Does The Consumer Financial Protection Bureau Protect Students Borrowers?

Published September 4, 2018

“Does The Consumer Financial Protection Bureau still exist? S. Frotman accuses Mulvaney and the Trump administration of undermining the CFPB and its ability to protect student borrowers.”

Seth Frotman, the ombudsman who safeguards student borrowers against unscrupulous sources of loans has resigned. This was the front line of the Native news online report.

For the last three years, Frotman has been taking the position of the student loan ombudsman, a position that was created by the Congress in the year 2010 after a financial crisis and a program of the Consumer Protection Act that concluded from it – Wall Street Reform. While he was still the assistant director and ombudsman, his job was to oversee the Office for Students and Young Consumers in the CFPB as well as review complaints from borrowers regarding the queer practices of private lenders, debt collectors, and loan services.

When he arrived in 2011, he was appointed to be a member of the implementation team of the Treasury Department. He started his job as a senior counsel to Holly Petraeus at the Office of Servicemember Affairs. This office was instrumental when it came to the protection of service members under the Military Lending Law as well as the crackdown of retailers and lenders who were predating the service members. Holly Petraeus, who is now retired, says in NPR that it was such a privilege to work with Frotman. She also believes that Seth is a committed public servant and his motive is pure because all he wants is to rescue student borrowers.

Sixty thousand complaints have been addressed since 2011, and through comprehensive investigations and law enforcement, over $750M has been recovered and given back to the misled student borrowers. This role came front and center at Frotman’s office. He also helped students fight lawsuits against colleges and such institutions as Navient – a student loan company. 

Mick Mulvaney, the director of CFPB, testifies in a hearing of the House Appropriation Committee on Capitol Hill, Washington, DC. Mr. Mulvaney started his role in the Consumer Financial Protection Bureau as the acting director last year in November. He was appointed to run CFPF while still serving as the Office of Management and Budget director. Before he joined the Trump’s administration, he was a renowned critic of the CFPF and a South Carolina Republican congressman. At one point, he referred to the bureau as a joke in a sad manner. He argued that the bureau was acting as if it is above the law and showed no accountability to the Congress.

The federal government and poor CFPB governance are to blame

Frotman, who still represents students at the bureau, wrote a critical resignation letter to Mick Mulvaney, asserting that the prevailing governance has neglected young educated citizens and their future financial standings. He further accuses Trump’s government and Mick Mulvaney of compromising the CFPB and its potential in protecting the Native American population that needs to fund their higher education.

Serious questions have been raised in his letter with regards to the willingness of the federal government to monitor the students’ loan industry – which has reached $1.5 trillion debt – and to address the crafty loan practices so that students don’t fall victims of such tripwires. The government doesn’t seem to remember definition of a student loan. It’s like they care about the struggles that graduates face immediately after finishing college. Some of them remain jobless for a long time and that’s why they are advised to use resume cover letter service to boost their chances of getting hired.

In his letter, he states that it is unfortunate that under Mulvaney’s leadership, the CFPB has turned its back on the individuals it should be protecting as required by the Congress. Seth continues to say, “Rather, you have been using the bureau to satisfy the needs of big American financial services.” Frotman also claims in his resignation letter that CFPB leadership has suppressed a report that was conducted in his office, showing how some big banks saddle students with dubious school fees accounts.

It is clear from the last one year that Trump’s government has been sidelining the students’ loan office at the bureau. For instance, in August 2017 the Department of Education declared that it would no longer share information with the CFPB as far as the monitoring of the students’ loan is concerned. As a result of the bureau’s unaccountability, student borrowers get confused as well as the loan providers.  Frotman is convinced that part of the failure can be attributed to political pressure.

Is there a way forward?

Trump’s government is taking measures beyond CFPB to deal with the student loan industry oversight. The Education Department, in conjunction with the ministry of justice, argues that the debt collectors need protection from statutory regulations. In fact, Betsy DeVos, the Education Secretary, proposed a rule that would punish educational institutions whose graduates are struggling with meager salaries and a heavy students’ loan burden. To defend this decision, the Education Department said that it would give out performance data to the borrowers’ schools so they can determine the colleges that provide the best value.

The Consumer Financial Protection Bureau was established in 2011 by the federal government. In a bid to improve the efficiency and accountability of the bureau, a few changes were made by shifting Students and Young Consumers office to the Office of Financial Education. However, the consumer advocated insisted that such a move would only derail the authority of an office which has been overseeing the student loan industry.

During the leadership of Richard Cordray, the founding director, CFPB had adopted the most aggressive approach that any federal agency would take to monitor the student loans. Advocates such as Persis You, a National Consumer Law Center director, raised concerns that the new role at the student’s loan office would lead bad actors to create ‘open season on borrowers’.

The bureau has used the white house website changes and the consumer complaint information to highlight issues faced by student borrowers who deal with private lenders and other companies that the Department of Education hires to service student loans.

According to Christopher Peterson, a senior official in the Consumer Federation of America, it is shocking that the administration closes the only office in the US that promotes justice in student loans especially at a time when the loan industry is burgeoning at an alarming rate. This announcement was made when the CFPB’s future was unclear. Mulvaney, who was ordained by President Donald Trump, said that he would consider minimizing the regulations on those sectors that the bureau oversees. He promised to revisit the rules that prevent private lenders from preying on students. Also, he hinted that the consumer complaint database at the bureau would be eliminated.

While the CFPB is not closing the loan office technically, moving the office is a sign that the bureau will be less assertive when addressing student loan companies, according to Peterson, the former senior advisor in the CFPB’s enforcement policy and strategy department. However, the bureau was reluctant to comment on this. In the past, the agency collaborated with legal officers in matters pertaining to student loans. It also collected the complaints while forcing companies to address the issues while holding firms accountable if they engaged in lending malpractices. But for now, it focuses on simply offering information to student borrowers, said Peterson.

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