United States: CFPB initiative to oversee institutional loans and services – what this means for you
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What does the Consumer Financial Protection Bureau do?
On January 20, 2022, the Consumer Financial Protection Bureau reported a new front in its ongoing review of student loan origination and servicing practices in announcing an initiative to examine the lending and serving practices of the schools themselves. The CFPB previously targeted for-profit higher education institutions, but this recent announcement suggests a broader deployment of the office’s supervisory staff to review institutional lending practices at all colleges and universities. The announcement also follows the Federal Trade Commission’s issuance last fall of 70 criminal violation notices related to claims by for-profit institutions regarding graduates’ employment and earnings prospects, as noted. in this CooleyED blog post.
As part of its announcement, the CFPB helpfully unveiled the revised version Student Loan Review Procedures which will guide future reviews and announced a set of lending and service practices of particular concern. Specifically, the office identified as problematic:
- Link enrollment and transcript access restrictions to borrower arrears.
- Acceleration of loans upon withdrawal of the borrower from an educational program.
- Failure to properly issue to borrowers repayments due under these agreements when a borrower withdraws from the program.
- Institutional agreements with third party lenders that can direct borrowers to higher priced loans.
While the CFPB has flagged specific practices of concern, it noted that its assessment of institutional lending practices will take place within the broader context of its Private Student Lending and Review Service Handbook. This suggests that reviewers will look for compliance with a range of technical assembly and service requirements, potential claims of unfair, deceptive and abusive practices, and whether the institution maintains an appropriate compliance management system to oversee its loan and service functions.
What should happen next?
Post-secondary schools with significant direct lending, brokerage, and/or service businesses are likely unfamiliar with CFPB, and they should immediately begin to understand their funding operations and what to expect. This is not only about understanding the practices outlined in the CFPB press release, but also ensuring more broadly that they have a sufficient compliance framework in place to support their lending and servicing operations. Such a framework would include adequate management reporting, written policies and procedures, employee training, monitoring and testing, and operational compliance.
While Cooley’s educational practice has helped post-secondary institutions navigate a dynamic regulatory environment for more than four decades, Cooley’s new Financial Services Enforcement Group knows the CFPB intimately and has a long history of helping institutions navigate prepare for and navigate CFPB exams and surveys. Cooley is happy to discuss the CFPB initiative with individual institutions and help them prepare their operations for CFPB review.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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