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Consumer Financial Protection Bureau

SCCE Higher Education Compliance Conference

Austin, TX

June 2014

Joel S. Mayer, Esq., CCEP

I AM A RECOVERING LITIGATOR

THE OPINIONS EXPRESSED HERE ARE PERSONAL TO ME AND DO NOT NECESSARILY REFLECT THOSE OF ANY PREVIOUS, CURRENT, OR

FUTURE EMPLOYER OR, MORE IMPORTANTLY, MY CHILDREN

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1. Speed Date the CFPB (Introduction)

2. Outline Current Campus Initiatives◦ Potential Future Issues

3. Help Avoid a Student Loan Scandal Déjà Vu and Prepare for Examinations by Promoting Positive Dialogue with Regulators & Prosecutors (state/federal)

4. Relax, Engage, Entertain & Solve Problems

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� You have the right to an honest answer◦ If I don’t know, I’ll find out

� You have the right to interrupt, heckle, protest (non-violently), and disagree

�You have the absolute right to pester me for additional or more complete information after the session and after the conference

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� Consumer Financial Protection Bureau

� Established by the Dodd-Frank Act in 2010

� Commenced operations July 21, 2011

� Number One Goal:Prevent financial harm to consumers (students) while promoting good practices that benefit them

� Extremely Broad Mandate

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�Well Funded

� Fastest growing federal regulatory agency

� Still building out their investigative and enforcement staff◦ PRIMARILY FOR THEIR ENFORCEMENT DIVISION

◦ RELATIVELY INEXPERIENCED

� Extremely Aggressive

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� Banks

� Mortgage Originators & Servicers

� Credit/Debit Card CompaniesIncludes campus debit cards (meal plans/financial aid)

� Business Relationships Between Banks and Institutions of Higher Education� Includes all Financial Services Entities

� Private Student Lenders & Servicers (including PSL debt collectors)

ESSENTIALLY ANY ENTITY THAT EXTENDS OR SERVICES CREDIT (Car Dealerships, Payday Lenders)

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� FDCPA (Fair Debt Collection Practices Act)

� TILA (Truth In Lending Act)

� ECOA (Equal Credit Opportunity Act)

� FCRA (Fair Credit Reporting Act)

� GLBA (Graham Leach Bliley Act – consumer financial privacy)

19 AND COUNTING SEPARATE LAWS/REGULATIONS ALREADY UNDER THE CFPB UMBRELLA

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TO MAKE MARKETS FOR CONSUMER FINANCIAL PRODUCTS AND SERVICES WORK FOR AMERICANS –WHETHER APPLYING FOR A MORTGAGE, CHOOSING AMONG CREDIT CARDS, OR USING ANY NUMBER OF OTHER CONSUMER FINANCIAL PRODUCTS” (THIS INCLUDES PRIVATE STUDENT LOANS AND COLLEGE COST

COMPARISONS)

THE CFPB IS ESSENTIALLY BECOMING THE PRIMARY CONSUMER (BORROWER/STUDENT) WATCHDOG AND VIEWS THEIR ROLE AS

PROTECTING NAÏVE OR LESS EDUCATED CONSUMERS FROM BEING TAKEN ADVANTAGE OF BY LARGE FINANCIAL INSTUTIONS, PRIVATE

STUDENT LENDERS, CREDIT CARD COMPANIES, COLLECTIONS AGENCIES AND INSTITUTIONS OF HIGHER EDUCATION

AN IMPORTANT MISSION AND VALUABLE FUNCTION BUT THEY’RE VERY AGGRESSIVE IN THEIR APPROACH. A DISPROPORTIONATE NUMBER OF

THEIR INQUIRIES RESULT IN FORMAL INVESTIGATIONS AND ENFORCEMENT ACTIONS

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THE CFPB HAS A NUMBER OF POWERFUL TOOLS AT THEIR DISPOSAL BUT PERHAPS THE MOST IMPORTANT AND

ADAPTABLE IS KNOWN AS “UDAAP”

� UNFAIR � DECEPTIVE� ACTS and� ABUSIVE � PRACTICES

A VERY AMBIGUOUS STANDARD USED TO ANAYZE WHETHER OR NOT AN ENTITY’S MARKETING, DISCLOSURES, PROMISES OR JUST ABOUT ABOUT ANYTHING ELSE

HAS THE CAPACITY TO MISLEAD A LESS SOPHISTICATED CONSUMER (STUDENT)

DODD-FRANK EXTENDS USE OF UDAAP STANDARD TO STATE REGULATORS

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� Considered the top Legal & Compliance risk to covered entities

� Business practices – especially the content of disclaimers –are viewed from the perspective of the “least sophisticated consumer”

� Clear description of terms and fees relating to any credit/debit card, school-affiliated banking product, and student loans is critical

� Striking the correct balance between detail and simplicity is extremely difficult

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LAST YEAR THE CFPB LAUNCHED THEIR ONLINE COMPLAINT PORTAL AND THEY’RE AGGRESSIVELY SOLICITING THEM FROM

CONSUMERS/STUDENTS. THEY USE THOSE COMPLAINTS TO STUDY TRENDS, IDENTIFY AREAS FOR POSSIBLE FUTURE INITIATIVES AND

TARGET INQUIRIES, INVESTIGATIONS AND ENFORCEMENT ACTIONS. DATA COLLECTED THROUGH THE PORTAL IS PUBLICLY AVAILABLE

AMONG THE AREAS NOW COVERED BY THE PORTAL ARE:� MORTGAGES� CREDIT/DEBIT CARDS (CAMPUS DEBIT CARDS & SCHOOL-AFFILIATED BANKING PRODUCTS)� COLLECTIONS AGENCIES� PRIVATE STUDENT LOANS

MORE PRODUCTS/SERVICES WILL BE ADDED IN TIME

http://www.consumerfinance.gov/complaint/

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� CFPB examinations place great emphasis on the complaint handling process

� Upper Management Involvement (Exec/Board/Trustees/Regents)

� Must capture all complaints – not just those forwarded via the CFPB Portal◦ CFPB Portal◦ Governor’s Office Referrals◦ Legislative Referrals◦ Direct Borrower/Student Complaints (letters, e-mails, telephone)◦ Includes Co-borrowers and Cosigners

WHAT IS A COMPLAINT?

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� All complaints must be quickly investigated, responded to and resolved regardless of type and/or complexity

� Portal complaints require timely responses to the CFPB and the borrower

� Robust, clear, and consistently applied policies and procedures expected◦ THEY WILL ASK

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http://collegecost.ed.gov/shopping_sheet.pdf

http://www.consumerfinance.gov/paying-for-

college/

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� Objective is to promote transparency and allow easier comparisons as between different colleges

� Required Elements:1. Cost of Attendance (Tuition/Fees, Housing/Meals,

Books/Supplies, Transportation, “Other” costs)2. Grants & Scholarships (Federal, State, School)3. Work-Study (Federal, State, School)4. Loan Options (Federal Perkins, Direct)5. Other Money (Military Benefits, Private Student Loans, Parent

PLUS Loan, Payment Plan)

Currently in use by over 2,000 Institutions of Higher Ed

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Other required elements:

1. Graduation Rate (Percentage of full-time students who graduate within 6 years)

2. Loan Default Rate (Percentage of borrowers entering repayment and defaulting on their loan)

3. Median Borrowing (Aggregate for typical student and monthly payment on that total for a 10 year Federal loan term)

Ensure that this data is accurately reported (UDAAP?)

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� Examinations and Enforcement Actions continue to escalate and are not limited to the For-Profit sector

� Entire landscape of Higher Ed on radar – nonprofit, state affiliation irrelevant

� Complaint Portal Data used to target exams

� Extremely expensive and disruptive◦ Money

◦ Reputational Risk◦ Resources� Systems

� Staff

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� Remain at the edge of the radar by promoting:◦ RESPONSIBLE FINANCIAL CHOICES

◦ INFORMED FINANCIAL CHOICES

◦ WIDER FINANCIAL CHOICES

◦ BORROWER/STUDENT ENGAGEMENT� BEFORE , DURING, AND AFTER SCHOOL (LOAN REPAYMENT)

� MOBILE AND SOCIAL MEDIA (TCPA COMPLIANT)

� Remain vigilant in capturing, investigating & resolving complaints

� Respond consistently, transparently & fairly

� Constantly evaluate and reevaluate UDAAP risks

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� Senate Committee on Health, Education, Labor & Pensions chaired by Sen. Edward Kennedy conducted an investigation and concluded that conflicts of interest (and other factors) led to inappropriate inducements and improper business practices between participants in the student loan industry.

� In some cases those practices may have disadvantaged student borrowers.

PRE CFPB ERA

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� Gifts and occasionally lavish perks were provided by lenders to University officials (executives, financial aid office staff) in return for placement on Preferred/Recommended Lender Lists or other promotion of the lender’s products.

� Co-branding/marketing between lenders and universities.

� Lenders provided free products and services to financial aid offices.

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� Improper business practices reduced and in some instances severely limited choice resulting in higher fees on student loan products for student borrowers.

� DIRECT COMPARISON TO ANY BANKING PRODUCT

� Resulted in revised regulations through the USDE regarding permissible and impermissible business practices between lenders and Institutions of Higher Education.

� Spurred independent State Attorney General investigations (NY – Andrew Cuomo, etc…).

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� RESULTED IN THE ELIMINATION OF THE PRIVATE BANK FINANCED FFELP PROGRAM

� SEVERLY RESTRICTED SCHOOL-AFFILIATED FINANCIAL SERVICES PRODUCTS AND PLACED EMPHASIS ON MORE STRINGENT DISCLAIMER LANGUAGE CONCERNING FEES AND COSTS

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Medieval Compliance Program

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Compliance Calculus dictates that regulatory/congressional scrutiny, investigations

and enforcement actions will increase…

TAKE ADVANTAGE OF THE OPPORTUNITY

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INCREASED PRESSURES OR INCENTIVES TO INCREASE BUSINESS (ENROLMENT, GRANT OPPORTUNITIES, BANK AFFILIATIONS)

+

AGGRESSIVE REGULATORY, INVESTIGATIVE, PROSECUTORIAL, CONGRESSIONAL , AND

PUBLIC SCRUTINY

=

COMPLIANCE CHALLENGES

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Where’s the Devil?

�Not necessarily in the details (that’s where the angels are probably hiding)

� Because the initial focus of any complaint, inquiry or investigation leading to an enforcement action will be directed at the

appearance of impropriety (conflict of interest/data privacy breach), details which might otherwise prove the absence of

impropriety may become irrelevant or may be too costly to prove

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�Calculus for Regulators & Prosecutors 101:o Delay = Suspiciono Suspicion = Negative Perception

� Negative perception generates additional attention and the prospect of a wider inquiry

� Avoid negative perception by encouraging transparency and showing that you and the institution have nothing to hideo What they see through is less likely to hurt youo Primp, polish, and trim your policies & procedures now for the Best In Show ribbon.

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�Don’t confuse respect with intimidation

�Welcome them with open arms (and open books)

� Learn how they take their coffee

�Make yourself indispensible

� Show pride in your work, your integrity, your program and the work of your staff

� Beware of lawyers – be very aware of perception

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BENEFITS OF AN INQUIRY OR INVESTIGATION

� Presence of regulators, investigators and prosecutors reminds everyone of the importance of compliance efforts

� Permits compliance professionals to focus on compliance and improve programs

� Encourages investment in compliance related systems, consulting services and third party solutions

� Enhances the value of dedicated compliance professionals in the eyes of institutional leadership

� Encourages the development of valuable contacts

� Can provide a reputational boost to your institution

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