February 20, 2013

The Consumer Advisory Board Meets

The Consumer Advisory Board to the CFPB is charged with identifying the “impact of emerging products, practices or services on consumers and other market participants.”¹  At the Consumer Advisory Board’s first meeting this year, Director Cordray laid out his priorities for the year ahead.²

“Auto lending is within our jurisdiction. We are examining institutions around auto lending just as we are looking at them on mortgage, credit cards, student loans.”
- CFPB Director Richard Cordray, on a conference call with credit unions as reported in Consumer Bureau Said to Warn U.S. Banks of Auto Lending Lawsuits, Bloomberg, by Dougherty, C., February 21, 2013.

Specifically, in his prepared statement Director Cordray described what he called the “four classes of problems” that the CFPB will focus on. The first was marketing -- the deceptive and misleading marketing of consumer financial products. With regards to this “problem,” Director Cordray pointed out the CFPB’s authority to enforce the prohibition of unfair, deceptive, and abusive acts or practices. The second is what Director Cordray referred to as “debt traps -- those products that trigger a cycle of debt whose substantial costs over time can disrupt the precarious balance of people’s financial lives.” Next, Director Cordray described a “problem” created by the consumer’s inability to choose the consumer’s provider for financial products or services. Along that line, Director Cordray identified a number of examples including debt collection, mortgage servicing, student loan servicing, and credit reporting. It was noted that the lack of consumer choice in this area impacts market discipline. As such, the CFPB is willing to consider rules and oversight if needed to address this “problem.” And last, Director Cordray talked about what he described as the “persistent problem” of “evil discrimination.” The CFPB intends to pursue discrimination based on disparate impact as well as intentional conduct.

February 21, 2013

Auto Lending under the CFPB’s Spotlight

It was reported in Bloomberg that the CFPB has notified at least four banks that “it may sue them over vehicle loans and interest-rate markups by auto dealers that appear discriminatory.…”³  The CFPB sent letters to these banks giving them 15 days to provide an explanation, and indicated that the CFPB believed that they had violated the Equal Credit Opportunity Act, which bars discrimination in lending.

CFPB is Gathering Information for a Student Loan Affordability Plan

The CFPB issued a press release to announce its plan to gather information to develop options for policymakers to help private student loan borrowers who are struggling. Noting the lack of alternative repayment or refinance options in this market and the $8 billion plus in defaulted private student loan balances, the CFPB explained that it wants to explore recommendations for policymakers in this area. Thus, the CFPB has released a Notice and Request for Information looking for input by April 8, 2013 on:

• The impact of student loan burdens on the economy and accessibility to mortgage credit and auto loans;
• How distressed borrowers are managing their student loan obligations;
• The type of options currently available to lower monthly payments
• Examples of alternative payment programs in other markets that may apply in the student loan context; and
• The most effective mechanisms for communicating with distressed student loan borrowers.⁴

In a related blog post,⁵  the CFPB’s Student Loan Ombudsman, Rohit Chopra, discussed the concern over the “domino effect” that student-loan debt can have on the rest of the economy and raised the question of whether young consumers will be able to buy homes and start businesses like the generation before them.

What does Student Loan Debt have to do with Teachers and Health Care?

Simultaneous with the Notice and Request for Information regarding private student loan debt, the CFPB posted two blogs related to its efforts to learn more about the impact of student debt on society. The first was a blog on the impact of student loan debt on the retention of teachers, and the second was a blog on the impact of student loan debt on the ever decreasing number of primary care practitioners.⁶

Concerning the blog on the impact of rising student debt on young teachers, Angela Peoples with the CFPB wrote about rising student loan debt, rising teacher turnover, budget cuts and the growing need for teachers especially in rural communities. The blog stated that “rising student debt is squeezing young teachers,” and went on to note that the debt may be one more deterrent to teachers serving some of the most underserved communities in rural America. To serve these underserved communities, Peoples noted that forgiveness and repayment programs may offer a path forward.

Similarly, in the blog post “Student debt and health care,” Michael Price with the CFPB discussed whether student loan debt may play a role in the shortage of primary care physicians. Price explained that student loan debt has been found to play a statistically significant determinate regarding specialty choice. It was noted that the average medical school student graduates with more than $150,000 in student loans. According to recent research, this debt may be pushing students away from rural communities where they are apt to earn less.

_{1 http://www.consumerfinance.gov/advisory-groups/}

_{2 http://www.consumerfinance.gov/speeches/prepared-remarks-by-richard-cordray-at-a-consumer-advisory-board-meeting/}

_{3 Consumer Bureau Said to Warn U.S. Banks of Auto Lending Lawsuits, Bloomberg, by Dougherty, C., February 21, 2013}

_{4 http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-takes-first-step-to-develop-student-loan-affordability-plan/}

_{5 http://www.consumerfinance.gov/blog/}

_{6 http://www.consumerfinance.gov/blog/}