreclosures, dubious auto lending and collection practices, and continued predatory tactics by debt collectors.
However, instead of protecting American consumers, the Bureau has continued to create blindspots in its visibility into a rapidly changing marketplace precisely when hundreds of millions of Americans are most at risk. For example, the CFPB recently announced that it would postpone the exercise of key transparency measures across consumer financial markets for the remainder of the coronavirus crisis, citing the desire to provide companies “flexibility.” Such action is simply unacceptable.
If the Bureau is not willing to do its job by collecting and publishing basic information about the student loan market, Congress should promptly step in to provide this oversight directly. Building on the framework proposed by the Bureau in 2017, Congress could compel industry to regularly produce and disclose to the public key metrics related to the practices that will determine financial success or failure for millions of people.
The CFPB was born out of the last financial crisis — one driven by a toxic mix of rampant illegal practices and regulators both woefully unprepared and ill-equipped to address it. It was designed specifically to combat the regulatory capture and administrative lethargy that had plagued previous oversight bodies, and to act as a tireless watchdog on behalf of American consumers. The current leadership of the Bureau has broken that promise. As it continues to rail against any modicum of accountability from industry, this Administration has laid bare its determination to restore the old order of indifference and half-hearted measures. If the last three years have shown us anything, it is that industry’s worst actors have heard that message loud and clear. With the coronavirus raging, Americans cannot afford for that to remain the case.
Seth Frotman is the Executive Director of the Student Borrower Protection Center. He previously served as Assistant Director and Student Loan Ombudsman at the Consumer Financial Protection Bureau, where he led a government-wide effort to crack down on abuses by the student loan industry and protect borrowers.